Kirk LaughlinBANGALORE, INDIA – In a futuristic lab on a leafy information technology campus, an inventor showed off a power strip that calculates a household’s carbon emissions for the environmentally conscious U.S. market. In a research center nearby, rocket scientists worked on designs for lighter, more aerodynamic wings for Boeing fighter jets.
The engineers at Infosys Technologies, India’s second-largest technology company, are at the cutting edge of the country’s $60 billion IT industry, which is shedding its image as a low-cost call center, with young Indians keeping U.S. credit card and banking systems humming all night.
In the latest phase of globalization, some economists say, Silicon Valley is in danger of losing a sizable piece of its knowledge-based industry to India in much the same way Detroit lost its lead to Japan in the auto industry.
While the United States is still the innovation leader with global projects such as the iPhone, thousands of high-tech jobs with iconic companies like IBM and Accenture have been shipped to India.
“If you look at the historical evolution of globalization, this is simply the latest phase. The center of gravity has shifted, with cars moving to Japan, then low-cost manufacturing moving to China and now the more knowledge-intensive work flowing to India,” said Partha Iyengar, head of research for Gartner India, a U.S.-based global IT research organization. “Unfortunately, this time the U.S. is feeling it.”
The outsourcing issue is a sore point in an otherwise deepening relationship between India and the United States, which see each other as vital partners in areas like counterterrorism, defense contracts and nuclear energy.
“Globalization is a two-way street. The U.S. has been lecturing India on opening its markets for years, and now they want to protect their markets,” said Subhash Dhar, an executive council member of Infosys in Bangalore. “The fact is, for generations and generations, the U.S. was at a competitive advantage because of the principles of a free market and immigration of the best and brightest.”
‘Not just a one-way street’
President Obama arrived here Saturday, days after voters concerned about unemployment handed the Democrats a decisive defeat in midterm elections. Many candidates pounced on the outsourcing issue before the vote.
At a Mumbai summit of top Indian and American chief executives, Obama said that in the United States a caricature exists of India as a nation filled with call centers that were taking away American jobs.
In India, Obama said, many see the arrival of American companies as a threat to the livelihood of neighborhood shopkeepers. “These old stereotypes and old concerns ignore today’s reality,” the president said on the first of three days he will spend in India. “Trade between our countries is not just a one-way street of American jobs and companies moving to India. It is a dynamic two-way relationship that is creating jobs, growth and higher standards in both our countries.”
But many Indian industry leaders are upset at the U.S. government for doubling fees for guest worker visas, which Indian companies based in the United States say hurts their efforts to recruit Indian workers. A bill sponsored by Sen. Richard J. Durbin (D-Ill.) and Rep. Bill Pascrell Jr. (D-N.J.) would add new restrictions, fees and penalties for employers to obtain skilled-worker visas. Pascrell says unemployed Americans are eager for the same jobs, which pay guest workers far less. Indian companies say the restrictions and fee increases are unfair.
“It’s another form of tax and discourages the free movement of business,” said Girish S. Paranjpe, a joint chief executive of IT business for Wipro, the third-largest IT firm in India. “It’s protectionism and goes against core American ideas of open markets.”
Obama has also urged Congress to close tax breaks that he says encourage companies to create jobs in other countries. India’s outsourcing industry was shaken last year when Obama said he wanted to change “a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.”
Even on the American TV show “Outsourced,” a disgruntled American employee whose job was outsourced throws a brick with an attached message through a window.
“The way it’s getting framed is that India is the root cause for an economic recession and is somehow being blamed for America’s 20-year credit party,” said P.V. Kannan, chief executive and founder of 24/7 Customer, a global IT firm that has offices in California and Bangalore. “What is actually going on is an abundance of highly intellectual labor no longer constrained by borders.”
U.S. and Indian officials say outsourcing will probably take a back seat to Obama’s push for bilateral trade during the trip. The White House has urged India to give U.S. companies better access to the country’s emerging middle class, which is larger than the entire U.S. population.
The United States, for instance, is pushing India to allow American universities to set up in Mumbai, Delhi and other cities, potentially bringing in millions of dollars in tuition fees from India’s enormous student population. India’s university system is vastly overcrowded.
Can both nations benefit?
Obama said he wants to “pry open” Indian restrictions on foreign investment. But Indian industry experts say Washington seems to get upset only when it ends up on the losing side.
“Globalization is a two-way street. The U.S. has been lecturing India on opening its markets for years, and now they want to protect their markets,” said Subhash Dhar, an executive council member of Infosys in Bangalore. “The fact is, for generations and generations, the U.S. was at a competitive advantage because of the principles of a free market and immigration of the best and brightest.”
Industry analysts say it is difficult to determine exactly how many jobs the United States has lost to India. Many companies decline to release such data.
Some Indian IT leaders estimate that 350,000 American jobs have moved to India over the past decade, but American outsourcing experts say that number may be much higher. IT leaders in India say outsourcing does not hurt American companies but makes them more efficient and helps the U.S. economy by freeing up money for innovation and investments.
Outsourcing experts and advocates for American workers say that while outsourcing helps corporate America, American engineers and computer programmers see few benefits.
The industry has been a driving force in India’s economic boom and helped create a generation of young Indian consumers who have income to spend on cars, computers and spacious apartments.
“They have successfully built a business model where not only do they offshore large numbers of jobs, but the fraction that remain in the U.S. are filled by lower-paid foreign guest workers,” said Ron Hira, an associate professor of public policy at the Rochester Institute of Technology and author of the book “Outsourcing America.” “They are often also forced to train their foreign replacements.”
Ahead of Obama’s trip, Indian IT industry leaders have been working on softening their image.
Infosys Technologies recently hired an American to head its research and development unit. Inside their labs, scientists say they are still inspired by American imagination and ideas such as the iPhone and Amazon.com. Sixty-five percent of Infosys business comes from the U.S. markets.
“We hope it’s just political rhetoric, because So much innovation and our ideas still come from the U.S.,” said Dhar, of Infosys. “The U.S. is still the largest economy in the world. If America does well, the world does well.”
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