Nasscom's Kiran Karnik: Bill-buster

December 2002 New Jersey almost passes a bill preventing outsourcing of government contracts to Indian IT firms. The bill is finally put on hold following hectic lobbying by Nasscom

The controversial L1: Back-door entry?

February 2003 Protests against use of the L1 (visa) route by Indian information technology firms to deploy techies onsite (at the cost of US jobs) gain monumentum

The victims after the ordeal: Shaken, not stirred

March 2003 270 Indian IT pros arrested and harassed in Malayasia. The move could have been prompted by geopolitical rivalry, but IT proved a soft target

March 20, 2003. Employees of British Telecom in the UK take to the streets to protest against the company's decision to open call centres in India.

March 17, 2003. Sun Microsystems, the largest corporate (co)founded by an Indian is sued by 1,000 employees for allegedly laying off US high-tech workers to replace them with Indian techies.

September, 2002. Infosys' proposed Melbourne development centre faces flak from local it pros; Deloitte Consulting employees protest outside the Australian Industrial Relations Commission when word leaks out about Infosys bagging a plum Telstra outsourcing contract from Deloitte.

Add to these other episodes like the recent harassment of it professionals in Malaysia, the frequent changes in US visa regulations, and legislations seeking to halt outsourcing and the message is loud and clear: everyone loves to hate Indian IT.

That shouldn't surprise anyone, least of all Indian IT firms; the backlash began several years ago. The pioneer of the outsourcing model, Tata Consultancy Services (TCS), for instance, was hauled to the courts by a New Jersey-based firm several years ago. The firm alleged that TCS was "dumping" its low-cost services in the domestic market, resulting in locals losing jobs. (For the record, the court ruled in favour of TCS). And other Indian companies have similar experiences to narrate.

What is different now is the sheer magnitude of the protests. The reason? Services jobs (both in information technology and IT enabled businesses) are moving en masse to destinations like India, Philippines, Russia and China. The recession in the US (the single-largest consumer of Indian IT services) has forced companies in that country to outsource to cut costs (a company that outsources a backoffice to India could reduce costs by as much as 40 per cent). Only, as jobs move offshore, they are laying off more employees, contributing their mite to the recessionary trend.

The Beginning, Not The End

The great outsourcing wave may have just begun. Global technology research firm Forrester estimates that over the next 15 years 3.3 million US services industry jobs and $136 billion (Rs 652,800 crore) in wages will move offshore (See The Offshore Wave...). And Nasscom estimates that about 1.5 million services jobs will move out of the US within the next couple of years, of which 7-10 per cent will make its way to India. Finally, India has a 2.8 per cent share of the US services market.

At the vanguard of this wave are sectors such as telecom, banking, and financial services. Almost every major multinational bank with operations in India services some part (often, a very large one) of its global IT requirements out of the country. Bank Of America, for instance, has partnered with TCS, Infosys, and Accenture to outsource almost all its IT services out of India; the bank has laid off at least 1,000 software professionals in the US so far. Other multinational banks that outsource the bulk of their it service requirements out of India include Standard Chartered, HSBC, ABN Amro and JP Morgan Chase. And for each large consumer bank that moves its transaction processing offshore, between 8,000 and 10,000 US-based jobs will all but disappear into thin air. "I already see software professionals in the US who drew up to $200,000 a year, unable to draw even $60,000 today," says one bank exec. Despite these staggering numbers, the real sting is yet to come. "In the next 18 months, I expect growth in the outsourcing of high-end value added services like wholesale credit processing for banks where analytical skills play an important role or even research-oriented services for credit rating agencies and stock exchanges" says Gurumurthy R., Principal, Bank Of America. These skills would call for professionals with a background in Chartered Accountancy or Financial Analysis. And in the process, Indian services will move up the value chain. As one industry observer points out, "It's similar to the way Japanese electronics were viewed as a poor man's choice till they actually became better than the real thing. Some clients are already willing to pay a premium for services from Indian IT companies since the quality is increasingly being perceived as better than what you can buy anywhere else."

BPO Spurs Backlash

Did Business Process Outsourcing start the backlash? It may well have. Explains Partha Iyengar, VP, Research Director, Gartner India, "Earlier, it was largely the work of developers, programmers or systems analysts that was being farmed out to overseas companies. These are skilled software jobs and it was an acknowledged fact that they were better done by off shore companies. The flashpoint is really BPO. The layoffs here affect the core employee base of a company, client support people, call centre agents, mostly semi-skilled labour that tends to be closer to unions." Still, this won't hurt Indian companies, says Sandeep Agarwal, the Chief Marketing Officer of BPO firm Intelenet, "as long as the recession in the US continues and cost-cutting remains a corporate priority."

So, how have companies that have handled large outsourcing projects dealt with the lay-off issue? Says Phaneesh Murthy, whose BPO firm Primentor is based out of the US, "Companies have dealt with it in various ways: in some cases they have made it clear to the employees that only incremental investments will be made offshore, and existing capacities will not be shifted; in the case of layoffs, it has been with very attractive incentives to encourage the employee to stay on and oversee the transition; and in some cases the companies have just kept a very very low profile."

British Telecom (BT) appears to have adopted the first strategy. BT Retail Chief Executive Pierre Danon's statement in response to the ongoing protests clearly states that, "BT Retail's plans to develop 31 contact centres in Europe in the UK remain unchanged. The investment of 105 million pounds in those centres will safeguard the jobs of around 17,000 people in the UK. These figures dwarf BT Retail's plans in India where 3 million pounds are being invested and around 2,200 will be employed." Still, that didn't stop the March 20 protest.

The Legislative Hurdle

With the anti-India pitch getting shriller, governments in the US and Europe have been doing their bit to appease the electorate. This has taken the form of tinkering with visa and green card regulations to stem the flow of Indian professionals into these countries. The United States had limited the number of H1B visas (work permits for up to six years) that can be issued every year and a controversy appears to be brewing over the issuance of L1 visas that pertain to intra-company transfers. American workers allege that Indian firms are using this route to ship workers to the US. All this could affect business. Says Avinash Vashistha, MD, neoIT, "Procedural tangles like visa restrictions are rising; the US government is arbitrarily rejecting L1 visas and this is causing a lot of hardship to companies registered across multiple locations." The German government, on its part, has abruptly withdrawn a green card scheme started for it professionals. "The withdrawal of green cards for Indian it engineers will have an impact on cycle times for visas as the regular work permit takes a longer time. Indian it services companies are in a quandary because of the withdrawal of the green card system" says Laxman Badiga, Chief Executive, Talent Transformation and External Relations, Wipro Technologies. The proposed New Jersey law to stem government outsourcing continues to be the subject of debate both within and outside of the legislature. Says Robert M. Finkel, Partner, Milbank, Tweed, Hadley and McCloy LLP, a law firm specialising in outsourcing related issues, "I do understand that other legislatures are also looking at a similar law. If I had a guess, I am not sure this would have much of an impact. I don't see a groundswell of support for it." An US-based exec of an Indian IT company involved in the campaign to stop the anti outsourcing sentiment however adds, "The idea that the New Jersey legislature could shut down a BPO business is not acceptable. We have to preempt the emergence of a 50-headed hydra that might end up in a legislation at the federal level."

On the face of it, however, CEOs are unperturbed by these developments. Scott McNealy, the CEO of Sun Microsystems, was dismissive, saying he was not unduly concerned about recent developments in the company. "As long as the law is on our side, I am not concerned."

Déjà Vu Distress

"The closest comparison I can make to what's going on is the auto wars of the early 80s where manufacturing moved to countries whose only selling point was low wages" says Gartner's Iyengar. "Back then, the defence of the auto companies was that low-end manufacturing jobs were better done outside the US, which in turn should focus on services. But now, it's those very services jobs that are going offshore." And the recession in the US has contributed in no small measure to the growing resistance to jobs moving offshore. All was well with the US economy when manufacturing jobs started to move offshore, points out Dr Siddhartha Roy, gm, Business Research & Corporate Planning, HLL. Roy's reading? Demand growth, and a revival should alleviate the problem.

Chief executives like B. Ramalinga Raju, Chairman, Satyam Computer Services, have a more pragmatic view of how the situation in the US is likely to pan out. "The number of jobs in the US did not diminish with the movement of manufacturing off shore. Nor will it with the outsourcing of services. However, the composition of jobs in the US in the future may look different from what it is now. We believe that this is a temporary phase and open communication will help dispel the misinterpretations."

The Lobby's IT

Indian companies, largely represented by industry association Nasscom, have been dabbling with their own bit of lobbying in the United States. Nasscom has retained US Public Relations firm Hill and Knowlton to put forth its case. The firm takes credit for putting on hold the New Jersey bill. "It was important to educate the New Jersey house that outsourcing to India was not a threat and in fact any preventive measures could in fact act contrary to the New Jersey government's interest of securing the best possible services" says Simon Miller, Director Corporate Affairs, Hill and Knowlton. Well, there is another side to the story that members of the New Jersey legislature have to tell and it goes somewhat like this: the bill had almost received a quite burial in the legislature when Nasscom appeared on the scene, saying that it would accept the bill with an amendment. This actually fuelled the anti-outsourcing lobby that said that since the aggrieved party (in this case Nasscom) was willing to accept the bill with an amendment, there was a definite case for the bill itself. Anyway, what is amply clear is that there is little Indian companies can do to stem the wave. It's purely a resistance that business interests will overcome in the long run. And as long as CEOs like McNealy and Danon stay unperturbed, Indian information technology can breathe easy.

-additional reporting by Anil Padmanabhan in New York, E. Kumar Sharma,
Debojyoti Chatterjee, and Venkatesha Babu