Interview with Rafiq Dossani in Silicon Valley Biz Ink
U.S. companies sent jobs to India to save money, but stayed because of the quality of the work. Rafiq Dossani is a senior research scholar at the Asia-Pacific Research Center at Stanford University. Dossani, along with Martin Kenney, a professor in the human and community development department at the University of California, Davis, published a 52-page research report entitled "Went for Cost, Stayed for Quality: Moving the Back Office to India." The paper is available for download below. The research is a comprehensive look at the driving forces behind the migration of "business process" work to India. These BP jobs include much of the so-called back-office tasks -- human resources, accounting and customer service -- that are being outsourced to India. General Electric Co., for example, employs 9,000 BP workers in India, saving the company $340 million per year. It's little wonder why GE anticipates employing 20,000 workers in India by next year. Biz Ink editor Dennis Taylor spoke with Dossani from his Stanford University office about the dynamics of the offshoring trend. Q: What are the key business needs being outsourced to India today? A: There are really two practices: [information technology] and business process outsourcing. BP is expected to overtake IT by next year. IT outsourcing has been growing in India by about 15 percent per year. BP is growing at 100 percent a year. There are different dynamics involved. Q: On the IT side, what work is being done in India? A: There are four distinct processes to IT development -- project determination, architecture, system design and [programming]. About 25 percent of that is programming, quality assurance and Web services. India has about 15 percent of that. It's a small percentage, but it's growing fast. Q: Why does that type of technology flourish in India? Is it the education focus? A: The education policy as such hasn't made much of a difference. India doesn't have a lot of technically educated people, relative to its population. There are 0.3 scientists and technicians per 1,000 people, which ranks India 42 out of 62 nations surveyed by the World Bank in 1998 in the per-capita number of scientists and technicians. What it does have is a billion people. What has helped India is everyone speaks English. Q: What was the most surprising finding coming out of your research? A: By far, India's biggest skill is business management. It is very hard to manage these projects remotely. Yet American companies are lifting a key component of a process and shipping it off to India and it is being managed well. You need to understand that 96 percent of these programming projects are complex coding for banks, insurance companies and a host of manufacturing companies. This is complex software being created on demand and most of it -- because it's banks and manufacturing [not tech companies] -- is coming from mainstream America, not Silicon Valley. Q: How much of the work being outsourced to India comes from the United States? A: About 70 percent. How is the phenomenon of "offshoring" affected life in tech hubs such as Bangalore? Q: In a sense IT has not had an impact on these places. It's like an ivory tower. In March 2003, there were 230,000 employed in the [IT] industry. In Bangalore that may represent one-third of the population, but 30,000 out of a population of 5 million creates a buzz, but that's about it. A: But BP outsourcing is having a completely different impact. There are many recent graduates who have never been able to get a job so easily. Now they have well-paid jobs with multinational firms because they speak English and have good interactive skills. With more people employed, it's beginning to hit mainstream India and move out of Bangalore and to smaller cities. That in turn affects other sectors, such as construction management skills. Shoddy buildings in India are becoming a thing of the past. Q: Is offshoring causing any Indian engineers here in the valley to consider returning to India? A: What happened is India liberalized in 1991 -- allowing foreign firms to do business. But it took them five or six years to adjust, so in 1996 the first foreign company was established and now it's quite common. But IT outsourcing still only comprises 4 percent of the business, but it is growing so there will be an impact to the valley. Q: There are roughly 30,000 Indian engineers in the valley, and I'd estimate no more than 300 have gone back. A: Will the rapid growth in offshoring continue as long as there is a substantial wage disparity between the two countries? Q: Oh, yes. The wage disparity is too much. Someone working in a BP tech support call center will make $1.50 [U.S.] an hour, including benefits. Over here, even if you paid $15 an hour, you wouldn't get happy workers. There it is viewed as a good career. The supply of labor is so huge for call-center work, it will take many years before the difference is cut to even half as much, probably 10 to 15 years. With IT outsourcing, in India you would be paying $3.50 an hour for a Java programmer versus $25 an hour here, so the eight-times differential still exists. Q: Is the practice paying off for valley companies? Any early report cards? A: Oh yeah, big time, especially on the BP side. You save 80 percent in costs. On the IT side it is beginning to pay off, now that it's a matter of in-house offshoring to your own subsidiary. Product software doesn't source out well because of the [feared loss of] intellectual property associated with it. Q: Is there a downside to offshoring work to India? A: A big concern for companies is the loss of knowledge. The last time that happened was in consumer electronics and the U.S. lost the lead. And business continuity is a big concern. You need to have payroll done at a certain time of the month, but if there is a power outage, which is more likely to happen in India than here, what are you going to do? And of course there is a very real concern over the loss of intellectual property.