Paradigm shift in IT sector

Once again last week, US President Barack Obama, fighting for a second term in office, raised the bogey of Indian firms, particularly information technology and business process outsourcing firms, stealing jobs away from Americans.

He didn't use the word ‘steal', of course, but his meaning was pretty clear. “No company should get a tax break for outsourcing jobs,” Mr Obama said. He urged the US Congress, which has been opposing his budget and tax proposals, to “send me that kind of tax reform right away,” which would reward US companies, particularly technology companies, for creating jobs within the US.

Ironically, the renewed attack on outsourcing, largely aimed at Indian offshore IT services providers, came during his visit to the Seattle factory of aircraft maker Boeing, on which Obama lavished praise for creating jobs within the US. Of course, he had conveniently forgotten that thousands of new jobs in Boeing were either created, or sustained, thanks to large orders from India's rapidly expanding civil aviation market. Orders, what's more, which were touted as the key achievement of his India visit not too long ago! But that is the nature of politics, and Mr Obama, who is engaged in a no-holds-barred battle for a second term, can be forgiven for leaning on any available crutch for support.

Rising Visa rejections

Back home, the US President's remarks have raised predictable hackles in political and business circles. Critics have also pointed out to what they insist are the rising ‘non trade' barriers being erected by the US. They point to the rising visa rejections, particularly in the L-1 and H1-B visa categories predominantly used by Indian companies to send skilled engineers to the US on short-term assignments.

In 2011, 63 per cent of all L-1B petitions received a ‘Request for Evidence' and 27 per cent of applicants were denied a visa. The ‘request for evidence' ploy is often just as effective, since a delay in the visa process effectively bars an Indian IT company from deploying the needed manpower at the requisite time.

According to a report from the National Foundation for American Policy (NFAP) in the US, US Citizenship and Immigration Services denied more new L-1B petitions for Indians in fiscal 2009 than in the previous 9 fiscal years combined.

So does India need to worry about this growing protectionist streak in the US? After all, the US remains, and will continue to remain, the largest market for Indian IT services, and any significant drop in offshoring business will seriously dent the top and bottomlines of Indian IT majors.

Ramping up presence

There is definitely a problem, but industry lobbies in India are working overtime to convince anybody willing to listen that the problem is a concern, not a crisis, and that India's IT industry is not stealing jobs from anybody. Besides, Indian IT and ITES companies are quietly changing strategies to tackle the issue. IT majors such as TCS and Infosys have both announced that they intend to add around 500 jobs every quarter in the US this year. Others like Wipro and HCL too have already invested in local development centres in the US which are largely staffed by Indians, and have announced plans to ramp up such presence further.

This is already beginning to add up to significant numbers. Last year, of TCS's more than 214,000 strong workforce, more than 14,000 were non-Indian. Infy had more than 9,100 non-Indian staff on its 141,000-plus payroll, while Wipro had an equal number of foreign workers in its strength of over 130,000.

Far from stealing American jobs, Indian technology companies are actually creating American jobs, for Americans. And these are not low-skilled, low-paid assembly-line worker or service sector menial kind of jobs either. They are hiring competitively for some of the best talent in the US, competing with global employers and paying globally competitive salaries to do so.

Productivity gap

According to industry estimates, for example, an IT graduate in the US hired off the campus by an Indian IT firm averages a staring salary of around $55,000-60,000 per year — at least 10 per cent higher than the average starting salary for software engineers in the US. In fact, one could argue that it is India which has to worry about the implications of this and not the other way around. Not that the number of jobs theoretically going overseas is an issue. Even the 2,000 jobs that a TCS or an Infosys would add in the US this year is a drop compared with the 35,000 or so they hire in India every year.

But the fact that Indian IT firms are setting up shop in high-cost geographies like the US and Western Europe, hiring local — and high cost — talent, and managing to run them profitably points to a bigger problem — the growing lack of skilled talent in India, and the widening productivity gap between India and elsewhere.

A US engineer may cost several times as much as his or her Indian counterpart, but has enough skills, and is productive enough to make it still worthwhile for the employer. And as the wage bill rises relentlessly at home — just this week, a survey pointed out that salary hikes in the Indian IT sector are expected to average 11.9 per cent this year, the highest in Asia Pacific — it means that this productivity/cost arbitrage will only worsen as far as India is concerned. It's not just in hi-tech jobs that the Indian employee compares unfavourably. Even in the relatively low-skilled voice BPO business, India has now been outpaced by the Philippines, with the tiny Pacific nation now larger than India in the voice BPO outsourcing business. Filipino BPO employees cost more than Indian BPO staffers, but — you guessed it — are more productive.

It is this challenge which industry and government need to address urgently. It is no longer enough simply churning out practically unskilled ‘college graduates' or engineers by the million. The quality of education, and the skill levels and employability of such graduates, need to be improved to global standards. And industry has to figure out how to make their Indian staff as, or more productive, than their overseas staff.

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