Bloomberg News

Outsourcing Turns Inside-Out as Indians Open U.S. Centers

October 25, 2012

Outsourcing Turned Inside-Out as Indians Open U.S. Centers

The Infosys Technologies Ltd. headquarters in Bangalore, India. Photographer: Namas Bhojani/Bloomberg

Janie James says she was cool at first when Indian outsourcing giant Infosys Ltd. (INFO) approached her about a job near Atlanta, even though she was unemployed. She didn’t know much about the company, and it seemed a step down from her old vice-president post at Primerica Inc. (PRI:US)

In the end, she decided she could use experience gleaned from her work at life-insurer Primerica and another stint at a financial-investment company to help Infosys build its insurance outsourcing business. Now James is an operations manager at the Bangalore, India, company’s first predominantly U.S.-staffed center, which opened in April.

“They saw this was a city with a lot of people who were out of work and had the skills they needed for this center,” she said. “Anything that can be done to decrease unemployment is a great thing.”

James is one of thousands of workers filling outsourced jobs that are coming back to the U.S., or at least not going offshore. Indian and U.S. outsourcing companies, along with corporate icons like General Motors Co. (GM:US) and General Electric Co. (GE:US), are reversing a 20-year outgoing tide.

These companies and others, including software developer GalaxE.Solutions Inc., say some complex functions, such as human-resources and software development, are better to have closer to their own operations and to respond to customers. Indian outsourcing companies are finding it tougher to get visas for workers brought from India, and some U.S. businesses want to outsource -- yet keep jobs in the country. State tax breaks also provide incentives to hire locally.

Lowest Cost

“It used to be just about getting the job done at the lowest cost,” said Madhusudan Menon, who heads Infosys’s Atlanta center and delivery of U.S. business-process outsourcing. “Now companies are saying some jobs are best done closer to where they are, not cheap as possible somewhere else. They’re rebalancing their onshore and offshore outsourcing.”

U.S. companies with more than $1 billion of revenue sent 1.1 million technology and back-office jobs offshore during the past decade, according to the Hackett Group (HCKT:US), a Miami-based consulting company. While it forecasts a slowing outflow beginning in 2013, it calculates another 400,000 positions will be lost offshore through 2016.

A survey of 617 outsourcing industry executives by Boston- based HfS Research in July and August found the U.S. is seen as the most desirable region in the world to expand IT and business-services delivery centers in the next two years. India was second.

Largely Satisfied

Respondents have been largely satisfied with the offshoring of low-end jobs, such as call centers and routine IT maintenance, according to Phil Fersht, chief executive officer of the outsourcing-research company. With more complex tasks, the survey showed the headaches may have outweighed the savings.

“We’re at an inflection point,” Fersht said. “They have picked much of the low-hanging fruit offshore, but they’re frequently not getting the quality they need with the more complex functions there.” For example, 72 percent of companies said they were satisfied or very satisfied with domestic outsourcing of human-resource services compared with 41 percent who had those tasks done overseas.

The Indian offshore giants are establishing beachheads in the U.S. for political, as well as business, reasons, according to Fersht. President Barack Obama and Republican presidential candidate Mitt Romney have traded charges of being “outsourcer in chief.”

Outsource Onshore

Menon sees opportunities for Infosys to capture business from companies that want to outsource some operations while not being accused of sending jobs overseas.

The principal customer at a Milwaukee center Infosys announced in July is Harley-Davidson Inc. (HOG:US), which insisted that the 75 business-processing jobs it wanted to outsource at lower cost remain in the country, according to Maripat Blankenheim, a spokeswoman for the motorcycle company. Infosys said it plans to have a total of 125 employees at the center by attracting other clients.

Picking up new onshore business from U.S customers could help Infosys buttress its position against competitors such as Cognizant Technology Solutions Corp. (CTSH:US), which surpassed it in revenue for the first time in the quarter ended June 30, according to data compiled by Bloomberg.

Market Share

Cognizant, based in Teaneck, New Jersey, has doubled its market share during the past seven years to 18 percent for the year ended in March, according to an April 19 report by CLSA Asia-Pacific Markets. Infosys’s market share fell 4 percentage points to 21 percent, the report said. Cognizant, whose workforce is mainly in India, has stepped up its high-end outsourcing services and is hiring more employees with relationship management, consulting and deep industry experience, President Gordon Coburn has said.

Infosys has been operating in the U.S. for 25 years, though up until the past two years, only 20 percent of employees were Americans, Menon said. Infosys had about 12,000 workers in the U.S. on H-1B and L-1 visas as of June 30, according to a Securities and Exchange Commission filing by the company.

Infosys and its Indian peers now are having more difficulty obtaining U.S. visas. Last year, 54 percent of Indian petitioners’ initial requests for L-1B visas, which allow employees with “specialized knowledge” to work in the U.S., were rejected by U.S. Citizenship and Immigration Services, compared with 4 percent in 2007. Infosys said in an SEC filing that the immigration agency has “increased its level of scrutiny in granting new visas,” and cited difficulties meeting the requirements for L-1 visas.

U.S. Presence

Tata Consultancy Services Ltd. (TCS), the biggest Indian outsourcing concern with $10 billion in revenue, also is growing its U.S. presence, opening an outsourcing center outside Minneapolis in September to employ about 300 IT workers.

In 2011, Tata Consultancy augmented the work it already was performing for Dow Chemical Co. (DOW:US) in Mumbai by setting up outsourcing operations in Midland, Michigan, near that company’s headquarters. Tata Consultancy currently has 400 employees there, according to spokesman Michael McCabe, handing back- office functions, including supply-chain scheduling and planning for Dow and other clients.

Even with the 2,000 U.S. workers Tata Consultancy plans to hire this year, which is a 25 percent increase from 2011, Americans remain a minority of its approximately 20,000 employees in the U.S. and Canada, McCabe said. About 92 percent of Tata Consultancy’s 250,000 workers worldwide are Indians, according to the company.

Create Opportunities

Still, the onshore outsourcing centers create opportunities in cities such as Atlanta, where unemployment has been above the national average since May 2010. The area’s jobless rate was 8.9 percent in August, the latest month available, while the national rate was 7.8 percent in September.

Infosys was attracted to the area because of its many insurance and health-care businesses, according to Menon. His company saw outsourcing opportunities in those industries and a large pool of unemployed, experienced workers, he said.

“When I told the Georgia Department of Labor what I needed, they gave me 5,000 people without a job in those sectors,” Menon said. He led an Infosys team that interviewed scores of candidates at that agency’s suburban Marietta offices in January. Others, like James, were recruited.

The offshoring reversal also can be seen in U.S. companies such as GM and GE, which were early adopters of outsourcing and now are repatriating jobs.

Innovation Centers

GM said it plans to bring 90 percent of its IT work in- house and, in many cases, onshore, hiring 10,000 workers over the next three to five years. The automaker said it will open four U.S. technology “innovation centers,” one in Austin, Texas, with 500 employees, another in Warren, Michigan, with 1,500 jobs and two others in cities yet to be determined.

GE also is building a technology center outside Detroit, where it plans to employ 1,100 people, as part of a broader initiative to reseed the company’s IT capabilities in the U.S.

Mike De Boer, who led the recent development of a technology center in New Orleans for the company’s GE Capital unit, said the business needs a rapid-response approach to technology changes, such as mobile-phone applications, which requires proximity.

“The speed you need to meet customers’ requirements is all about being near to the customer,” said De Boer, who’s hired 27 IT workers so far for a facility that is slated to reach 300 employees.

Opportunities Reappear

U.S. software engineers who have lost jobs, such as Michael Zureich, say they are heartened to see opportunities reappear in their field. Zureich, who worked in auto-manufacturing processes for 24 years, was laid off by Siemens PLM Software in 2009. He became a math teacher in 2010 after a fruitless 18-month job search, he said.

Then he heard of GalaxE.Solutions, a Somerset, New Jersey, company that is shifting some of its 2,000-employee workforce from India to the U.S. It opened an office in Detroit, where it now has 200 on staff, to help develop software for U.S.-based health-care clients. GalaxE.Solutions, like a number of companies that have been repatriating jobs, received state tax breaks as an incentive to influence location.

“The complexity of the business and the agility required was increasing, and I didn’t feel we were achieving the collaboration and innovation our customers required,” Tim Bryan, chief executive officer of GalaxE.Solutions, said in an interview.

Zureich, 54, who joined the company in March 2011, said while he’s earning a little less than he made at Siemens, “I’m getting significant job satisfaction and regained a lot of the confidence I lost.”

At the Infosys center outside Atlanta, James said she is way past thinking of an outsourcing job as a step down and is learning a business that is here to stay.

“I like challenges, and it’s a notch on my belt,” she said. “Infosys is making a transition, too; when you want to do business here, it helps to give people more opportunities.”

To contact the reporter on this story: John Helyar in Atlanta at jhelyar@bloomberg.net

To contact the editor responsible for this story: Kenneth Fireman at kfireman1@bloomberg.net


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