The It Backlash: The Way Forward

The global fear about India's growing IT and BPO clout has to be tackled scientifically

December 13, 2002. Chairman and managing director of Polaris, Arun Jain is taken into custody by police in Jakarta over a commercial dispute and later was released after diplomatic intervention by Prime Minister Atal Behari Vajpayee.

March 9, 2003. More than 200 IT professionals are handcuffed and detained for alleged immigration violation in Kuala Lumpur. March 27, 2003. CEO of i-flex B V Senthil Kumar is arrested in UK along with other employees.

At lots of places, a lot of people are disliking and protesting against India's growing clout in the IT and BPO arena and the global job shift it entails. In New Jersey, a group of legislators have sought to block the state from outsourcing public jobs overseas.

In UK, telecom unions have threatened strike if British Telecom were to move BPO jobs to India. In Germany too, a momentum seems to be building against renewing special work being denied to technology professionals outside the non-EU nations.

Welcome to the brave new world -- the xenophobic world of protectionism. At its core is the fear that the English-speaking, technically-educated and cheap Indian talent will "snatch away" all jobs from right under the nose of their Western counterparts.

This fear is understandable. The US-based Forrester Research Inc estimates that at least 3.3 million white collar jobs and $ 136 billion in wages will shift from the US to low-cost countries. There are several reasons for this.

First, US skilled workers or for that matter Western workers cost far more than workers of the same calibre in a developing country like India. Besides, they are available in abundance. India, for example, has a staggering 520,000 IT engineers with starting salaries of around $ 5,000. In contrast, US schools produce 35,000 mechanical engineers a year. Cost is an issue too. In 2000, senior software engineers were being offered up to $ 130,000 a year while entry-level help-desk staffers would fetch about $ 55,000.

Today the salaries have been scaled down to up to $ 100,000 and $ 35,000 respectively. IT service providers like IBM, Accenture etc that would charge $ 200 an hour at boom time might be charging around $ 70 an hour in the downturn.

However, contrast this with the Infosys and Wipros of the world that charge only $ 20 an hour. Little wonder then, the Accentures, Microsofts and Oracles of the world have announced major addition in headcounts over the next two years in India.

Second, the outsourcing is not just confined to IT or software work but companies ranging from insurance, legal services, utilities and investment banks and brokerages are realising that Indian talent spans a wide range of areas. Companies that offer independent research to brokerage house on Wall Street like Smart Analyst Inc or Lehman Brothers and Bear, Stearns &Co have Indian analysts on their pay rolls, who provide equity analysis, industry report and summaries of financial disclosures at a fraction of the cost in the US. Not to speak of thousands of fresh, English-speaking graduates from the colleges of India who man the customer-care call centres of companies like GE, Amex or British Airways answering queries, processing credit-card receipts or making product sales pitches. These companies too are ramping up their operations after spending nearly a decade on the learning curve.

Third, this wave of global outsouring comes at a time when the US is witnessing a recession after a decade of what looked like unstoppable economic growth. Companies from airlines to banks toWall Street and Silicon Valley are downsizing. Not all of these are because of jobs being shifted to a country like India, but they are not a part of the general ebb and flow of business either. Budget constraints, competitiveness and rival strategies are also forcing jobs out of western countries.

Fourth, this wave of globalisation is also very different from the first wave that started two decades ago with the fleeing of jobs making shoes, toys, cheap electronics and clothes. Those affected by that wave were blue-collar workers. No sweatshop work this. This wave is affecting the educated, politically powerful, middle-class Americans.

A joint study by McKinsey and Nasscom predicts that by 2008, IT work and other service exports will generate $ 57 billion in revenues, employ 4 million people and account for 7 per cent of gross domestic product in India. Clearly, with so much at stake, we need to ensure that the fear of BPO to India doesn't translate into panic. What clearly needs to be done is to clear the fog around the benefits of BPO to the developed world. Here are some ways.

Cost benefits: We need to make a case that as in manufacturing industry outsourcing that helped cut prices and improve efficiency of auto, electronic and appliances companies, this wave will help service companies to reduce cost overheads and improve efficiencies.

Job imperatives: Not all jobs can possibly shift overseas. Many jobs that require face-to-face interaction will continue to remain on home turf.

Value-chain: If the relatively routine service and number-crunching jobs go to countries like India, the US talent and capital can be redeployed to high-value industries and cutting edge research and development work in nanotech and biotech.

International market: If countries like India grow on the strength of its skilled manpower, it also benefits developed countries like the US by indirectly creating a market for their goods and brands in a global village and WTO regime.

(The writer is founder partner, J Sagar Associates)