The Return of the Outsourced JobBy
Ohio Governor Ted Strickland is quick to admit that he doesn't "particularly enjoy heights." So why would he climb into a cherry picker to be lifted 40 feet in the air?
To show off a 196,000-square-foot office park in the Cincinnati suburb of Milford to executives from Tata Consultancy Services, India's biggest tech company and a thriving part of the Tata Group conglomerate.
To sweeten the deal, Strickland threw in $19 million in tax credits and invited the TCS crew to a state dinner at the governor's mansion. "The economy is difficult," Strickland says. "I will go wherever I can to find jobs."
TCS said yes, and in November Strickland showed up at the sprawling wooded campus for a ceremony to mark the hiring of the 300th employee at what has become the cornerstone for TCS's North American efforts. Tata has hired some 250 graduates of Ohio State University, the University of Cincinnati, and other nearby schools. Soon the facility may employ as many as 1,000 Americans doing back-office and technology outsourcing for U.S. health-care companies and local governments.
With the economy growing again—but unemployment stuck at double-digit levels—states and municipalities across the U.S. are scrambling to woo anyone with hiring plans—even if that means going, hat in hand, to the same bunch that have been responsible for hundreds of thousands of jobs going overseas.
local talent offers advantagesDallas, Atlanta, Minneapolis, and Tallahassee have all been actively courting Indian tech outfits. Wipro Technologies (WIT) in March inaugurated a center in Atlanta, which now has 350 employees—nearly 300 of them Americans, including senior managers recruited from U.S. tech rivals. Infosys Technologies (INFY), meanwhile, is planning an operation in Dallas to target some of the $52 billion the U.S. government will spend on outsourcing work in 2010.
For Indian companies, U.S. facilities can mean more work on government and health-care projects—areas where laws prevent the transfer of data overseas. An on-the-ground strategy gives them access to local workers who can better understand cultural nuances. And it lets them better compete against U.S. rivals IBM (IBM) and Accenture (ACN), which tend to win lucrative consulting contracts that hinge on solving complicated business problems on-site, rather than simply writing computer code for cheap wages in India.
"We need to become more efficient, more sophisticated," says Sambuddha Deb, a Wipro vice-president who makes sure the company's India-based and foreign employees work seamlessly together. "It's not just about setting up software factories" in India.
Some critics say that the new centers offer little more than political cover and do little to boost employment in the U.S. "One reason they are doing this is for public relations," says Ron Hira, an expert on offshoring at Rochester Institute of Technology. "They want to send the message, 'We're creating jobs for Americans.'"
Congress to limit temporary visas?It's true that the jobs Indian companies have created in the U.S. are a rounding error compared with their overall workforce. Even as it hired a few hundred U.S. employees in 2009, TCS took on tens of thousands of newbies in India. And TCS has more than 11,000 Indians working in the U.S. on temporary visas, while Wipro has 7,000.
That could change if a Senate bill introduced in April makes it through Congress. The measure would bar companies with more than 50 U.S.-based employees from using temporary visas for more than half their U.S. workforce, effectively forcing Indian IT companies to hire more Americans.
A further concern for Indian companies is that hiring Americans is far more expensive than shipping work off to India. TCS staffers in Milford, for instance, earn more than $50,000 per year, vs. the $7,000 to $8,000 that Indians doing similar work make in Bangalore.
"Offshore outsourcers' wonderful profitability has largely been on the back of labor arbitrage,"" says Peter Bendor-Samuel, CEO of Everest Group, a Dallas consulting firm that advises companies on outsourcing strategies. "Those profits surely would take a hit if the Indian companies start hiring more Americans."
Time zone proximity preferredTCS already had to delay opening the Ohio center for almost six months during the recession in the U.S. Wipro says its Atlanta operation isn't yet profitable. Both say American facilities are unlikely to create huge numbers of new jobs in the U.S. soon. For several years, at least, the vast majority of work will continue to be done in India and other low-cost countries, according to Surya Kant, North America president for TCS.
"But many [clients] want work to be done in the same time zone, and we want to be closer to our customers," Kant says. "Increasingly, we will move that work to centers like Cincinnati."
For Strickland and other officials in places where jobs have disappeared as carmakers go bust and steel production moves overseas, the new jobs—and the taxes they generate—are rare good news.
"I certainly don't see it as consorting with the enemy," says Strickland, who ended up sharing a table with Tata Group Chairman Ratan Tata and India's Commerce Minister Anand Sharma at the Nov. 25 White House state dinner for Indian Prime Minister Manmohan Singh. "These are good, solid jobs," adds the governor. "Jobs that we feel will be long-term and that we hope will increase in numbers."
Tata is one of several outside contractors that gather and supply data distributed through the Bloomberg Professional Service.