Paul is 45 years of age, lives in small town near San Jose, California state, USA. He works as a software programmer for a local mid-sized company, is respected for his skills and quality of code that he writes. One morning, he is called to the office of his boss. He is told that the global slowdown has hit the firm hard; the company needs to cut costs and has decided to offload code writing to an outsourcing firm in Bangalore, India. The world comes crashing down on Paul. He is without a job.
Sridhar studied in the local engineering college in Vizag a port town in the South of India. His parents had sold their only possession, a piece of agricultural land, to pay for his education. Sridhar finally got a job with an IT outsourcing firm in Bangalore. Sridhar first priority in life is to earn enough to repay his father’s debt and get his parents out of penury. A stint in the US is his dream. He is determined to compete, work hard, save a lot and finally own a house and lead a good life free from poverty and deprivation.
Paul and Sridhar may be fictional characters but their stories are true. These are getting repeated across continents in Asia, Europe and North America. Both are qualified engineers. One works for $90 per hour the other at $30. The job, they both do, is the same. One has just lost a job to Bangalore and the other has gained one. Both deserve a good life.
The IT outsourcing and job loss debate is not about technology but about profit, shareholder value and people. It is about trying to redress the trade balance between countries. It is about countries seeking to protect their citizens from pain.
India has 1.2 billion people, produces 600,000 IT graduates, 1 million graduate engineers and 16 million engineering diploma holders each year. IT outsourcing is the main export of India and helps to keep the trade deficit from going out of control. The IT outsourcing industry of India has an average age of thirty. The supply is continuous, although there is shortage of experienced resources. Average annual cost to company in India is only $6,500 as compared to $60,000 in the US.
Over time, the global IT industry has adopted the Indian Global network delivery model (GNDM). Herein companies have opened delivery centres called GDCs (Global Delivery Centres) across countries in different parts of the world. GDCs have been built across North America, Europe, Latin America, China, India, Australia and across the ASEAN region. This innovative model seeks to leverage advantages of each location.
At some places like India, China, Mexico, ASEAN region and Latin America cost is low and availability of manpower is comparatively good. GDCs help companies leverage local opportunities and expand their customer base. They also add to linguistic capabilities so critical while operating in non English speaking markets. In these low manpower cost countries size of GDCs are huge with a GDC manpower strength reaching up to 5,000 people.
In an expensive location like North America and Europe, manpower deployed is relatively small and is rarely over 500 people. Hereto, all efforts are made to induct cheaper qualified resources from India. Work visas like H1B and L category for the US become critical to maintain profitability of these companies. This staffing mode is common to both Indian, North American and European companies. Under pressure from local governments, companies have started hiring local manpower. They will continue to do so till such time, this does not significantly erode their profits.
Research, innovation, new product development companies have also moved in a big way to countries like India. New product development work is now being conducted at offsite RDCs (Research Development Centres).
The recent effort to increase cost of applying for a visa, forcing outsourcing companies seeking to induct cheaper resources into the USA by insisting on their paying prevailing market rates to their employees deployed in the US will inevitably result in drying up of inward traffic to the US. Technology resources are a fungible commodity. It will move where it gives the best Return of Investment.
Companies, globally in different times innovate and adapt to new challenges. Protectionism is not new to the world. The GNDC could play an important part in this counterstrategy. Free trade agreements, regional free trade agreements between North America and Latin American countries will come in play. Instead of Indian manpower, the onsite deployment will happen from Latin America. Paul will not get his job back soon. His job will be replaced by a Mexican Paul instead of an Indian Sridhar.
Technology will also be deployed to counter this challenge. Cloud based solutions, may not require onsite deployment of human resources in numbers. Most of the work can happen offshore. Government efforts in protectionism will lead to disruption but will this lead to increased jobs in the US and elsewhere? The jury is still out on this one.