Bangalore's Big Dreams
India's major outsourcers now offer complex tech services, like design engineering
There is confident talk here that the information technology (IT) services revolution is only the opening act of a larger transformation. And a recent report by research firm Gartner predicts an accelerating pace of technology outsourcing to India, China, and elsewhere. Worldwide spending on offshore research and development and engineering, for instance, will increase more than eightfold to $12 billion by 2010, according to Gartner. Similarly, spending on so-called infrastructure outsourcing--such as remote network management--will grow from less than $250 million to as much as $4 billion in the same period.
India's big draw is, of course, its deep pool of skilled technology workers, who may cost a 10th of what they would in the United States and Western Europe. India is turning out some 82,000 engineering undergraduates a year, versus about 60,000 in the United States. And India's top graduates are first rate: The elite Indian Institutes of Technology accepts only 3,500 out of 178,000 applicants for undergraduate and graduate study. At Wipro, a new engineer with top academic credentials earns about $9,000 a year, and a senior engineer with eight years' experience about $20,000. Even with salaries rising 15 percent or more a year, Wipro chief marketing officer Sangita Singh says confidently, "the cost advantage is still in India's favor, hugely."
Jobs of the future. What this will mean in coming years for American tech innovation, and the jobs that it generates, is unclear. India, despite the rapid growth of its tech sector, lags behind the United States in computer software and systems jobs, 540,000 to 2.5 million. An additional 245,000 Indians work in various other types of outsourced services, such as call centers and business support. Some of the worst fears of potential American job losses are contradicted by positive U.S. government projections in computer fields over the decade. Still, a spokesman for electrical engineers sees outsourcing as a factor claiming jobs, suppressing wages, and imperiling U.S. innovation. "Because innovation tends to follow jobs, key drivers of our economic prosperity could be lost," says Gerard Alphonse, president of the U.S. arm of the Institute of Electrical and Electronics Engineers.
Certainly, Wipro's success can be seen in its annual revenues, which have nearly tripled since 2001 to $1.9 billion. But like its competitors, it is under pressure to maintain explosive profit growth. Wipro last week reported that its IT profits increased 47 percent for the most recent quarter, while Infosys racked up a 67 percent profit gain. Still, Infosys's stock got hammered, losing more than 7 percent in value after announcing that profit growth for the year would be a strong but less-than-expected 23 to 25 percent. Investors may be right to worry. A Deloitte Consulting report released last week said some major corporations are reassessing outsourcing in light of "significant negative experiences" and, for nearly half the 25 surveyed companies, failure to achieve expected cost savings. But, Deloitte added, outsourcing "for the right reasons" can "still deliver value."
Part of Wipro's strategy is to expand into more complicated--and more profitable--tasks. For this, Wipro now has some 9,000 engineers designing products for about 100 companies, making it the world's largest third-party R&D outsourcer. In addition to product development, which has grown to some 30 percent of revenues, Wipro has begun marketing other capabilities, such as remotely managing clients' computer networks.
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