Outsourcing - my observations after my trip to India

[Christopher D. Fryett]

Title: Message

 

-----Original Message-----
From: Christopher D. Fryett 
Sent: Sunday, August 31, 2003 12:30 PM
To:
Subject: RE: Outsourcing - my observations after my trip to India

Zafar:

 

  Thank you for the detailed report you acquired from India.  Although I don't completely agree that the outsourcing is 1% of the GDP based on the Indian colleagues I am currently working with right now who say the continued trend will help the 4 primary states of India which are the Southern states.  I can't remember them directly but Bombay, New Delhi (sp?), Bangeldesh (sp?), and one more from what my colleagues say are the key technology cities that fuel India's economy.

 

  It is true other countries are gaining outsourcing revenue from the U.S. like China, Taiwan, Russia, and the Balkans (sp?), but for the I.T. market India is pretty much it.  It is morning time so my spelling is another part of the brain which is still asleep :-)

 

  Some of the major software manufactures are moving their work overseas because it cost them a fraction of the U.S. worker's salary.  Is the quality better, no.  It does not matter if it is a Mexican, Indian, Russian, Chinese, or Canadian because overall the training for certain aspects of that company's business is not there.  For example, Dell moved their support over to India.  Before, the majority of it was in the U.S.  I can say personally that support has gone down hill since the move overseas.  I can also say from speaking with others that support has taken a 180 dive south (going to the crappers), because of language barriers, miscommunications, lack of training, and overall dedication.  Now the last one being dedication is of the mind which U.S. workers pride heavily in.  I don't discount our colleagues overseas from having dedication.  It just means something in the U.S. different, in my opinion.  Take for example some of the wars the U.S. has been involved in, especially WWII and post-9/11.  We put our pride, dedication, and hard work into creating a stronger nation that supported our infrastructure.  Now, some of the 9/11 changes, which I hate, but you'll see my @ss taking a bullet for another American if the opportunity lends itself.  Look at the electronic industry and automobile.  We got tired of Japan being ahead of us, and we took a piece of those industries.  I drive a Ford and Chevrolet with pride even though Toyota and Nissan are stronger sellers in the U.S.  I have owned a Toyota 4-runner and Celica, but being from Montana I needed a real truck/SUV and that was not a foreign vehicle.  Today I am sure they are better, but my belief is in the American way and yes I know there are foreign parts in my vehicles just not as many as others.  I will buy U.S. products even if they cost me a little more, because I believe in supporting our U.S. workers and manufactures. 

 

  Now lets get back to our problem in the U.S.  We have endured a major ripple affect that has not rebounded yet.  We had a wonderful life in the mid-1990s, but people got too carried away with the vaporware of DOT.COM.  We had major corporations and investors that put their money into companies that had nothing to show for themselves.  The few smart ones, like Warren Buffet, must have a grin on their face for the major down fall they saw in the late 1990s.  They saw a problem with investing in that market, so they held back.  The smart ones invested, made a ton of money, and got out.  While the majority did not follow this and started the ripple.  Telecommunications, Insurance, and Energy industries who invested heavily started to shutdown projects which in turn put more consultants and their companies in a world of hurt.  This started in late-2000 if I recall and then accounts with those industries started to dry up.  No one was buying, so that created a large surplus of supplies that distributors had in warehouses.  Nothing was moving so the layoffs began.  This also created the other ripple in the Airline, Restaurant, and Hotel industry.  Companies where not traveling, and that caused problems.  The planes were not full, the hotels where nearly empty (I know because I saw  it ), and Restaurants had more empty seats and were closing during off-peak times.  Then early 2001 if I recall correctly we had the major beginnings of scandals going public.  Enron, Tyco, MCI, QWest, and so on had major accounting problems.  That created another ripple affect because now all the vendors that supplied them for their daily business was cut off completely.  What came next was a massive layoff throughout the U.S. and also other aspects of the world.  Then towards the end of the summer-2001 we had a breather.  The layoffs were settling down, and some of the businesses where spending money cautiously.  Then the big hit of 9/11 with the terrorist occurred.  That created the clamp down of all time, because Americans didn't know what was next.  The U.S. government was clamping down on everything, i.e. profiling certain nationality and taking some of our treasured freedoms away from us.  As Americans the majority of us had no issue with it because we were scared sh!tless.  We were extremely angry also, so we said destroy all who get in our way without thinking about any repercussions.  When someone got out of their seat in an airplane they were watch carefully, and if they made an attempt towards the cockpit their @ss had 10 or more people on them.  The people who flew first class can no longer enjoy the luxury they paid for even today.  The airlines all of a sudden came crying for government money (our tax dollars) to bail them out before going under.  Wish I could do the same when I get in a crunch!  We sent billions of dollars to the major airlines and the executives still took hefty bonuses and salary, and then declare layoffs in great quantity.  Now, the second major wave of layoffs started to occur.  The Enron's, majority of the Airlines, pretty much the telecom, and now other manufacturing companies.  So, we have millions of people out on the street with a large population of software/hardware specialists being a part of that population.  If you lost your job, finding another one is tough.  For us software developers we could find another job within a week before 2000.  Now we have to wait for months.  Wish the government could bail out those Americans who lost their jobs! 

 

   The trend now is to move the work overseas for corporations to save money.  What you don't see is most of the executives of those corporations are not taking pay cuts, refraining from bonuses, and obtaining some perks although others like obtaining loans from the corporation are looked down upon now.  They figured we'll survive for ourselves and screw the rest of them, of course this is my opinion only.  Don't they realize that in order to stimulate our market further they have to create jobs and opportunities.  This can not occur by moving operations overseas to India, Mexico (haven't heard this but I trust you know what companies), Canada, Russia, and China.  Where is the American heart of contributing to a great nation that encourages people to do the best they can within this nation.  We have become the worse capitalistic country in the world, and it may destroy ourselves.  I don't agree we should send jobs overseas because it hurts our infrastructure, i.e. tax revenue, job opportunities, and overall growth within our nation.  The only strength the U.S. currently has is the military.  The problem with that is we're potentially making the same mistake Russia is by putting large amounts of money into it instead of other needed areas.  I agree we need to rid the world from terrorist, but I don't see the rest of the world taking this on as greatly as we are, so why should we.  Look at India who promised to contribute several thousand soldiers to Iraq.  They bailed out because they didn't want to get shot at, so on a daily or at least weekly basis a soldier gets killed and it could be my brothers.  I support my brothers and our military 100%, but I have a serious problem with the rest of the world who is unwilling to commit soldiers besides our closes allies, i.e. U.K., Australia, and Spain.

 

  So, while our companies are sending jobs overseas, and India is the greatest taker in the I.T. market we sit and do nothing.  I will be sending this to my congressman and president as I do other issues as I see fit, and so should you.  Remember, if you are a citizen of this country or trying to become one those jobs going overseas are your jobs, so write your government official.  This includes local and state also, because they can put laws in place that make life more difficult for corporations from exporting our jobs.  A quiet voice means you agree with what is occurring!  Also, when you become a citizen of the U.S. you need to put your effort into this country.  Your heritage is from your homeland, but you have declared your commitment to this country so dual citizenship should not be allowed.  Again, this is just my opinion.

 

Sincerely,

 

Chris

 

-----Original Message-----
From: Zafar 

 Sent: Friday, August 29, 2003 1:06 PM
To: 

 Subject: Outsourcing - my observations after my trip to India

Hi:

I just returned from India (Hyderabad) after a 3 week vacation.

Here are some of my observations on the issue of outsourcing that I
gathered from various magazines and newspapers from India. There is a
good chance that by the time you finish reading this report most of
the information in this report could be outdated :-)

First of all I think the paranoia that this phenomenon is generating
is largely due to the dearth of information on this subject. One
thing to note is that the entire IT industry (plus this outsourcing
industry) accounts for less than 1% of India's GDP). Therefore, in
terms of its significance to India's financial health it is pretty
miniscule.

The business process outsourcing to India currently stands at $2.3
billion. It employs 171,000 professionals. According to Nasscom
figures a vast majority of the 310 start-ups for outsourcing are
headed for dead-end. It no longer remains a game for small time
players as big players are stepping it up big time.

Major Indian outsourcing companies
1.      WiproSpectramind has 5000 employees and has 80:20 Voice: Non-
voice business
2.      Daksh eServices has 4000 employees and has 70:30 Voice: Non-
voice business
3.      Office Tiger has 1000 employees and has 0:100 Voice: Non-
voice business
4.      HCL Technologies has 2364 employees and has 90:10 Voice: Non-
voice business

HCL Technologies has British Telecom (BT) as its biggest customer
with a contract of over $160 million. It has several other big
clients with contracts running into hundreds of millions.

What is being outsourced to India?
If you think that only Candle's L1 kind of work is being outsourced
to India, you are in for a shock. The following are being outsourced
to India:
1. Banking, Financial Services and Insurance
2. Telecom
3. Healthcare
4. Human Resources
5. Retail
6. Hospitality/Travel

Other players in this arena:
The Philippines: currently has outsourcing revenues of about $350
million. Has good number of talented software engineers who speak
English and are familiar with American culture. The country has good
infrastructure. Cost savings are 30-50% over the US operations but
wages are nearly 12% more than in India.

Canada: Biggest advantage is its proximity to the US and also is much
closer culturally. Has good infrastructure and low economic and
political risks. Negative points: Cheaper than the US but much higher
costs compared to India. Clients can save up to 25% in Canada. Suited
for complex businesses that require proximity to the US.

Brazil and Mexico: Have an edge because of their time zones and
proximity to the US. Although the labor costs are low, language is a
huge drawback.  US companies have saved 25-40% by outsourcing their
work to Mexico.

China: Greatest strength is low-cost labor (like India). With China
making it mandatory for public school students to learn English, it
could effectively pull the rug from India's feet in near future. Big
players like Microsoft, HSBC etc are already investing big time in
China.

South Africa: Emerging destination for outsourcing. Robust English
based education system. Costs are 25% lower than in Europe. Main
drawback is the lack of adequate skilled workers.

What threatens the Indian based outsourcing companies face?
1.      Over-dependence on the voice business could be a recipe for
disaster. As noted above, China could pull the rug under India's feet
in this arena as soon as its first English speaking grads come out.
2.      Intense competition is driving down prices and hence a lot of
these companies face extinction if they don't move into value-added
business.
3.      Rising costs
4.      High attrition/turnover rates (over 40%)
5.      Invasion of multinationals like Accenture, EDS, CSC,
Convergys Corp etc. For instance, Convergys set up operations in
India in Nov 2001. Just 19 months later, it has 4700 employees,
growing 40 per week! EDS set up a 700-seat center in Mumbai in May
and is on a hiring binge. US-based $11.2 billion CSC has set up a
1000 person facility in India. Accenture is hiring like crazy. These
multi-nationals have the advantage of financial muscle to drive down
prices. One Indian executive remarked that "When EDS, CSC, Accenture
get moving in a serious way (which they already are!), they will be
playing for such large contracts that a single order would be bigger
than most of the companies in the Top 10 outsourcing companies in
India!"

I think we need to look at this whole thing in a much wider context
and not get too emotional about it. A lot of countries in the world
have been bilked throughout history by various countries and this
phenomenon acquires various shapes and forms and this continues even
in this age and times. The bottom line in this sad saga has been
profits and this is exactly what is driving the corporations to
outsource. Blaming the Indian industry for the economic malaise here
is way off the mark. With the way the multinational companies are
moving into this arena, there may no longer be many indigenous Indian
companies in the outsourcing business.

High time we start looking for solutions rather than gripe about this
issue. As usual, just my 2c worth.

Zafar