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Tuesday, September 25, 2007

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Wait, you mean that markets move towards equilibrium?

The New York Times' Anand Giridharads loooks at how India's outsourcing sector is maturing. He finds that -- gasp! -- Indian firms are outsourcing their outsourcing to other countries.... including, among others, the United States:

Thousands of Indians report to Infosys Technologies’ campus here to learn the finer points of programming. Lately, though, packs of foreigners have been roaming the manicured lawns, too.

Many of them are recent American college graduates, and some have even turned down job offers from coveted employers like Google. Instead, they accepted a novel assignment from Infosys, the Indian technology giant: fly here for six months of training, then return home to work in the company’s American back offices.

India is outsourcing outsourcing.

One of the constants of the global economy has been companies moving their tasks — and jobs — to India. But rising wages and a stronger currency here, demands for workers who speak languages other than English, and competition from countries looking to emulate India’s success as a back office — including China, Morocco and Mexico — are challenging that model....

In May, Tata Consultancy Service, Infosys’s Indian rival, announced a new back office in Guadalajara, Mexico; Tata already has 5,000 workers in Brazil, Chile and Uruguay. Cognizant Technology Solutions, with most of its operations in India, has now opened back offices in Phoenix and Shanghai.

Wipro, another Indian technology services company, has outsourcing offices in Canada, China, Portugal, Romania and Saudi Arabia, among other locations.

And last month, Wipro said it was opening a software development center in Atlanta that would hire 500 programmers in three years.

In a poetic reflection of outsourcing’s new face, Wipro’s chairman, Azim Premji, told Wall Street analysts this year that he was considering hubs in Idaho and Virginia, in addition to Georgia, to take advantage of American “states which are less developed.” (India’s per capita income is less than $1,000 a year.)

posted by Dan on 09.25.07 at 01:56 PM

Comments:

What do you expect when Indian Rupee climbs from 48 to 39 per dollar? The way outsourcing business model works, Indian companies got to find cheaper labor all over the world, all the time. Not only salaries are rising in India, real inflation (non-government stat) in India is not low; captive offshore development centers of Oracle, Microsoft, Intel, HP, Cisco, etc. all can afford to have reasonably good jobs while rest of the outsourcing jobs in India suffer when dollar goes down. All of these ODCs of multinational are more product oriented and hence their value addition can be higher than plain vanilla outsourcing outfits. Further, Indian political class never intends to solve the primary issue of quality higher education (and transparent privatization of that sector) which results in ever shortage of skilled professionals even in a country of Billion plus population. Add to this the constant threat of ‘caste based job reservations’ getting extended to private sectors. So are these not sufficient incentives for Indian Outsourcing companies to look beyond India? They will and they have too.

There will be more to watch as Dollar comes under further pressure and goes further down against Indian Rupee. It does not seem like things are going to be any easy any time soon.

posted by: Umesh Patil on 09.25.07 at 01:56 PM [permalink]

There is also the matter of travelling to and from the U.S., which is increasingly a headache.

posted by: KXB on 09.25.07 at 01:56 PM [permalink]

"Wait, you mean that markets move towards equilibrium?"

As the two previous posters have stated, the answer isn't a simple or easy Macro Econ 101 class make it out to be...

posted by: Yagij on 09.25.07 at 01:56 PM [permalink]

An indictment of American business isn't it?

posted by: Lord on 09.25.07 at 01:56 PM [permalink]

Another giant bonus is that workers in Atlanta and Idaho are no more than three and more often one timezone away from their American bosses, and there's almost no language barrier.

Obviously the time is right for an American company to start offering outsourcing programming services that are in-country, if nobody's doing it yet.

There's no reason someone working for, say, Google, has to be in Silicon Valley, with Silicon Valley cost of living and thus Silicon Valley salaries; hell, I wouldn't want to live there.

If someone who doesn't want to live in an ultra-dense, ultra-expensive area can save a company money and get more disposable income at the same time, by living in Boise or Salt Lake City or Kansas City, everyone wins.

posted by: Sigivald on 09.25.07 at 01:56 PM [permalink]