Coming and Going
As offshoring evolves, Indian firms even hire Americans
It doesn't take an economics degree to conclude that one of the main U.S. exports of the 21st century is likely to be jobs. And by many accounts, India is at the head of the receiving line. Microsoft Chairman Bill Gates recently announced that the software giant will nearly double its workforce in India, to 7,000, and invest $1.7 billion there. IBM has added at least 10,000 Indian workers this year and could employ more than 50,000 Indians by the end of 2006. Accenture, EDS, and other consulting firms are following close behind. By 2015, 3.3 million jobs will have been sent overseas, according to Forrester Research. As the offshoring trend matures, U.S. firms will contract out increasing amounts of white-collar work like accounting, drug research, technical R&D, and even cartoon animation.
A small crosscurrent is beginning to flow, however. While some of America's most well-known companies are suddenly rushing to India, the big Indian offshoring firms that started the whole trend--companies like Tata Consulting Services, Wipro Technologies, and Info-sys--are starting to hire in the United States, where some of their biggest customers are based. The Indian firms have earned billions by helping Fortune 500 companies slash the cost of running call centers or performing basic information technology work, relying on a huge pool of well-educated, English-speaking Indian workers who earn one-fifth what their counterparts in the West do. But to expand beyond basic IT work, the Indian firms are finding that they have to hire Americans who have local connections and understand western business climates. "You can't be global if you only hire your fellow citizens," says Jessie Paul, Wipro's chief marketing officer.
The numbers are small so far, and nobody expects a major reversal of the offshoring trend. But factors that used to tilt jobs toward India and other low-cost countries are now shifting. Political pressure in the United States has forced many companies that do government contracting, for instance, to keep jobs here. Defense giant Northrop Grumman plans to set up a "homeshore" operation, hiring hundreds of software engineers, in rural Virginia--where costs are higher than in India but lower than in prime U.S. cities. Science Applications International Corp., another defense contractor, recently opened a tech center in Kentucky. Other states, like Nebraska and Indiana, are offering tax and other incentives that make them look like an affordable alternative to Bangalore.
In India, meanwhile, the talent pool is starting to get tapped out in spots, leading to wage increases, frenetic demand for the best workers, and job hopping. More important, the Indian IT firms are aiming upmarket just as their bigger American competitors, like IBM, Accenture, and EDS,are aiming down. "They are certainly trying to move up the chain," says Ron Hira, a professor at Rochester Institute of Technology and coauthor of Outsourcing America. "Higher-level consulting services are very relationship based, so it makes sense that they're hiring more Americans."
Big numbers. For more than a decade, the Indian IT firms were content to fish the bottom for data-entry work, call center operations, and other basic back-end tasks that big companies could move overseas without much risk or notice. As U.S. firms like JPMorgan and Met-Life got more comfortable with offshoring, they began sending more sophisticated work like software development and computer programming overseas. Before long, that had spawned a few of the fastest-growing juggernauts in the global economy. Wipro, for instance, which is now a $1.8 billion company, doubled its staff over the past three years and has a profit margin of nearly 20 percent. (IBM's profit margin, by contrast, is about 9 percent.)
Those kinds of numbers have caught the attention of the world's biggest consulting firms. And with huge U.S. companies now going after the same low-cost Indian talent, the Indian firms are trying to turn the tables. Like their more entrenched competitors, the Indian firms are now offering to take over whole IT departments and become business partners with their customers. And they're poaching American executives to help get the ball rolling. Infosys has hired several former Deloitte and Ernst & Young partners to help jump-start its consulting business. Tata, Wipro, and Cognizant Technology Solutions, a New Jersey-based offshoring firm, are all luring American rainmakers from the likes of McKinsey & Co. and PricewaterhouseCoopers. "We're doing a lot of hiring, both on- and offshore," says Bob Rugare, who left Ernst & Young last year to become vice president of Cognizant.
Core IT work--where offshoring firms still earn the bulk of their money--will continue to flow overseas. And most of the U.S.-based employees of the offshoring firms will still be foreign nationals in the States on temporary work visas. But offshoring executives say that they're going to need an increasing number of Americans, too. "My practice is going to rely predominantly on local talent," says Paul Cotton, whom Wipro recruited recently from ConAgra to help run a consulting practice out of Dallas.
Surya Kant, North American president of Indian IT giant Tata Consulting, says that beginning this year, Tata will recruit American tech and engineering grads on college campuses such as the Massachusetts Institute of Technology and the University of Georgia, schools where Tata already runs research programs. Overall, Tata will hire about 500 Americans this year, Kant predicts. "It is more expensive," he acknowledges. "But some work must be done here."
Offshoring firms want to hire people who think globally. The most adept employees, says Rugare of Cognizant, will be those who have "one foot on the boat and one on the dock"--adaptable workers who understand and complement the offshore components of their industry. In the U.S. market, Rugare sees a strong need for business analysts who understand the back-end operations of financial institutions and other big companies and can help design technical requirements that will be fulfilled overseas. "The perfect candidate," he says, "has an undergrad degree in engineering and computer science and an M.B.A." Cognizant has also been hiring American specialists such as doctors, pharmacists, and biostatisticians to help fulfill a big outsourcing deal with a major drugmaker.
Buyer's market. On the ground floor of the global economy, however, the welcome mat can still be hard to find. Diane Collier, 43, is a Dallas-area electrical engineer who was laid off from a local utility last year when much of the work in her department was offshored to eastern Europe. She has both technical and managerial experience and says jobs in her field are still available--but it's a buyer's market, and employers insist on very specific expertise. "And salaries are lower," she adds. "I'm probably going to have to take a 20 or 25 percent cut for comparable work."
But no one expects the trend of offshoring to slow. Even as offshoring firms integrate more Americans into their operations, the pressure on big public companies to cut labor costs is intensifying. And so are the opportunities, as the quality of Indian offshoring services continues to rise. Cognizant says Indian engineers at the firm are working on cutting-edge technology like next-generation ATMs and new systems for global securities trading. Kant says that in addition to all the IT work Tata does, its staffers in India handle automotive design for Detroit, broadcasting duties for Hollywood, and paralegal work for big law firms. With some major companies just beginning to look overseas, "offshoring has not even scratched the surface," he insists. It's time for American workers, in other words, to get one foot on that boat.
CAN YOUR JOB BE OFFSHORED?
JOBS AT RISK
Computer programming
Software development
Basic systems architecture
Low-to-medium-tech jobs
paralegal research
JOBS THAT ARE SECURE
Government jobs
Specialized website work
On-site program and tech support
High-end technical design
Healthcare
This story appears in the January 23, 2006 print edition of U.S. News & World Report.