The Hindu Business Line : Indian capital goes abroad

A strong rupee, the skilled-labour shortage, changing demographic profile of overseas clients and the firms’ own movement up the value chain are all playing a role in encouraging high-tech firms to outsource their outsourced jobs to countries located near actual and potential clients, says ASHOAK UPADHYAY.

Read alongside the new ceilings of foreign exchange use by corporate bodies and individuals by the Reserve Bank of India recently, the news report of MindTree Consulting’s plans to set up a development centre overseas seemingly provides further evidence of India’s movement towards developed-nation status. In a short span of four years, it has moved from wooing capital, both portfolio and direct foreign investments, to exporting it.

In this journey, India has joined the ranks of emerging economies such as China and other East Asian countries that use their considerable foreign exchange reserves to re-export them, either as intra-government loans or aid, as China is doing in a massive way in Africa, or through local firms that are leaving their footprints all over the world through technology collaborations, acquisitions or production bases in host countries.

While India still has a long way to go in portfolio investments overseas compared to China and other East Asian economies that invest in US Treasury bonds, it has accelerated the rush of local firms across the spectrum acquiring companies around the world.

The New Wave

Nothing quite matches up to the way Indian high-tech firms are going global. For major companies such as Infosys, TCS, Wipro Satyam and, now, Mindtree Consulting, it is not simply a matter of acquiring productive assets overseas, like Tata Steel, for example, but a strategic shift in client-servicing to offshore centres.

Most of the large high-tech firms have back-offices in countries as diverse as China, Romania, Mexico, Saudi Arabia and North America, not to mention east Europe.

Infosys and TCS may have set up these back-offices decades ago but, of late, they have been ramping up their operations.

Some have moved critical services closer to clients in North America for which Mexico offers location advantages, just as east Europe does for West European clients.

This trend marks the movement of high-tech industry up the value chain, from being the recipients of outsourced jobs to outsourcing the jobs back in proximity to actual and potential clients.

Behind these moves are a host of factors driving high-tech firms into hitherto untapped markets, not simply as vendors selling services from India but from just around the corner, be it in China, the Philippines or the US.

The most challenging factor is the demographic mix of clients. With Spanish being the second most used language after English in the US, India’s largest market, the Big Three are upgrading operations in the Philippines and Mexico.

Similarly, east Europe offers better client servicing facilities for German and French-speaking clients across the continent.

High-tech and call centre operations no longer have a predominantly Anglo-Saxon clientele and Indian firms have moved aggressively into a space that was as alien to them as Mars.

In the bargain, they have joined battle with home-grown high-tech firms and in a continent like Europe, where jingoism is often visible beneath a veneer of modernity, that battle is noteworthy.

What makes all this probably more palatable to the host countries is the Indian firm’s willingness to employ local talent instead of shipping it out from India. MindTree Consulting, it is reported, will employ more than 90 per cent of the workforce from the host country it plans to invest in.

Export of jobs

A rising rupee that eats into export earnings is encouraging high-tech firms to further outsource their outsourced jobs to countries that have favourable exchange rates.

With skill shortages in India beginning to show up across the organised sector, it is the high-tech firms that have shown a willingness to experiment with new ways of dealing with the spectre of rising wages.

On-the-job training of science graduates has now become routine in the industry.

But high turnover leaves them no cost advantage given the need to retain employees with higher wages. According to studies, the wage differentials between the US and Indian high-tech professional is now narrowing.

What was good for the economy in terms of high incomes and high consumer spending that fuelled the current growth is bad for the high-tech firms; wage inflation is another reason for them to set up operations in other developing countries, cashing in on the high-tech boom in countries such as such as Algeria Morocco, South Africa and, of course, China that wants to muscle in on the software end of the business.

Along with the export of capital in the form of more forex for individuals and for companies to buy companies elsewhere, we are now witnessing the export of jobs, though not at the cost of domestic employment as yet. TCS, Infosys, Wipro and the others still have the largest contingent of their total workforce within the country.

But all those contextual factors — a strong rupee that may stay that way for some time, a skilled-labour shortage that will stay for a very long time, the changing demographic profile of overseas clients and, of course, the high tech firms’ own movement up the value chain — will play a role in pushing companies to re-locate incremental jobs and services elsewhere.

Diaspora of Capital

The export of capital and jobs by high-tech firms will then be both a necessity and a choice engendered by their own development as service-providers.

In their diaspora, as it were, they differ from manufacturing and other service-providers — airlines, for instance — by the flexibility of their response to contingencies not of their own making. That is why they may not prove trendsetters for the brick and mortar industries that also face a skill shortage, though not quite to the same extent and, as exporters, the adverse effects of a strong rupee.

But, increasingly, as wage inflation in other sectors catches up with the West, domestic industry jobs will become globalised. Already, service industries such as hotels and airlines are tapping a global pool of executive talent. But the trend, restricted to the private sector will be slower to pick up than the reverse one of jobs being exported by high-tech firms to low-cost labour economies.

Stumbling into uniqueness

In retrospect, the past decade’s growth pattern presents a unique model not found elsewhere in that the high-tech industry’s growth predicated on globalisation preceded, perhaps prompted, growth in the rest of the organised sector, beginning with services, in general, and permeating to manufacturing, all of them together propelling India into the ranks of the fastest growing emerging economies.

While China followed the Anglo-Saxon model of development and deliberately turned itself into the world’s factory India became its office quite by accident.

With the growing intervention of high-tech firms into every corner of the world, countries unblessed with employment options but excellent educational systems, Algeria, east Europe, maybe even Cuba, will benefit from Indian capital’s diaspora. And because the export is so diffused and widespread, no Indian ‘techie’ or call-centre professional reckoning he has lost his job to a foreigner will be able to say he has been “Shangaied”, like his American counterpart could say he had been “Bangalored”.

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