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Why Indian IT firms are hiring globally

By Kerry A Dolan, Forbes
April 03, 2006 11:55 IST
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India reaped new fortunes in its recent rise as an outsourcing powerhouse. But now India hears footsteps: China, the Philippines, Hungary, the Czech Republic and several Latin American countries are luring offshore outsourcing jobs as well.

The surprise: Some of India's offshoring giants are offshoring themselves, fueling the next round, and U.S. firms are joining in.

Indian outsourcer Tata Consultancy Services has opened offices in Budapest, Hungary and Hangzhou, China. Last year it acquired a 1,300-employee outsourcer in Chile, and it plans to add 1,500 to the 485 people at its Brazil arm. "Several years ago we decided the India-centric model had to change. We needed to offer seamless delivery from around the globe," says Subramanian Ramadorai, chief executive.

TCS rival Infosys Technologies set up shop in Shanghai, Mauritius and two Czech cities, Prague and Brno. A third big Indian player, Wipro, has new offices in Shanghai and Beijing and plans to open soon in Bucharest, Romania.

U.S. firms are expanding beyond India, too. Call-center giant Convergys recently opened offices in Dubai and Budapest. IBM Global Services is adding staff in China, Hungary, the Czech Republic and Brazil. And Accenture is adding staff in the Philippines, China, Slovakia and the Czech Republic.

In the 1980s outsourcers in India did low-rung jobs such as data entry and some software development. In the 1990s they expanded by doing larger software projects and by taking over whole IT systems and back-office functions such as accounting for U.S. and European corporations.

Now they draw a bead on more sophisticated services--engineering, research and development, and designing auto parts, sections of aircraft wings and chips for wireless services. Other countries are moving up the ladder, too. SPI Technologies, a firm in the Philippines, is hiring lawyers and law professors to do analysis for a large U.S. legal research outfit.

The global expansion is here to stay. Spending on offshore information technology services will nearly triple in six years to approach $60 billion by 2010, says research firm Gartner. Engineering design "will be the next big wave of global sourcing options" in manufacturing, the firm says, predicting that spending on outsourced R&D and engineering will grow tenfold in the same period.

More broadly, offshore employment in IT, banking and six other areas will have doubled between 2003 and 2008 to 1.2 million jobs, says McKinsey Global Institute.

The globe-trotting outsourcers seek to build a "global delivery model."

U.K. telecom giant BT (formerly British Telecom) outsourced its human resources tasks in 38 countries last year to Accenture, which handles the work from offices in the U.S., the U.K., India and the Czech Republic. Dutch bank ABN Amro in September signed a $2.2 billion deal to outsource its IT operations to five companies.

One of them, Tata, won a $260 million pact to support some ABN Amro software applications and planted employees in Mumbai, Bangalore, Budapest, Luxembourg and Campinas, Brazil to work

on the project.

Tata in 2002 opened an office in Hangzhou, where it employs 350 people and plans to quadruple the staff within three years. Last June it signed a deal with Microsoft and an arm of the Chinese government to create a software joint venture that will supply IT outsourcing services and employ 5,000 people outside Beijing.

In eastern Europe, where Tata employs 375 people in Budapest, the firm expects to add at least 1,000 people. Its staff of 2,100 people in Latin America--Brazil, Uruguay and Chile--will grow by 25%.

Tata's Indian rivals, Infosys and Wipro, are in China, too. Infosys has hired 360 people in Shanghai and plans to employ 6,000 in the country in five years or less. It is opening a campus in Hangzhou to accommodate the expansion. Wipro has a hundred people in Shanghai and Beijing and also plans to expand.

Moving up the development chain, Tata Consultancy and Infosys have designed and manufactured parts of Boeing and Airbus aircraft wings in India, and Tata does design and drafting work from China for Canadian aircraftmaker Bombardier. Wipro runs a "lab for hire" focused on telecom and broadband technology.

It acquired a research lab in India from Swedish telecom titan Ericsson and a telecom-chip design firm in Austria. This high-end development and product research accounts for 36% of Wipro's $2.1 billion in revenue.

India still is a hot spot.

U.S. firms EDS, Accenture, Keane and Convergys are doubling (or tripling) their outsourcing staffs in India in the next few years. IBM says it, too, is adding staff there. Even with annual wage inflation of 15% to 20%, U.S. companies can hire well-educated Indians for $10,000 or less a year, one-fourth the cost of an entry-level worker in the U.S.

Convergys, traditionally a strong call-center operator, began leveraging the lower salaries of its Indian staff to sell products for a large tech company. It racked up $1 billion in sales for its customer in less than two years.

"We're looking for the cost arbitrage and moving operations to where they're most effective," says Jean-Hervé Jenn, president of Convergys' international operations. "We've got to continue growing our earnings, and we have to be as cost-effective as we can."

Effective doesn't necessarily mean cheapest. A call-center worker costs 25% more in Hungary than in India, but the higher pay is for multilingual skills that Indians don't have. From its human resources outsourcing center in Budapest, Convergys serves clients in 15 countries and in ten European languages.

Companies are expanding worldwide in search of top talent. "India is a large country, but we see challenges growing in the industry three to five years down the line," says S. Gopalakrishnan, chief operating officer at Infosys. "Today in China you're able to attract some of the best people."

The result of this global shift? "Better services and lower costs," says Atul Vashistha, chief executive of NeoIT, which advises companies on what and where to outsource. "Five years ago when I called an airline, I used to wait 15 minutes for them to answer my call," he says.

In the offshoring era, with people in countries like Jamaica and India answering such calls, that happens a lot less.

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Kerry A Dolan, Forbes

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