Outsourcing backlash targets India

NEW DELHI--Manoj Kunkalienkar doesn't panic when he hears storiesabout a potential U.S. backlash against India over offshore labor.

		Outsourcing Where to draw the line Reforms not rhetoric Special report

The president of ICICI Infotech, an outsourcing company based in Mumbai,India, says clues to the future of India's technology industry can befound about 4,000 miles away, at the other side of Asia.

"If you recollect, there was a negative sentiment about Japanese goodsduring the '80s. Today, brands like Toyota, Sony, Honda and Mitsubishiare as much a part of modern America as Ford," Kunkalienkar said."Backlash is a passing phase, and ultimately, corporations as well aspeople will realize the greater business benefits."

Despite the angry rhetoric and callsfor protectionist legislation in U.S. Congress and several state houses,Indian politicians and executives of companies that provide offshoreservices are surprisingly sanguine about the controversy. From thecapital of New Delhi to the high-tech center of Bangalore, governmentofficials and business leaders often seem genuinely puzzled about theintensity of negative reaction in the United States.

Many point out that the U.S. government has long been a strong proponentof policy reforms that have opened India's economy and led to multilateral trade agreements. The boomin outsourced services is one result of those reforms, they add, and aninevitable consequence of an increasingly global economy that willeventually benefit all who participate.

"I should mention the strange controversies that have been generated onwhat is called 'business process outsourcing,'" the Indian primeminister, Atal Bihari Vajpayee, said in a March speech on globalization."The very process of liberalization, on which we have been lectured forso many years, has created competitive skills, which are available forutilization by businesses everywhere. We should not now drive a reverseprocess."

At the same time, Indian officials and executives are often reluctant toaddress the backlash issue publicly in today's hypersensitiveenvironment. Adopting a slogan put forth by the ruling parliamentaryparty, many are seeking to preserve what has been dubbed the "feel-goodfactor": a burgeoning sense that India can compete with developednations on a global level for the first time in modern history.

"India is an idea whose time has arrived," Yashwant Sinha, India'sminister for external affairs, said at the recent India EconomicSummit.

No going back?
The news media are often blamed for exaggerating American job losses andother consequences of offshore outsourcing while underreporting thebenefits, such as cost savings to technology companies and the U.S.economy as a whole. Indian officials and corporate leaders haveattributed much of the controversy to election year politicking and todenial by American labor organizations that outsourcing is here tostay.

"This is an irreversible process," said Ravindra Datar, an analyst withthe Indian arm of industry research firm Gartner. "Once corporationsstart deriving significant business advantages by offshoring to Indiaand other locations, it is unlikely that they would forsake those oninsistence from political leaders."

Yet that is precisely what some in Congress are calling on Americancompanies to do. The Senate has approved a measure that would bargovernment contractors from shifting work on federal contracts from U.S.employees to staff in other countries. In the House of Representatives,Vermont Independent Bernie Sanders has proposed the Defending American Jobs Act, whichwould limit federal grants and loansto companies that replace U.S. employees with foreign workers.

At the state level, legislation penalizingcompanies that send work offshore has already been passed.Local politicians have proposed measures to curb outsourcing in at least twodozen states, sometimes through initiatives and legislation with namesthat sound like political bumper sticker slogans--Opportunity Indiana,the Keep Jobs in Colorado Act, and the American Jobs Act of Wisconsinamong them.

A February study by the U.S.-based Washington Alliance of TechnologyWorkers (WashTech) found that 93percent of employees polled were worried about the effects of offshoreoutsourcing. About 25 percent reported that their company had moved jobsoverseas, and 20 percent said they had either trained a replacementworker or knew someone who had done so.

U.S. companies are feeling the heat, both from politicians and fromtheir own rank and file. About 85 percent of companies consideringoffshore contracts are concerned that new laws or political pressuremight prevent them from using foreign services, according to a studyreleased in March by research firm DiamondCluster International.

India's public response to U.S. legislation to curb outsourcing has beennotably tempered, a stark contrast to the heated language that oftenpunctuates the debate over the issue in the United States. One of thefew sharply worded statements to come out of India was made earlier thisyear by the Confederation of Indian Industry, a powerful business lobby, in response tothe Senate legislation.

"The passage of the federal law barring outsourcing of U.S. governmentcontracts given by American firms to companies located in India andother countries by the U.S. Senate is unfortunate and unwarranted," theorganization said in January. "India is taking examples from the UnitedStates and other developed countries on its path of liberalization andreforms. However, such antiliberalization measures, when adopted bydeveloped countries, will lead to greater protections in other sectors,thus impacting global trade flows."

That same month, Indian technology minister Arun Shourie expressed similar views at a summit of Asia'stechnology ministers in Hyderabad, India, where he said countries in theregion should stand together against a growing backlash. "Outsourcingbacklash is a common concern now in the Asian countries," he said. "Weshould take a concerted view and action on the outsourcing backlashunleashed by the United States, Europe and Australia, and face thesechallenges with a strong counterforce."

A day later, however, Shourie appeared to go out of his way to tone downthose remarks. Calling the backlash "a minor issue," he blamed the newsmedia for feeding the controversy and said any campaign againstprotectionist U.S. legislation should be done "in a low-key manner."

The revised comments reflect what seems to be a deliberately mutedapproach by the New Delhi government and the Indian technology industry."The current backlash against outsourcing to countries like ours seemsto be a passing phase. Impact felt till now has been minimal," saidBadruddin Syed, executive vice president of vMoksha Technologies, which offersoutsource services to industries ranging from banking to healthcare.

Like other Indian executives, Syed believes that simple economics willeventually prevail. Although economists in the United States and Indiaconcede that American jobs will be lost initially, many argue that bothcountries will reap the benefits of outsourcing in later years.

For every dollar spent on outsourcing, the U.S. economy receives $1.12to $1.14 in return, according to estimates by international consultancyMcKinsey. Even if the highest offshore labor estimates hold true--suchas Forrester Research's widely published prediction that 3.3 millionservice industry jobs will move to other countries in the next 15years--that number would represent only 2 percent of total U.S.employment today, according to Gary Endelman, a lawyer at BPAmerica.

"As economists around the world have been pointing out, outsourcingmakes businesses more competitive; increases their exports and theirprofits; and places more investable surpluses in their hands, which canbe deployed to create more jobs," Prime Minister Vajpayee said in hisspeech. "The world has spent the last decade trying to make sensibleeconomics prevail over the temptation for short-term politicalgains."

Economists in the United States note that far more jobs have been cut asa result of improved productivity, a weak economy and domestic corporaterestructuring than have been lost to foreign outsourcing.

"In the current hysteria about offshore outsourcing, productivityunfortunately is seen in some circles as a four-letter word," theAmerican Electronics Association said in a March report. "The concern aboutoffshoring is very similar to the concerns during the late 1980s andearly 1990s in the United States that Japan was going to become thedominant economic and high-technology power of the world. It didn'thappen."

Political overtones
Many Indian executives and politicians believe that the offshorecontroversy will subside after the U.S. presidential election inNovember. Until then, they say it makes no sense to risk aggravatingtensions further, especially when it is unclear whether Americanprotectionist sentiment will lead to any significant curbs on offshoreoutsourcing this year or beyond.

"It has to do with corporate restructuring in the United States but hasacquired political overtones in an election year," N.K. Singh, amember of India's Planning Commission, said in a recent speech to executives onIndian competitiveness.

Those overtones may already be changing in the United States. Politicalanalysts and others say rhetoric surrounding the subject has softenedjust in the last few months, since most of the Democratic challengersdropped out of the presidential primaries.

"Now, you can have a little more rational discussion on the subject thanyou were able to even a few months ago," said Rick White, a formerRepublican congressman and now chief executive of bipartisan industrylobbying group TechNet. "I do think it's anissue that has a lot of political momentum, particularly among thoseinside the Beltway, but it may not have as much momentum as they thinkit does."

Even if successful, many protectionist campaigns would likely haveminimal financial impact on Indian businesses. The vast majority ofmeasures proposed at state and federal levels involve U.S. governmentcontracts, which account for as little as 1 percent to 5 percent ofIndia's outsourcing industry, by some estimates.

Of more concern within many circles in India is the possibility ofpsychological harm or other disruption to the new national optimism thathas taken root in recent years, particularly among college students andthose beginning to enter the work force--young citizens who representthe future of a country that is fast approaching a trillion-dollareconomy.

"So much has changed in the last five years because of high tech. Nowyou see 21-year-old kids full of confidence. This is not just true ofengineering graduates, but also of those in commerce, literature, artsdegrees," said Vamsee Tirukkala, co-founder of Zinnov, an offshore researchand consulting firm with offices in Bangalore and Santa Clara, Calif."When I came to the United States 10 years ago, I had no confidence. InIndia, I didn't see any future for myself."

Tirukkala sees this change all the time in his business, which advisesU.S. companies how to start outsourcing and helps set up operations inmultiple countries, including India. In addition to helping streamlinecommunications, Zinnov and other companies hold seminars to helpAmerican and Indian workers understand each other better in nonverbalways.

"We do cultural workshops for on-site and off-site teams. We teach themto understand and appreciate other customs," Tirukkala said. "In theIndian culture, for example, you don't look people in theeye--especially elders. This could be misinterpreted by Americans as asign of disrespect."

Many companies have learned that cultural knowledge is a key to avoidingthe kind of "Buy America" campaign faced by Japan in previous decades.Indian executives believe that they can bridge social gaps more easilythan those from other foreign countries because of India's largeEnglish-speaking population and relatively long history of doingbusiness with Western nations.

"At vMoksha, an employee traveling on site is briefed about daily lifeand work culture by peers who have worked there," Syed said. "Accentneutralization and customs familiarity workshops are very common in theindustry."

Still, he acknowledges that training isn't always enough to salveconcerns among U.S. workers. "People who travel to client locations doface resistance from professionals who believe that their jobs are beingtransferred offshore," Syed added.

Other executives say resentment sometimes leads American employees toexaggerate errors made by offshore workers--something that outsourcingfirms have labeled "issue magnification." "The tolerance level isusually high for in-house team mistakes, but issues get magnified whenthe offshore team makes a mistake," Tirukkala said.

Whether general or personal, Indian executives agree that the best wayto counter all forms of backlash is to provide accurate information."The need of the hour is to present the correct picture to the Americanpublic," said Kunkalienkar of ICICI Infotech.

That includes the honest portrayal of India in its entirety, not just inits newly created prosperity. Despite its recent success in outsourcing,much of the country remains steeped in poverty--hardly lending itself tomischaracterizations of egregious wealth at the expense of unemployedAmericans.

In its "IT Tour Guide to India," Zinnov warns U.S. clients: "It will bedisheartening to see young women with small babies begging on thestreets. Try to be mentally prepared for this sight."

For this reason, many executives believe that the technology industryhas a much larger goal that transcends business and economics.

"I think that there is a requirement to take this job creation andwealth creation, and see how it can be leveraged to improve the qualityof life for a much larger set of people," Nandan Nilekani, co-founderand chief executive of Infosys Technologies, said in recent interview with CNET News.com. "I thinkthat is the challenge for India."

CNET News.com's Dinesh C. Sharma reported from New Delhi and MikeYamamoto from San Francisco.