US Slump to Prop Up India as Next Offshoring Hotspot ("Dude, Where's My Job?!")

Economic Times of India ^ | Chiranjoy Sen

[AmericanInTokyo]

US slump to prop up India as next offshoring hotspot 14 May, 2008, 0750 hrs IST,Chiranjoy Sen, TNN

BANGALORE: Belt-tightening by global technology giants—a fallout of US economic slowdown—is likely to reinforce India as the most preferred offshoring destination. Top technology firms are actively moving part of their workforce from the US, UK and European markets to lower-cost destinations.

They cite availability of local talent, better delivery and conducive enviroment as key offshoring reasons. While they may not admit it, firms would be looking at stepping the gas on offshoring to curb bloating costs and to lift margins.

Networking and telecom software major Nortel, for one, has recently decided to move almost 1,000 jobs from the US and the UK to low-cost , high-growth destinations like India, China and Mexico. The move is aimed at both restructuring business and reducing costs, Nortel Networks global services president Dietmar Wendt told ET.

The company plans to double its $2.1-billion global services business over the next three to five years with a significant portion coming from multimedia and contact centre services. “India is critical to grow the business and the largest percentage of the job shift will be to India, ” says Wendt.

For Andy Green, who took over as Logica CEO in January, two of the main drivers to revitalise the firm has been to double offshore and nearshore headcount to 8,000 by end 2009; and a significant drop in costs resulting from a reduction of 3% of overall headcount.

And, the lynchpin of this strategy, which is expected to drive Logica’s growth to above-market levels from end of 2008, will be the 1,500-seater second site at Chennai. The plan to deliver abovemarket growth is funded by a £110 million restructuring that will lead to cost savings reaching an annualised £80 million from 2010.

To boot, software services major CSC had announced sometime back that it was shifting more UK jobs offshore in an effort to control costs. “Moving positions to India will give software companies higher leverage on costs but there are other key business drivers such as focus on revenue creation, increasing productivity and efficiency that will be a major determinant of the shift, ” says Symphony Services managing director Ajay Kela.

[MarkL]

Something that I can’t get over...

Government imposes high operating costs for a company that does business in the US. So the company decides to lower costs by moving their production off-shore.

Everyone is surprised.

The “solution?” Demonize and further increase the costs on those very same companies for trying to save on their operating costs in the first place.

Of course it’s silly to wonder exactly what might happen if the government were to set up a system that actually encourages businesses from moving to the US, rather than encouraging them to move away.

Mark

[Mike Darancette]

It has been my experience that those offshore types can write code but they just don’t seem to get the why of it.

[Campion]

Offshoring is great. The best US employees -- the ones management doesn't lay off -- leave for other jobs. The ones who are left are kept busy trying to fix the mistakes made by the offshores. Instead of innovating and moving ahead, the company treads water.

Management, in a stroke of pure genius, concludes that American workers just aren't very productive, and their solution to the problem they created is still more offshoring.

[weegee]

At my company, I’ve seen more Indians being hired stateside as well (with a longterm goal of offshoring). At some point that has to be biased hiring for domestic positions, to hire predominantly those with ties to India.

[Myrddin]

I also find it crappy that American corporations won’t let employees stateside telecommute but they have no problem employing people on the other side of the globe and communicating with them by shared computer desktops and teleconferences.

I've been telecommuting in some form since 1983. I gave up a company office permanently starting in 2000. I've worked for 3 U.S. corporations over that time frame. It's a matter of whether your company values your services.

[AmericanInTokyo]

The distinction is not lost upon yours truly.

[weegee]

I think as gas prices go up, there may be more openness for this again.

I got caught in a bad position of trying to obtain work-from-home capabilities right after the company (in relatively new hands) instituted a new security policy to prohibit people from working from home on privately owned machines. The existent employees were grandfathered if they already had that setup.

It seems foolish to be the only one in my department commuting into the office on Friday and communicating online/by phone with everyone in my team.

Years earlier a certain computer manufatturer used to adverise on tv how to “work from home” using the latest technology on their computers. But that corporation didn’t actually support that scenario for their own employees.

It is old thinking. They want to see the bodies in the seats. Or at least know that someone somewhere MAY see them sitting in a seat. Even if the team works online all day in several states.

[Myrddin]

I ran a software development team at PacBell with members spread all over the state. I have never met any of them in person, yet we produced lots of high quality software.

Most of my current work group is in Arlington, VA. Many others are spread across the U.S. We make periodic software deliveries at customer locations around the U.S., so we get a chance to work in person for a few days. The rest of the time we use e-mail and teleconferences. A common Linux box behind the company VPN serves as an SVN repository for project code. I own my Windows and Linux boxes and pay for my own network. The company covers the more costly tools such as MATLAB.

[Cronos]

As a percentage, yes, it may be lower than the US, but in sheer numbers, the number of good programmers in India would outnumber the number of good programmers in the US -- one solution is to allow more legal migration to the US.

The cost savings are there and are definitely no illusion -- operations in India assume that 20% of the IT workers would not be really good, but do you need top notch talent for most prod support activities? No. And for high level integration etc. work, if 20% are bad, the remainder still make up enough of a cost savings to make it worth it.

Plus, you now have a critical density of programmers there

[Cronos]

Well, it’s not particularly inefficient — it’s no different than a team spread across the US.

[Cronos]

well, not really, by 2020 or earlier, the best programmers in India, Russia, Romania (btw I don't think much of native Chinese programmers -- people of Chinese origin OUTSIDE Communist China are, on the other hand, brilliant and creative) would be reaching a stable number and their costs will also increase to somewhat the level of the US. Even now, the best US programmers have no problem getting jobs -- the mediocre programmers are losing jobs: stands to reason, a really good programmer has productivity that makes his/her salary worth it, no matter how high it is. Mediocre programmers, on the other hand, well, you can get a mediocre programmer in India for 1/5th the price.

Anyway, back to my point, in another 5 to 10 years, there will truly be global searches for talent.

[Cronos]

Also, note, another thing is that IIT's don't only produce CompSci programmers -- in fact, they produce engineers (and as a mech engineer myself, I'd always point out the difference: Wikipedia admits to a blurred line between the two - but primarily defines software engineering as: "the profession concerned with creating and maintaining software applications by applying technologies and practices from computer science, project management, engineering, application domains, and other fields." and a programmer as: "someone who programs computers.... a specialist in one area of computer programming or to a generalist who writes code for many kinds of software.")

back to my point -- IIT's churn out mechanical, chemical, aeronautical, auto, medical, construction, civil engineers as well as comp engineers. The difference is that until recently the best paying jobs in India were in computer programming.

But now, India's industries are picking up -- it's rapidly becoming a small car building hub and it's engineers in mech, chemical, telecom etc. are going places. Soon, they would be getting a lot of opportunities in the construction space as India is ramping up it's run-down or non-existent infrastructure.

The net result is that the most brilliant minds aren't necessarily going into Programming in India, so the available pool of resources is dwindling.

[Cronos]

The corporate programming outsourcing is done by high-school grads who have taken a two-week training course.

That is definitely false -- the top Indian IT firms: TCS, Infosys, Wipro, Satyam, until recently would hire only first class engineering graduates, now they also hire those with bachelor's degrees in science. Even IBM (75K employees in India), Accenture (30K), EDS (2K), HP, Cap-Gemini, etc. hire only Engineers or science grads. Those are getting scarce hence the salaries are increasing at 14% p.a.

And you're right about IIT grads being high cost.

[Non-Sequitur]

Offshoring to India has been going on for some time. The problem is that supply of competent IT people has not kept up with demand and costs are growing.

[Non-Sequitur]

In any case, the cost savings is probably going to be largely an illusion.

The problem is that you can throw two Indian programmers at a job that one U.S. programmer could do on his own, and still save money.

[Non-Sequitur]

I also find it crappy that American corporations won’t let employees stateside telecommute but they have no problem employing people on the other side of the globe and communicating with them by shared computer desktops and teleconferences.

The current school of thought is that if a resource doesn't need to be in the office to accomplish the work then they don't even need to be on the continent to do the work. Anyone currently telecommuting for a large corporation, especially an IT services firm, should get themselves into a client-facing position. Now.

[Non-Sequitur]

What is interesting is that the number of graduating elite IT-background young management and specialists in India coming out of the IITs (India Institutes of Technology) are increasingly saying they will stay in India for their careers, rather than going to the American Dream.

They don't have to. The jobs are coming to them, courtesy of the same U.S. companies that used to bring them here.

[Non-Sequitur]

Government imposes high operating costs for a company that does business in the US. So the company decides to lower costs by moving their production off-shore.

Those 'high operating costs' are also known as 'salaries'. And companies don't need government regulations to know that they can replace a U.S. programmer with an Indian one for about 40% of the cost.

[weegee]

Again, companies should be paying an import duty on software authored overseas.

[weegee]

The Left is so damned concerned about “fair trade” coffee and tea.

How about “fair trade” tech work that gives proper pay grade and benefits to those doing the work?

Dodging the continent for cheap labor means a lot of engineers have put their time and money into a a degree with little hope for a return on their investment.