India Feels Less Vulnerable as Outsourcing Presses On

The global downturn has slowed the rapid growth in India’s outsourcing business, but only slowed it. In fact — because of the pressure on companies, and even governments, to reduce costs — many outsourcing businesses are booming. And a mood that was deeply uncertain just six months ago has turned much more optimistic.
Unemployment has risen to 8.9 percent in the United States, a 26-year high, increasing longstanding pressures to “keep jobs in America.” But managers of companies big and small, squeezed between political pressures and the necessity of slimming down to survive, are choosing the bottom line.

J. Brandon Black, president and chief executive of the Encore Capital Group, a debt collection company based in San Diego, said he planned to significantly increase his work force in India in the next few years, in part because of the tough economic times.

“The thing it boils down to is the supply of well-trained educated labor at reasonable prices is just too great to ignore,” said Mr. Black. In India, “we’re hiring college-educated people.” The company is not doing that in the United States, where it would incur greater infrastructure and health care costs.

“Outsourcing is here to stay,” Mr. Black said.

Some of America’s biggest companies continue to invest in India, even as they trim costs at home.

Hewlett-Packard said last week that it would cut an additional 6,400 jobs, on top of the 24,000 it said it was eliminating in September after a merger with Electronic Data Systems. About half of the September cuts are expected to come from the United States. In March, the computer giant said it was opening “HP Software University” in eight cities in India to train software testers.

This month, Honeywell International, the manufacturing behemoth based in Morristown, N.J., said it would invest $50 million in a new research and development facility in Bangalore that would employ 3,000. The move comes after Honeywell began a reorganization, closing plants and trimming hundreds of jobs recently in the United States.

The company declined to comment for this article, but when it initially announced its India plans, its chairman and chief executive, David M. Cote, said about half of Honeywell’s employees and half of its business were outside the United States.

“Anything that creates any kind of protectionism, anything that stops the globalization activity, will be harmful,” he said.

Many in India say they believe that demographics are on their side in the long run.

“In most developed economies, the work force is aging,” said Ranjit Tinaikar, a partner with McKinsey, a consulting firm. The health care costs associated with employing those Western workers will continue to increase, he said, creating a “big opportunity” for India.

A decade ago, McKinsey and India’s powerful information technology and outsourcing trade group, Nasscom, predicted that revenue from outsourcing by foreign companies would reach $50 billion in India in 2010. The global economic slowdown has delayed that by three or four quarters — revenue is predicted to reach $47 billion this year.

And in April, Nasscom and McKinsey predicted that by 2020, outsourcing would yield $175 billion in revenue here.

Growth will slow this year at many of India’s biggest outsourcing companies, however, because of the implosion of some of their largest clients: banks, mortgage servicing companies and Wall Street firms. But that does not mean revenue is no longer growing.

“People who have never looked at outsourcing before are saying they have to do it,” said Amitabh Chaudhry, the chief executive of Infosys BPO, the outsourcing arm of one of the largest Indian information technology companies. He expects his unit to grow 25 to 30 percent this year, compared with 40 to 50 percent in the past.

But political pressures are making a difference in how business is done. One growing trend, many outsourcing executives say, is placing more Indian employees in offices in the client’s home country. That way the job, ostensibly, does not move abroad. But over the long term, many are likely to be moved across the globe.

“Our view is we start work onshore, then move it to Poland or Morocco, and then over time to India,” said Sachdev Ramakrishna, director of marketing for Steria, an information technology and outsourcing company. Steria is based in Paris, but one-quarter of its employees are in India, and it has offices in Morocco and Poland. “It’s like opening the tap in bits.”

Since Steria’s clients include public utilities and governments in Europe, getting them comfortable with the idea of moving jobs abroad can take time. “Everyone recognizes that this is a changed world order, and the focus is more on preservation of jobs,” Mr. Ramakrishna said.

And yet, new business is coming from all over: insurance companies with a growing number of elderly clients to monitor; pharmaceutical companies looking for more efficient ways to conduct drug trials and handle customer calls (even emergency inquiries, like overdose concerns); corporate legal teams balking at $350-an-hour fees to outside law firms. Even companies based in once union-friendly countries like France and Germany, as well as once-flush Middle Eastern firms, struggling media companies and companies that have been taken over by private equity firms are looking to outsource.

Indian companies that relied on Wall Street and big banks for much of their business are aggressively learning new skills.

East of New Delhi, on a corporate campus that was once farmland, dozens of Indian doctors, nurses and pharmacists are scheduling checkups for patients in the United States and monitoring clinical trial data for some of the world’s biggest pharmaceutical companies.

Thirty miles to the southwest, in the town of Gurgaon, hundreds of Indian lawyers in a glass high-rise are conducting due diligence on deals, combing through contracts and studying intellectual property rights for Western clients.

In the legal field, “there’s been a sea change in awareness of what’s possible” in the last 12 months, said Daniel Reed, the chief executive of UnitedLex, which has its headquarters in Atlanta but has the bulk of its employees in Gurgaon. More and more sophisticated work is coming to India, he said.

Matthew Fawcett, the general counsel of JDS Uniphase, a fiber optics company in California, started looking at outsourcing some legal work to India two years ago and is now a UnitedLex client.

“When you run a legal department of a publicly traded company,” he said, “you care about cost and overhead.”

Patni Computer Systems, which employs doctors and nurses in Noida, is working with health insurance companies in the United States whose policies provide home care for elderly patients. Patni’s doctors and nurses call the patients regularly for checkups, and if the patient needs a physical examination, they call the insurance company, which dispatches a nurse.

“It’s a proactive measure, rather than reactive” said Sanjiv Kapur, the head of Patni’s outsourcing business, intended to prevent the patient from falling ill and winding up in the hospital. “It’s less costly for the insurance company.”

Source:The New York Times

Copyright 2009 The New York Times Company.



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