India Outsources Outsourcing

**Shek** · 12-06-2007, 18:33 PM

India outsources outsourcing | Business | The Guardian

Quote:

India outsources outsourcing

Thousands of jobs taken from the west are being re-exported as wages shoot up

From his tree-top-high office, Kris Gopalakrishnan, the head of India's giant software company Infosys, explains the rise of an economic phenomenon about to engulf the world: outsourcers are outsourcing themselves.
Once known for sucking jobs out of call centres and IT departments in the west, Indian technology firms are re-exporting them to wealthier nations as wage inflation and skills shortages at home reverse the process.

Infosys spent $250m this year buying the Polish call centres of Philips, the electronics group, manned by workers who speak half-a-dozen European languages. The company is building up a network of offices stretching from Mexico to eastern Europe to China to provide an "anytime, anywhere" solution to its clients. "Our customers are global, so we have to become so," says Mr Gopalakrishnan.

Infosys is not alone. Wipro, another hi-tech titan, has been on a spending spree, buying up companies in America, Finland, Portugal and Europe for hundreds of millions of dollars. Azim Premji, Wipro's chairman, raised eyebrows on Wall Street when he talked this year of setting up divisions in Idaho, Virginia and Georgia - US states he said were attractive because they were "less developed".

Tata, India's largest firm, is running call centres in Britain. ABN Amro, the Dutch bank recently bought by an RBS consortium for £48bn, will pay Tata Consultancy Services $200m to send work halfway across the globe to Brazil, where software programmers will run computer systems.

Indian software companies' skill is that they have been able to take complex tasks from multinational firms, pull them apart and put them together more efficiently. This expertise has reached a stage where it can be done anywhere across the globe - grafting Indian technical knowhow onto white-collar workers in Brazil or Saudi Arabia or even back to the US.

Precocious

The ability of an industry in a developing country such as India to export "managerial and entrepreneurial capital" to wealthier nations is unprecedented, say economists. Arvind Subramanian, of Johns Hopkins University in Baltimore, says that India exports 1.2% of its GDP ($12bn) in foreign direct investment. Professor Subramanian says this is part of India's "anomalous pattern of development". Countries typically specialise in industries such as IT only when their income per head passes $15,000 and they do not export investment until per capita GDP touches $45,000. The comparable figure for India is only $900. "India finds comparative advantage in skills and managerial capital ... how precocious is that?" he wrote this year.

The other strange feature is that the Indian economy, booming at 9% a year, is not driving the growth of India's software firms. Barely 2% of Infosys's income comes from India. Instead Wall Street banks asking for "Spanish language support" or China's booming economy sway investment decisions. Mr Gopalakrishnan says Infosys's "non-English-speaking revenues contribute about a fifth of the total. It is growing fast and we have to build up expertise in languages."

Indian software companies are replicating the model of bigger foreign rivals, such as IBM and Accenture, which have large workforces around the world. Both multinationals aim to have workforces of 100,000 in India in a few years and companies such as Infosys are girding themselves for battle. "Nobody dominates the space yet," says Mr Gopalakrishnan. "IBM is probably the biggest and has revenues of $55bn. They built that up in the age of the PC, which is 25 years old. We came about with the internet. It's a different way of thinking."

The move highlights two converging trends: first the demand for skilled talent in India is sending salaries skyrocketing. One startup in Bangalore decamped to Silicon Valley after finding that programmers were asking for wages of up to 75% of those paid in California. Infosys is on target to hire 32,000 people around the world this year - only Wal-Mart has taken on more staff. Bangalore's biggest companies are now hiring directly from British and US campuses. The second trend is that Indian software companies face a "skills crunch". Although 3 million students graduate from Indian universities each year, only a fraction are considered good enough for companies like Infosys.

A recent study claimed only 15% of graduates were of suitable quality to work for blue-chip clients. Mohandas Pai, Infosys's head of recruitment, says the company is spending $1bn a year to upgrade "talent". "We have set up a university to train 50,000 people a year. [Infosys] is in competition with every sector: industry, manufacturing, finance. Last year half the global intake of stock market analysts were hired in India. It's a land grab."

Mr Pai says India's surging economy is a victim of its own success. "We have a shortage mentality which is the legacy of the 1960s kind of socialist thinking. I am building 12m sq ft of office space but the work is six months behind schedule. I can't get enough carpenters, plumbers, electricians to work here."

Indian companies are also aware that coming up on their tail are competitors, such as China. To stay ahead, Indian companies are setting up overseas.

Phiroz Vandrevala, director of Tata Consultancy Services, India's largest software company, says that the wealthy world is missing a "paradigm shift" in the global economy. The output of emerging economies now accounts for more than half of world GDP. Rich countries no longer dominate the global economy.

Tata's new strategy is to "join the top three IT companies in each of the so-called BRIC nations - Brazil, Russia, India and China. The world's growth will come from these countries and we want to be there too."

· This article was amended on Friday October 19 2007. India exports 1.2% - $12bn - of its GDP, not 12% - $120bn as we said in this article. The erroneous figure of 12% came from an article written by the economist we quoted. We also said that IBM Global Services has revenues of $5bn; that should have been $55bn. These errors have been corrected.

Skull6 · 12-06-2007, 20:06 PM

Would this fall into the category of "Technical support-ping pong?"

Tronic · 12-06-2007, 20:17 PM

It is not exactly, "outsourcing the outsourcing" as the article seems to state. Basically, it is Indian companies, like Infosys and Wipro, for example, expanding all over the world and trying to become more of a global entities. Also, another reason is that they can get more people speaking European and other languages, which they normally wouldn't get in huge numbers in India. And ofcourse, they also make their presence in other countries which makes it easier for them to enter foriegn markets. And this is not something new, Indian companies have been expanding rapidly, as you can already see in the speed they are buying off foriegn corporations. The auto company Jaguar might just become their next acquisition, as Tata seems to be one of the lead bidders.

12-06-2007, 20:06 PM	#2 (permalink)
Skull6 *Military Professional* Join Date: 08-28-07 Location: Colorado Posts: 290 Country:	Would this fall into the category of "Technical support-ping pong?" __________________ If you know the enemy and yourself you need not fear the results of a hundred battles. - Sun Tzu

12-06-2007, 20:17 PM	#3 (permalink)
Tronic Navajo Code Talker *Senior Contributor* Join Date: 12-27-04 Location: Patiala, India Posts: 5,288 Country:	It is not exactly, "outsourcing the outsourcing" as the article seems to state. Basically, it is Indian companies, like Infosys and Wipro, for example, expanding all over the world and trying to become more of a global entities. Also, another reason is that they can get more people speaking European and other languages, which they normally wouldn't get in huge numbers in India. And ofcourse, they also make their presence in other countries which makes it easier for them to enter foriegn markets. And this is not something new, Indian companies have been expanding rapidly, as you can already see in the speed they are buying off foriegn corporations. The auto company Jaguar might just become their next acquisition, as Tata seems to be one of the lead bidders. __________________ *Nabha Sparasham Deeptam* *-Touch The Sky With Glory* Last edited by Tronic : 12-06-2007 at 20:19 PM.

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