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Corporate America Cuts Costs by Exporting IT Jobs to India - 2003-10-06

Six years ago when Mike Emmons joined a high tech firm in Florida to develop web application systems, he thought he had a secure job. Mike, a 20-year veteran in the information technology or IT industry, felt he alone knew where some pieces of the puzzle fit. But that changed in April 2002, when his firm brought in employees from Tata Consultancy Services, India’s largest software company. Mike trained three of his new Indian colleagues and by the end of 2002, his employer shifted many of its projects to India and Mike was laid off.

Since then Mike has found a new job, one that came with a $35,000 pay cut, so he works side jobs to support his eight-year-old handicapped daughter. “I’m one of the very lucky few,” he says. “One guy is doing landscaping, another guy is still unemployed, lots of them are still unemployed. I work 12-15 hours a day, everyday to try to create other revenue. Today we are doing a modeling gig with my daughter, she’s in a wheelchair and they like to do modeling shots of her so we’re doing that and I have side projects that I do. It’s not easy.”

Mike is one of thousands of workers in the United States, who are feeling the brunt of outsourcing -- where major U.S. corporations, including giants such as Microsoft, IBM and Citibank are transferring work, such as telemarketing and computer programming, offshore to countries that offer cheaper labor. With half-a-million IT workers already laid off, some employees say the transfer of more jobs overseas could not have come at a worse time.

Deloitte Research, a U.S.-based consulting firm, estimates that U.S. companies will transfer more than two million jobs overseas in the next decade. Managers say this will not only cut costs by 25 to 40 % but is necessary for companies to remain competitive in the global market.

Replaced workers are not buying that argument. Tod Tollefson, a member of the Communications Workers of America, a labor union, says this is simply about making more money. “They want to make more profit,” he says. “They saw that manufacturing Nike shoes went from Oregon to Indonesia and the price of the shoe didn’t fall, so obviously their profit sky rocketed. And they see the same thing can happen with them. It’s not so much about being competitive but it’s a trend. If they are making more profit this way, so if we need to make our stock holders happy we need to make lots of profit too.”

The cost savings are difficult for companies to ignore, which is why today industries such as telecommunications, insurance, airlines and automotive have embraced outsourcing on a large scale. Deloitte Research estimates that in the next five years the world’s top 100 financial service companies will save $138 billion by using offshore labor. Chris Gentle, Research Director at Deloitte, says this means more jobs may be on the line. “All those companies have jobs and processes that there is no reason why they cannot be done elsewhere in the world,” he says. “It doesn’t matter what level you are at at the company or which sector you are in, it’s possible that your job can be done elsewhere in the world.”

Bhaskar Pant is Managing Director of World Learning for Business, which specializes in cross-cultural training. The firm lately has been helping U.S. companies that have outsourced jobs to India avoid cultural clashes between their domestic and foreign workers. Mr. Pant says U.S. managers must prepare their employees to adapt to a changing market environment.

“I think a lot of managers are not doing a good enough job of preparing their work force to anticipate what is going to happen,” he says, “which is undoubtedly some change but that does not mean a layoff. What it means probably is re-engineering of certain jobs, inevitably some would have to be laid off, but this is where their managers have to be up front about what is really going to happen at the end of the day. So that those who are going to be retained or promoted or going to have a different kind of job in supporting those professionals in India feel motivated to continue their jobs and support the Indian operations.”

Robin Athey, a researcher with Deloitte, is studying the effects of outsourcing on American employees. She says job loss due to outsourcing saps the energy and morale from workplaces and hurts organizations in the long run. “Creativity in an organization requires a lot of energy,” she says, “and it requires engaged committed people. When we don’t pay attention to the people who are left behind this makes the organization less conditioned for growth. I think in the long run we may be saving costs by reaching out to workers in India, but we may not be getting the long term growth that we expect by chasing after these costs.”

While U.S. companies and workers are coping with a new market reality, halfway across the world, India with its educated English-speaking workforce, is fast adjusting to its new status as the world’s most attractive outsourcing destination. Growing at an annual rate of 80 to 90 %, the Business Process Outsourcing or the BPO industry is one of the fastest growing industries in the country. It is expected to pump $18 billion into the Indian economy over the next five-years.

To help this booming industry the Indian government has set up special support units all over the country that can get telecom units and call centers up and running within a few days.

Daksh is one of India’s most successful outsourcing companies. In the last three years, it has grown from an eight-member team to more than 4,000 employees. Arijit Sengupta, is Daksh’s Director. “Three years back we used to do concept selling,” he says, “tell people this is India, this is the labor pool. We had to sell them India, we had to sell them outsourcing. Today we just have to talk to them about specific projects and how we are better equipped than others. Sales cycles have gone down from up to a year for some large clients to two to three years to back to deals getting done, end-to-end in less than three months now.”

Mr. Sengupta says Indian BPOs offer low cost and high quality services to their American clients. A very compelling value proposition that U.S. corporations find hard to ignore. “A lot of our delivery capabilities are helping these companies,” he says, “so they can do work in the night which is day time in India and provide 24/7 service, doing a claim which could take four-five days earlier by deploying people during offpeak hours in India you can actually turn it around in one to two days and the fact that these companies become cost effective which helps them survive in the long run.”

Outsourcing is clearly an attractive option for U.S. companies in today’s competitive global economy. But the bottom-line pressure to outsource abroad can come at a high cost to workers at home, such as Mike Emmons. Experts say sensitivity and balance are needed by companies choosing to outsource abroad if they are to have long-term success.