By Bruce Einhorn With the U.S. Presidential election less than a year away, Americans have more than Iraq on their minds. The economy and unemployment remain important campaign issues. Even as many economic indicators improve, the jobs picture remains relatively bleak. A favorite topic among politicians and pundits alike is the jobs that U.S. companies have outsourced to lower-cost locales such as India and China.
President George W. Bush and the field of Democratic Presidential hopefuls all pledge to stem the migration, and Congress recently reduced the number of H1(b) visas, which allow foreigners to work in the U.S. In the 2003 fiscal year, which ended in September, the U.S. issued some 195,000 H1(b) visas. In the new fiscal year, the number has been cut to 65,000.
So is S. Ramadorai worried? Not a bit. The chief executive officer of Tata Consultancy Services (TCS), India's largest information-technology services company, isn't impressed by political rhetoric or posturing. The economics of "offshoring" are just too powerful for businesses to ignore, he says. Privately held TCS is among the top tier of Indian software and services outfits, along with Infosys Technologies (INFY) and Wipro (WIT). Indeed, it claims to be the first of India's Big Three to top $1 billion in revenue.
I recently spoke with Ramadorai about outsourcing, the China challenge, and the competition TCS is facing at home. Edited excerpts of our conversation follow:
Q: What do you make of the new visa rules and the backlash against outsourcing to Indian IT companies?
A: Companies will work out new business models and push [even] more work offshore. Using creative channels, the work will find its way to the place where it can be done [cost-effectively.]
Q: You have no concerns that it will be harder for a TCS client to bring a TCS engineer to the U.S. from India?
A: The customer will simply send the project to India. This will encourage [job] emigration.
Q: Unlike your two biggest Indian rivals, TCS is privately held. There are rumors of an initial public offering.
A: I have no comment, other than to say that we're planning for an IPO. But so far, no decision has been made on timing.
Q: Even as U.S. politicians talk about preventing jobs from moving offshore, American companies like Accenture (ACN), IBM Global Services (IBM), and EDS (EDS) are now expanding into India. Their goal is to have the same sort of low-cost Indian base as TCS, Infosys, and Wipro. Are you concerned?
A: Going from 500 people to 5,000 people is a very difficult exercise. It's not just a matter of simply hiring [thousands of] people and then saying: "I have an offshore center." Building on the ground from scratch is a lot more complex.
Q: Of all the major Indian IT companies, TCS is making the biggest move into China. You opened your first development center in the eastern city of Hangzhou 18 months ago. Can China build a software and IT services industry that can someday equal India's?
A: When you come out of an IIT [Indian Institute of Technology,] you're already the cr?e de la cr?e -- you already have an enormous amount of capability. [The Chinese engineers] are more like graduates from India's second-tier schools. They need extra coaching and training.
Q: Do you see Chinese and Indian IT companies competing for the same business?
A: No. The biggest demand for services [in China] will be domestic. There's an enormous demand that will far outstrip what they can do outside. The India model -- we saw looking outward as our only way of survival. Einhorn covers technology from Hong Kong for BusinessWeek. Follow his weekly Online Asia column, only on BusinessWeek Online