Strategy to fight the US backlash

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The backlash against outsourcing in the US has come a long way. The industry and its leaders first tried to ignore it, ostrich like. This is a creation of the Indian media, they said: You play up little things happening there which are then played back by the western reporters here.

Then, as the campaign for the US presidential elections got going, the refrain changed: This is election year and things will die down once the elections are over. But the way the issue has snowballed, with increasing evidence of jobless growth leading to a spate of legislative proposals aimed at curbing outsourcing of US government work and the Democratic presidential candidate's endorsement of the move against outsourcing, has at last made people sit up. Leading Indian software companies are now engaged in an elaborate exercise to determine their strategy to tackle the backlash.

It is essential to put the issue in historical perspective. When globalisation really picked up steam over a decade ago, leading to the outsourcing of manufacturing jobs from the US, there were huge protests from blue collar workers and their unions. Economic slowdown and attendant job loss led to George Bush's defeat in 1992. For various reasons the Bill Clinton years saw unemployment in the US reach historic lows and Americans came to accept outsourcing of manufacturing jobs. Most of the lower end manufacturing went to China and the nineties saw the shelves of chain stores like Wal-Mart getting filled by goods made in China.

How did Americans take this? The process of acceptance culminated with the US approval of China's entry into the World Trade Organisation (WTO), after which Chinese manufactures could not be legitimately kept out. American business and a phalanx of American political leaders told American citizens that admitting China into the WTO and Chinese goods onto their supermarket shelves was good for America. China represented a huge opportunity. Lesson for GoI: To counter the backlash, be prepared to lower India's trade barriers which are still among the highest in the world and get the Americans, their business and political leaders, to do most of the job of selling India to the American citizen.

Another bit of history, more complex, needs to be recalled "" the US attitude to Japan in the later eighties. That was the time when Japan was shining and the US was not and there was an active fear in the US of being overtaken by Japan. The fear acquired a cultural overtone, with the Japanese taking over such American icons like the Pan Am Building and Universal Studios. Novels got written, capturing the fear and paranoia, notably The Rising Sun by Michael Crichton. Into the nineties, the Japanese economy ran into trouble, the Japanese miracle was found to be flawed and the fear of being overtaken by Japan abated in the US.

Two lessons follow from this. One, don't expect Americans to be such good losers like the British, expect a backlash if you are going to make a material dent in their prosperity or self-esteem. (Witness the rage among educated middle- class people affected by offshoring and the racial overtones in some of their remarks.) Two, get a strategy to counter it.

Here Indians have an advantage. To the Japanese, who have westernised themselves so very consciously, western culture remains an essentially alien entity which has to be studied and understood from the outside.

In contrast, the English educated Indian, brought up on western lore and classics, is able to get under the western skin and understand it much better. Those who were part of the brain drain to the US from the sixties, which laid the foundations of Indian IT capability, mostly wanted to emigrate and become good American citizens. Lesson: If Indians put their mind to it, they can make a decent job (better than the Japanese did) of understanding the backlash and devising a strategy to counter it.

These lessons are important as the backlash, on present reckoning, is unlikely to go away after the US presidential elections because, as of now, there seems to be no end to jobless growth. Matters have not been made any easier for the Americans by their lack of sufficient interest in engineering studies. (Chinese and Indians make up a significant part of post graduate and doctoral students in some of the better US universities.)

This is essential to equip new generations with the necessary high-end skills so that low skill jobs can be allowed to migrate without much of a fuss. What is more, a change has taken place since 9/11 in the US which can (it may not also) become fundamental. Since 9/11, there are signs of a closing of the American mind. As of today, it is a less liberal place than it used to be. Simultaneously, the US administration has been following more of a bilateral and regional than a multilateral approach to trade issues. Lesson: Things are likely to get worse, not better.

If it is the US, which accounts for 60 per cent or more of the business for Indian software, the urgent need for the business is to derisk itself by reducing its dependence on the US market. Fortunately, European business and political leaders have come out clearly in favour of outsourcing and offshoring, though trade unions there are understandably as opposed to the idea as their American counterparts.

But there is a greater opportunity, in Asia. There is every chance that growth in intra-Asian trade will forge ahead of the growth in world trade, not the least because two markets with the highest growth potential in the world, China and India, are in Asia.

The challenge for Indian IT lies not just in penetrating the Chinese and Japanese markets but also in forging alliances with important players in them. There is great scope for Indian software companies to join Japanese hardware companies, which have traditionally written their own software. A good strategy to enter China in a big way is to do so by holding hands with Japanese companies which have a traditional presence there.

Ten years ago, Japanese companies would not have deigned to take note of Indian companies, but today Japanese attitudes and perception of Indian capabilities have changed. Hence the opportunity. (Next fortnight: How Indian IT companies must change)

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