Corporate America's Silent Partner: India

[ancient_paztriot]

DECEMBER 15, 2003  

 

COMMENTARY

By Pete Engardio

 

Corporate America's Silent Partner: India

Businesses are off-shoring more and more white-collar jobs there, though you won't hear them talk about it much in an election year

 

The shift of skilled work to India is becoming one of Corporate America's worst-kept secrets. Almost daily, India's newspapers carry items on new plans by U.S. software, finance, or pharmaceutical companies to open or expand call centers and research labs. Officials from Bombay to Bangalore point to splashy new office parks that are soon to house major facilities by companies like Morgan Stanley ( MWD ), General Motors ( GM ), or Dell ( DELL ). Tour a busy call center run by an Indian outsourcing specialist at midnight, and you'll likely see hundreds of staffers fielding calls for clients like American Express ( AXP ), MetLife ( MET ), J.P. Morgan Chase, or Citigroup ( C).

 

 

Yet it's still very hard to get these companies to talk in the U.S. about the increasingly important role India is playing in their business models. For BusinessWeek 's Dec. 8 cover story, "The Rise of India," only a few BW 1,000 corporations were brave enough to grant on-the-record interviews about their R&D and back-office operations. They included General Electric ( GE ), Intel ( INTC ), and Cummins ( CMI ).

 

A number of small software, chip-design, and e-commerce startups, for whom the ability to tap global brainpower is regarded as a competitive edge, also cooperated. But dozens of America's biggest investors in India -- don't worry, I won't name names -- simply refused to talk.

 

SPEAKING UP.   Few topics are as radioactive as offshore outsourcing. In the current political climate, politicians, pundits, and angry laid-off workers are hunting for scapegoats for America's largely jobless recovery. You can't find better targets than China and India, both of whom undeniably are gaining from the sweeping restructuring of American technology, financial services, and telecom companies. Companies from AT&T Wireless ( AWE ) to Bank of America ( BAC ) are issuing pink slips at home while staffing up in Delhi, Bombay, and Hyderabad.

 

Corporate America won't be able to stay silent forever, though. Globalization of white-collar work is an irreversible mega-trend that's only starting to hit full force. The massive facilities being built in India under the radar screen will soon be blindingly obvious. More important, the economic payoff of off-shoring business processes and a portion of R&D can be so enormous that even reluctant corporations will have little choice but to follow suit to stay competitive. If a major info-tech, insurance, telecom, or banking company doesn't disclose any back-office center in India, Wall Street will soon start asking, "Why not?"

 

Why am I so sure? Partly because of what has happened in electronics manufacturing over the past decade. From 1990 through 1996, I covered East Asia from Hong Kong. When I first visited Taiwan in the early 1990s, all of the computer makers there were manufacturing, and in some cases designing, desktop and notebook PCs for U.S. giants like Gateway ( GTW ), Dell, IBM ( IBM ), and Compaq, as well as many Japanese clients.

 

"GLOBAL VALUE CHAIN."   This was all supposed to be a big secret, and when asked, few U.S. companies would acknowledge that any of their PCs were made in Taiwan. When I returned to the U.S. in 1997, only a few tech companies, such as Cisco ( CSCO ), Palm ( PALM ), and Hewlett-Packard ( HPQ ), openly outsourced production of equipment to big U.S. contract manufacturers like Solectron ( SLR ), Flextronics ( FLEX ), Celestica ( CLS ), and SCI, while most other tech companies remained hush-hush.

 

By the end of the '90s, though, outsourcing had become the accepted model in electronics manufacturing. Wall Street assigned much higher stock values to companies that outsourced, and they had far healthier returns on capital. Companies that were slow to sell off their own factories, such as Motorola ( MOT ) and Lucent ( LU ), were heavily criticized.

 

In fact, companies began to tout their strategies for building a "global value chain" by joining forces with manufacturing and design "partners." And when it came to Silicon Valley, venture capitalists simply wouldn't back a new telecom-equipment company, say, if it planned to build its own factories.

 

LOBBYING CONGRESS.   I suspect companies will be more open about white-collar off-shoring not long after next year's U.S. Presidential election. By then, foment in Washington for protectionist policies will likely abate. If, on the other hand, the economy falters and the political backlash intensifies beyond 2004, Congress might introduce legislation to curtail off-shoring.

 

Then Corporate America would have another reason to step forward. CEOs will become more vocal in lobbying Congress -- much as companies like Boeing ( BA ) have carried the water for China on Capitol Hill every time Washington considers restricting trade.

 

Wall Street also will ratchet up the pressure as analysts zero in on the differences in cost structure between companies that successfully use offshore skilled workers and those that don't. Already, investors are asking pointed questions.

 

JUST ANOTHER COST.   Rajiv Chaudhri, manager of New York-based hedge fund Digital Century Technology, tracks some 100 public companies. He says India is becoming a constant new theme in quarterly conference calls between investors and executives, whether they're from investment banks, insurance companies, or even consumer-product companies.

 

"Everyone is facing the same problem -- revenue growth has slowed, and they have to reduce costs," says Chahri. "So increasingly, they're being asked to articulate their plans to move some development and back office to India."

 

By communicating to investors about their India plans, companies could show they're at the forefront of the trend rather than laggards. In a few years, off-shoring "is going to be a cost of doing business," says McKinsey Global Institute Director Diana Ferrell. "The biggest cost savings will come to companies that get the formula right early. Companies that are late will get hurt."

 

PERMANENT SHORTAGE?   True, corporations likely won't feel comfortable about openly talking about their offshore activities until job growth returns to the U.S. In the late '90s, few alarms were raised about the heavy influx of immigrant IT workers because the software industry was desperate for skilled employees. And in the long run, most demographers predict that the U.S. will again face labor shortages, especially as baby boomers start retiring.

 

It remains to be seen whether the current U.S. recovery can quickly generate the kind of job growth to make the current offshore shift to India a nonissue. But sooner or later, India will cease being Corporate America's dirty little secret and instead will be hailed as a valuable strategic ally.

[Guest guest]

 

i noticed this a while back,my dsl service is sbc,

whenever i needed to call up their online support 75%

of the time i would be speaking to an obviously indian

voice.

 

[theist]

also.

[ancient_paztriot]

Can anyone make any comparisons in wage earnings or conditions between the Americans and Indians over similar jobs?

 

My wife said they work 'em so hard there many of the Indians practically live at the workplace.

 

Can anyone substantiate this?

[Guest guest]

thats the whole point, indian cost of living is 1/10th

of american,a dollar has ten times more buying power

in india,what costs 10 dollars in america costs

1 dollar in india(not accurate percentage,maybe more

like 20 to 1 or less depending on commodity).

 

so the whole point is that the same job will cost

less to have done in india,they are payed 1/10th

what the same job would be in america,and as a bonus

the indian regulations are not as strict as american,

so america is seen as an expensive place to have

business done compared to india.

 

[ancient_paztriot]

My wife works for an Indian employer here. They are also based in India. Here's what I found out from her talking to someone who goes back and forth between America and India.

 

There are lots of people with degrees in India. Very good colleges. A good wage there for many of the graduates is around $10/hr. But as Shiva has said, the cost of living is cheap.

 

12 to 14 hour days are not uncommon. Many people are hired as temps and do not enjoy benefits, etc. They cycle through temp jobs fast and begin again.

[Guest guest]

tech supports are centered in india

cendant one of the biggest hotel coporations had their tech/network control in india about a year and half ago.

i liked it whenever i needed help, there was always someone who knoew what they were doing- they were not just guessing!

 

[Gauracandra]

Right now China seems to be getting the bulk of the low end manufacturing jobs. This means lots of capital is flowing into China to build factories and their economy is booming. But India has a distinct advantage over all other countries in the world. It has a large population, thus less expensive labor. But it is also an English speaking country, something China won't probably ever be able to accomplish. This is a huge advantage for India in software and support.