Wednesday, August 18, 2004

Book me a passage to India

Offshoring accelerates

Time was when going off-shore was what companies did to avoid taxes. Now everyone is doing it to cut labor costs, improve customer service, and speed time to market.

The need for English-fluent skilled IT workers in the 1980s led US companies to recruit from India. But that was fraught with complications. The H1B visa system that allows an annual quota of tech-workers into the US was inadequate, and there were growing political pressures from American workers fearful of their jobs being stolen by those foreigners. So US companies turned the solution on its head. Why bring Indian workers here and pay them American wages, when you can hire them in Mumbai at a fraction of the cost? And why do this for only the proportion that used to be foreign – get rid of all your US tech workers and replace them all offshore.

There was for a time some kind of social conscience which slowed this process. On my arrival in the US in 1998 I suggested using India-based programmers in my fledgling company, and received such scornful reactions that I never raised the issue again. Now most of the e-learning development work that I used to do is done in India.

I mentioned recently how Reuters is getting some of its editorial writing done offshore. Now this article from the New York Times talks about how the financial sector is offshoring increasingly sophisticated business functions to India – a trend which will cost American bankers 2.3 million jobs, but save banks and securities companies (and their shareholders) billions.

Obviously, cost savings are a major driver. According to Celent Communications ,
“in 2003 the average M.B.A. working in the financial services industry in India earned 14 percent of his American counterpart's wages. Information technology professionals earned 13 percent, while call center workers who provide customer support and telemarketing services earned 7 percent of their American counterparts' salaries.”
You can’t ignore savings of 80 percent or more on your payroll. And because labor is so cheap, companies can afford to get work done faster. Time to market can be cut, as can response rates on customer service issues. As a shareholder in a company that is offshoring, you are smiling all the way to the bank.

India keeps graduating more technical people than the US, so the “economic discontinuities” are likely to be around for a while. US enrollments in computer science degree programs are apparently down 30-40 percent on 1999. A June 19 article in the LA Times said computer science enrollments at MIT dropped 44% from 1999 to 2003. "The decline has hit just about every type of school. At UC Berkeley, the number of students enrolling in computer science and computer engineering dropped 41% in that period. Enrollments at Georgia Institute of Technology in Atlanta fell 45%. Nationwide, new enrollments are at 1996 levels — and few expect them to rebound soon."

In fact, we may be reaching a tipping point, where Americans don't want to study computer science because they don't think there is local employment or a career future in it any more. But, as happened in Japan, Korea, Taiwan, and other economies boosted by low labor costs, India’s cost advantage will eventually be eroded by rising demand and growing affluence. By that time, will China be waiting in the wings to suck the remaining knowledge-worker jobs from the US?

From a purely self-serving perspective, what are the implications for OD&T professionals in the US? Do we gear up to train people in India? Do we relocate our corporate campus? Or do we get “offshored” ourselves? A lot of Indian companies are pitching themselves in the US as “India’s leading e-learning development company” – I get calls or e-mails from at least two a day looking to “partner” with me. I’m predicting that the next Indian industry to take off as an offshoring solution will be not just e-learning development, but corporate training, period. If you’re not in bed with an Indian company by that time, you might be sleeping on the street.

No comments: