U.S. jobs: Next stop, India?

When Paul Olivares took a job at USAA's information technology department 14 years ago, he thought he might stay with the company until retirement.

But his hope for that faded as the insurance giant began a series of layoffs in 2001 that slashed hundreds of jobs, then imported scores of foreign contractors to work in its information technology subsidiary, ITCO.

USAA, like many other major corporations, outsourced part of its IT workload to Mumbai, India-based Tata Consulting Services, which supplies staff that some estimate are working for less than half what USAA workers earn.

Olivares, 40, left USAA a month ago after a supervisor gave him a poor mid-year review, yet was unable to provide what he thought was sufficient cause. He said he was "forced out," adding that the person now doing his job is a Tata employee.

While Olivares said he's not sure how much his replacement is making, he's willing to bet that the worker is making a lot less than his $65,000-a-year salary.

A USAA spokesman said Olivares left on his own and his position has not been filled by a Tata employee or anyone else.

"I felt like I had no stability," Olivares said of his final months at USAA. "I wasn't sure whether I'd have a job one day to the next. How can you compete with someone who's happy working for half of what you are? A lot of people at USAA feel that way. There are a lot of really nervous people out there right now."

Increasingly, U.S. companies are shifting high-tech work overseas and importing inexpensive foreign contractors as a cost-cutting measure.

The move has become more and more controversial since it means the loss of U.S. jobs amid an already dismal market for high-tech workers, and it has generated fear among corporate employees that their positions may be the next to go.

The U.S. Bureau of Labor Statistics estimates 500,000 information technology professionals have lost their jobs since 2001, and that figure could reach 1 million by the end of 2004.

Most of the job losses have been the result of the dot-com failures and several years of corporate cost cutting, but many say U.S. corporations' use of foreign outsourcing will be one of the key drivers going forward.

About 550,000 high-tech jobs are expected to move overseas by year's end, according to technology research firm Gartner Group. And only about 40 percent of the U.S. workers who once held those positions will be "redeployed" by their current employers.

By the end of next year, eight of 10 corporate technology directors will be ordered to outsource at least a portion of their services to an overseas vendor, according to the report. Among those already outsourcing are San Antonio-based telecom giant SBC Communications Inc., Austin's Dell Computer and Bank of America.

"I only see the trend increasing," said Carrie Lewis, who follows IT outsourcing for Boston's Yankee Group. "The people who are going to feel it are the companies' internal IT people, the people who are managing the projects (that go overseas)."

Riding high on the outsourcing boom, though, are companies like Tata: consulting firms based in India, which has an abundance of well-educated, English-speaking tech workers, most of whom will work for a fraction of the salary expected by U.S. employees.

Operations in China, Russia and the Philippines have also won work from U.S. companies for their access to skilled low-wage workers.

Tata, which bills itself as one of the world's largest IT consulting groups, has $1 billion in annual revenue, the majority coming from U.S. clients.

The company has more than 50 U.S. offices, and its customers include not only USAA, but SBC, Best Buy, three state governments and the U.S. Department of Defense.

USAA currently uses about 500 workers from Tata's TCS business unit. That's about 2 percent of the insurer's Alamo City work force and 20 percent of the jobs inside its ITCO division.

SBC uses Tata for special IT projects, though officials said there are only about 10 of the Indian company's workers in the United States on such work right now. SBC also uses overseas contractors for customer-service work, such as online help for users of its fast DSL Internet service, but officials declined to say how many people the contractors employ.

While SBC has cut more than 20,000 jobs during over two years, company spokesman Walt Sharp said the use of contractors such as Tata isn't a means for it to jettison U.S. workers.

"The purpose of this, in part, is to maintain our costs and allow us to spend domestically on the development of new products and services," he said.

Brad Russell, a spokesman for USAA, also defended his company's hiring of Tata workers, saying the work performed by the consultants isn't the same as that done by the ITCO workers laid off in 2001. [Yeah, right]

Although Tata employees did help phase out the old technology some of those people worked with, Russell said they were not replacements for the laid-off USAA employees. The several hundred ITCO employees caught in recent layoffs were unable to meet changing technology and job requirements [don't like the smell of curry and won't work for 5 rupees a day]], he added.

And ITCO hasn't stopped hiring, according to Russell. It's beefing up its ranks again with 50 to 100 new, non-Tata hires soon.

USAA said contracting allows the company to save money on wages and benefits and helps avoid layoffs of its own employees when the task is accomplished. The company still owns the intellectual property produced by the consultants.

"In today's environment, companies are looking at ways they can maintain their competitiveness," Russell said. "It's a lot less expensive to have that flexibility."

But experts said that flexibility comes with a high cost to workers. While there are job retraining programs for workers laid off when manufacturing jobs are shipped overseas, there is no such safety net for workers in IT or other white-collar fields.

"The problem I have is that you need to do something to acknowledge the losers, the people who have lost their livelihoods because of this," said Ron Hira, a Rochester Institute of Technology public-policy professor who tracks IT work force issues. "There are no programs right now to do that.

"Workers often don't even know they're going to be affected because the companies aren't up front with them. They're getting hit with this out of the blue."

USAA workers caught in the company's recent layoffs balk at the thought that the company's use of Tata is preventing further layoffs. They said the choice to use Tata was a move to cut costs by getting rid of U.S. workers.

"The layoffs are still going on," said Al Cortez, a former USAA IT manager who lost his job in 2001. "You don't hear of 400 or 500 being let go, but it's happening in ones and twos."

Candice Johnson, spokeswoman for the Communication Workers of America union, which represents more than 100,000 SBC workers, said she recognizes the company is contracting out customer-service work to remain competitive.

But, "it's disappointing that this is the way SBC and other companies seem to be dealing with cutting costs," she added.

"When manufacturing jobs were going overseas, we were told that they were being replaced with these new, information-age jobs. What are our workers going to do now that these information-age jobs are leaving?"

Despite the objections of workers and a growing number of outsourcing activists, many companies are following USAA's and SBC's lead.

Dallas-based EDS early this month said it's cutting jobs and increasing its work force in places like India and the Philippines to 20,000 from 9,000 by the end of next year. And union officials this summer said IBM Corp. is planning to move thousands of jobs to India and China to cut costs.

Indeed, during the next 15 years, 3.3 million white-collar jobs — not just those in the tech trades — are expected to move overseas, according to Forrester Research Inc. estimates.

"There's no way this is going to stop at IT," said Mike Emmons, an anti-outsourcing activist who lost his job last year when Siemens Information Communication Networks outsourced its entire IT department to India. "Who are they going to cut next? Accounting? Finance? Architects? If you sit at a desk, they can send your job overseas or bring someone in to replace you."

U.S. IT workers who charge $80 to $120 per hour for project work compete with Indian workers who will do the same work for $40 an hour, Yankee Group analyst Lewis said in a new research report.

The movement is "an irreversible mega trend" that is disorienting not only North America but also the United Kingdom and Australia, Diane Morello, a Gartner vice president and research director, said in a recent research report.

Companies should worry about farming out so much IT work to overseas firms "because they cannot afford to have domestic IT talent dry up," Morello said. "When investment resumes and the economy rebounds, (chief information officers) will need a cadre of seasoned IT professionals and eager recruits to turbocharge new ideas, new investments and new programs."

Many workers fretted about companies' use of the H-1B visa, which allows employers to bring in foreign workers to fill skilled positions. That visa requires that the company can show it's unable to find a U.S. worker to fill the position and that the foreign worker it hires will be paid the prevailing U.S. wage for the job.

But anti-outsourcing activists said companies often skirt the H-1B regulations or bring in contractors using the less-restrictive L-1 visa.

Originally designed to allow large companies to transfer professionals with "special knowledge" to their U.S. operations from overseas subsidiaries, the L-1 is now widely used to bring contractors into the country. Unlike the H-1B, it doesn't require companies to seek a qualified U.S. worker first or to pay the visa-holder prevailing U.S. wage.

Companies' use of the H-1B fell in 2002 with the collapse of the tech industry, but the L-1 rose during most of the '90s and experienced virtually no decline from 2001 to 2002.

"My parents came in as immigrants," Rochester Institute's Hira said. "I have nothing against immigration. I think the problem is that the program is being gamed and abused by these companies, sometimes quite flagrantly."

Employees' anger and worry about the outsourcing trend and perceived misuse of the L-1 may be generating some waves with politicians.

Three bills designed to curb the use of the L-1 have been introduced in Congress, and some lawmakers have called for hearings on the issue. What's more, the Homeland Security Department is also investigating whether corporations' use of the L-1 to bring in contractors is an abuse of the program.

But activists such as Emmons question how successful those measures will be, given the political clout of the companies that are using L-1s or overseas contracting to cut costs.

"Do you think these people are going to do anything to hurt the corporations that are writing them checks?" he asks.

Indeed, even the Republican Party has turned to outsourcing recently. The Indian magazine Business Standard recently reported that the GOP has hired HCL eServe to set up call centers in two Indian cities to make fundraising calls into the United States.

And the recent moves in the Capitol are little consolation for U.S. workers who claim they've already been victimized by the outsourcing trend.

Former USAA manager Cortez, who now teaches math for the Alamo Community College District, said he worries his students now studying for computer science degrees may be moving into a lousy job market once they graduate.

Olivares, the other ex-USAA worker, said he's pursuing an unemployment claim against his former employer and looking into a career change, possibly pursuing his lifelong love of music. [Stay off my street corner, buster] He said he feels burned out on IT and worries that he may end up at another company that decides to outsource his job.

Olivares said he harbors no resentment toward the Indian workers who now populate the ranks at ITCO, but said the decision by management to bring them has contributed to his desire to leave the tech business.

"How can you blame the Indian people?" Olivares asks. "They're just doing what they're allowed to do. It's the company management that's made this decision."

-------------------------------------------------------------------------------- snowlin@express-news.net

Why should I care about these $60,000/yr jobs being lost? I'm retiring soon. I want the cheapest damn price for every service I get, for every article of clothing that I buy. Why should I sympathize with these guys? It's everybody for themself in this economy.

I'll refrain from asking if you're relishing in schadenfreude, and ask more about your statement of "Its everyone for themselves in this economy."

What do you think that means? That you're entitled to own products made by slaves as some inalienable right? Or that you think that we should lower our standards of living just because everyone else is lower than ours?

What do you think is going to become of the US when all we care about is "getting the best damn product for the cheapest price"? When all that's valued in this country is the lowest price you get can get for a trinket? Is that a country you want to live in? Perhaps you don't care about the long term aspects of this as you're retiring soon, but I would hope others aren't as falsely selfish as you.

I say falsely as I'm a selfish person, but I don't put getting cheap products at the top what I want. I'm far more selfish about protecting the standard of living for all Americans, and I believe that's accomplished by not sitting idly by while every industry is looking towards China and India.

And on a practical side, what do you think is going to happen when the 2.5M people laid off grows and grows? They sure aren't going to continue voting in Republicans that sat there dumbfounded as their jobs were being shipped offshore. Think FDR II but bigger.

So the major difference between his $65k salary and a worker's $6500 salary in India is due to government induced problems?

Well, it does have some to do with it. The amount of payroll taxes an employer must pay, the high level of red tape and regulation it must overcome to hire American workers, does indeed drive up the end-price (salary) of that employee.

Secondly, the US is a much more developed country than India. As Indian labor becomes more sought after, (currently it is in its budding phase of demand), bids on projects will be raised and Indian salaries will be bid up by firms.

There will be a sharp correction in the price of Indian IT labor as its workforce is unable to meet global demand.

Yes, IT, as a non-local skill is one function easily able to be outsourced (as we are also seeing with customer service, CAD/CAM drafting, data entry, certain areas of Human Resources, etc.).

Doing business in the USA is becoming exceedingly expensive. And with every nice-sound proposal or bill put forth by our representatives in Washington (primarily Democrats), our cost of doing business inches higher and higher.

For instance, in CA now employers are soon going to be REQUIRED to offer 6-months 50% PAID Family Leave to employees (the reasons for taking leave is very vague, as well, wide open to interpretation and lawsuits).

There is another bill which will REQUIRE CA businesses with 20+ employees to pay 80% of all employee health care costs and those with 200+ emplyees, to pay this amount for all employees and their family members.

Legislation to prevent businesses from leaving CA due to this (which is just what they are doing), would do nothing but drive these firms into the ground. Capital must be allowed to flow to its highest return, and in so doing, equalize price-levels across the board.

Such is the case with India, and forcing American companies to do business in a hostile business environment, such as the USA is increasingly becoming, will do nothing but drive companies out of business.

Excessive government regulation most assuredly does play a large role in the huge wage gap. However, the free-market will soon begin to close that gap as well, due to competition for Indian labor hours.

But the more I read about this problem, the more jaded I'm becoming. I never made $60,000 plus a year. Why should I care about these $60,000/yr jobs being lost? I'm retiring soon.

The social security payments you will be receiving were not built up by you over your lifetime earnings. They will be coming from current taxpayers. The current taxpayers are having their wages cut by outsourcing. They are either losing their jobs and starting over at drastically lower wages, or accepting pay cuts. This is eroding the tax base from which you will be receiving your retirement. I hope you don't need social security.

On a grand scale, aside from the loss of jobs, we are being placed in a position where we are competing with nations that do not even subscribe to the concept of indoor plumbing. What compromises do we make as a nation to compete at that level? Do we become slaves ourselves? Also, those "large salary" jobs are held by "large comsumers" who drive the economy. Those jobs that depart our shores take those dollars and potential consumers with them. Downward spiral at this point. Pretty soon, the concept of indoor plumbing becomes quite "novel" for Americans...

No matter-6 weeks is as fatal to the employer as 6 months. No business has that percentage of excess profit to throw away.

The base cost of creating the simple jobs has exceeded all reason-we are at the point of the old joke about the banker being a fellow who will only loan you money if you prove you don't need it.

The cost of creating a job is so high that if one has that much cash or credit, investment in the market via equity shares ( stock ) or bonds, &etc, is perhaps more attractive.

Your post #20 is the best answer about why these things happen.

One can add the strange subsidies or advantages which may be found in some circumstances ( direct & INDIRECT ), for the move over-seas & the importation of certain workers.

There are many reasons why the government creates these circumstances. Perceived votes ( from existing or aquired constituencies, direct & effective lobby work ( many lobbiest actually write the bills which congress passes ), pay-back to certain foreign interests, and the fact that most Americans ignore the problems!

Most Americans have too many toys, too much 'liesure' time to use the toys & have been trained to ignore or praise whatever the Federal Government does! That slavish worship of the government & your list are the primary reasons.

I am tired of billions for African Aids, billions for oil-rich Iraq to have a state of the art electrical grid while our is outdated, and tired of the outsourcing issue being ignored except for lip service.

Our borders are wide open, two years after 9-11. Our economy is still not creating jobs. We need some action, and reducing my federal income tax rate one or two percent while state, local, gas, sales, and property taxes are going thru the roof is NOT going to accomplish a damn thing.

Why should you care? Well if you are retiring soon will you be expecting a check from social security? Well guess what, social security is currently financed by today's money. If that goes away, so does your check. That's why you should care.

Exactly which jobs are available for American workers over the age of 50 who are displaced by cheap foreign labor? Perhaps you can help by pointing out exactly where the jobs are for them, esp if they are older workers?

When I received my second back injury that was work related in 1996 I was making in the upper 1% of wages in the industry that I was working in. As the extent of my injuries precluded either operations or a return to my previous employment, I was sent for reeducation training by the State. I foolishly chose IT, which is now down the tubes.

What I did learn was to think for myself and what I really had to offer an employer, my work ethic and commitment to quality. Because of my past work experience and my prospective qualities, I was hired on at more pay than most managers that had been with this company for five to ten years.

By my willingness to do the best job that I could 24/7/365, I have received performance wage increases that have made my pay higher than any other managers except the assistant-manager. And this is still with this company honoring my pre-existing physical capabilities. Hard work and determination to customer service and quality does pay off.

And I have just been offered a job at another company at a salary equal to my 1996 wages because of the job performance at my current job. A friend of mine with the same work ethic has a similar reemployment experience as mine in this same area of the country, so mine is not the exception.

Hard work, character, and perseverance built this country, and it can rebuild it after the existing recession. Age does not matter, nor does physical handicaps. Mental attitude can overcome almost all barriers in life.

Keeping faith with one's self and others is the deciding factor in life. A job is only geography.

Old Patriot

Americans need to start looking for other ways to make livings when these things happen instead of complaining to Washington for some kind of public assistance. Since when did any politician ever claim that they could keep some plant open or business solvent?

Hear hear!

The ONLY reason this is a hot issue is that the people getting laid off are educated, middle class, often conservative, and articulate. Steel workers and coal miners thrown out by international competition and technology change are just told to suck it up.

IT is a cost. IT never made a widget. At best, IT optimizes some of the other costs in making a widget, but IT is never anything other than a cost. Why is anyone suprised that any rational business will go for the least costly IT they can get?

The base cost of creating the simple jobs has exceeded all reason

Ding! Winner!

Regulatory costs are what is hurting the lower-middle class. Jobs should be cheap to make. Decent small houses should be cheap to build. Good schools should be cheap to run. All these costs are currently too high due to regulation and taxation.

Fix these problems and we will have factories here that are cheap enough to run that China will complain that we are too efficient to fairly compete against. China has enormous costs due to corruption, poor education, and poor infrastructure. They can be beaten even if the Chinese work for free.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.