Shift of tech jobs to India accelerating
By Mark Drajem
Bloomberg News Service
Bob Thibodeau founded Financial Systems Architects in 1998 to help companies such as Citigroup Inc. handle electronic transactions. By 2001 he was driven out of business. Lower-cost Indian competitors undercut his bids on two straight contracts, he said.
So earlier this year Thibodeau founded another company, White Label LLC, with a different mission: to help U.S. technology companies subcontract work to India.
"Not only are Indian companies a third of the cost, but they actually are better," Thibodeau said in a telephone interview from his office outside Boston. "It's really kind of scary."
Thibodeau isn't the only U.S. executive who says the shift of U.S. technology jobs to low-wage countries is unstoppable. In the next decade as many as 6 million U.S. jobs may be sent to India, Ireland, Israel and other nations by companies in search of lower costs and a tech-savvy, English-speaking workforce, Goldman Sachs Group Inc. said in a September report.
Indian workers earn as little as one-tenth of what their American counterparts do, and India produces 67 percent more engineers and computer scientists each year than the United States does. The slowing growth of the U.S. workforce may also push companies to accelerate the transfer of jobs.
Displaced workers suffer
Unlike in the past 25 years, when U.S. factory jobs shrank by a quarter as companies moved plants to Mexico and Southeast Asia, this time policy-makers can't push retraining as the way to help workers obtain new jobs. That's because it is the higher-wage jobs — everything from tax preparation to research — that are leaving.
While outsourcing, as the migrating-jobs trend is known, benefits companies such as Microsoft Corp. and Texas Instruments Inc., it has triggered a debate about whether the U.S. economy is better off. About 2.4 million jobs have been lost in the United States since President George W. Bush came to office in 2001.
After U.S. workers lose jobs because of overseas competition, they typically get new ones within six months, according to a study by Lori Kletzer of the Institute for International Economics, a Washington-based research group. The earnings from the new jobs average 13 percent below the old ones, the study found.
Older, less educated, lower-skilled workers were more likely to experience earnings losses in excess of 30 percent, according to the study, which was drawn from data compiled by the Labor Department's survey of displaced workers.
Analysts say the shift of jobs overseas is one reason job creation hasn't matched economic growth, which rose at an 8.2 percent rate in the third quarter of this year.
"The idea that corporate America is stepping up and hiring again is ludicrous," Stephen Roach, Morgan Stanley & Co.'s chief economist, said.
U.S. services hiring has been virtually unchanged during the past 22 months, in contrast to a 5 percent gain in the six previous business cycles, Roach said. That means the United States is "in the hole" by 2 million service jobs, compared with a "normal" business cycle upturn, he estimates.
Officials at the Federal Reserve and World Bank say the loss of 6 million jobs over two decades is dwarfed by an economy that has 130 million people at work. More important issues for the economy are the aging workforce and new technologies that enhance productivity, they say.
And as with steel and textile workers who "are being priced out of the global labor market," technology workers facing competition from abroad will land jobs in growing areas of the economy, Federal Reserve Chairman Alan Greenspan said in a speech this month to the World Affairs Council of Greater Dallas. "New jobs will replace old ones, as they always have," Greenspan said.
Even as factory jobs have left the United States, the country as a whole has gained 41 million jobs since 1979, a 46 percent jump.
U.S. workers who aren't designing computer chips or answering telephones will be working on the next level of high technology, such as nanotechnology, the science of manipulating atoms or molecules for commercial application, Commerce Department Undersecretary Phillip Bond said in an interview.
Intel Corp. Chairman Andrew Grove and union leaders say those potential opportunities may not compensate for the loss of high-wage jobs. In an October speech to the Business Software Alliance in Washington, Grove called for $1 billion in government spending to improve college-level science and math education, boost research and revive the technology infrastructure to keep jobs in the United States.
Yet even Intel has taken advantage of cheaper costs overseas. The company has a call center in Costa Rica and has invested $20 million in an Indian customer-service center unit of Satyam Computer Services Ltd., India's third-biggest software maker. Intel employs 1,000 people in India and has its largest non-U.S. chip-design center in the city of Bangalore.
Companies 'playing it safe'
Indian computer programmers at companies such as Tata Group, Infosys Technologies Ltd. and Wipro Ltd. earn about $12,500 a year, one-sixth the U.S. average.
"Given the ease of global outsourcing and labor substitution through computer software, many companies are playing it safe," former Labor Secretary Robert Reich said in an interview.
Microsoft Corp. employs 250 workers in India and is on track to double its workforce there to 500 by 2005. Both Bear Stearns Cos. and a unit of American International Group Inc. have hired Satyam Computer Services to develop software and maintain computer systems.
Accenture Ltd., which manages business computer systems for clients, including AT&T Corp., plans to double its workforce in India to as many as 10,000 by the end of 2004. General Motors Corp., the world's biggest automaker, plans to hire 100 researchers in Bangalore during the next two years to develop lightweight materials and conduct crash tests.
Overseas bans considered
Thibodeau said his firm has already contracted with Electronic Data Systems Corp., the world's second-largest seller of computer services, to use Indian engineers for a contract with General Motors.
The job losses have prompted states from Washington to North Carolina to consider prohibiting their governments from contracting with overseas companies.
Indiana canceled a $15 million software contract with India's Tata Consultancy Services to keep the job of upgrading government computers inside the state. Washington lawmaker Zack Hudgins, a former Microsoft contractor, says he'll submit a bill next month that will prevent state contracts from going to foreign companies.
Congress is considering a bill by Massachusetts senator and presidential candidate John Kerry that call-center employees be required to disclose their location when answering telephones.
"At a time when millions of Americans are out of work, we should be focused on shipping our goods overseas, not our jobs," Kerry said in November when he introduced the legislation.
The Commerce Department's Bond said he'll discuss with California technology firms next month a proposal for an industry-funded insurance plan to help workers who lose jobs overseas. "You don't want a backlash that makes it hard for companies to take advantage of these opportunities," he said.
Still, union representatives question what jobs will be left in the United States if Indian engineers can do everything American ones can.
Wanted: more engineers
To answer the challenge, Microsoft Chief Executive Steve Ballmer last month said in New York that the United States must churn out more math and science graduates. That would raise the supply of computer engineers — and push down their salaries to about $50,000 a year, he says.
Lowering U.S. salaries would make sending jobs to India less likely, because "the whole economics of that proposition starts to look quite a bit different," Ballmer said in a recent speech.
Union leaders say it is just that threat of cuts to U.S. salaries that has them worried.
"This is a revolutionary force that is starting to take over," Courtney said. Unless the administration does more to protect U.S. workers, the only American jobs available will be as "hamburger flippers, stock traders and litigators," financier Wilbur Ross warned a congressional panel earlier this year.
A software developer who costs $60 an hour in the United States earns $6 in India, according to a study by McKinsey Global Institute, a research group. And data entry or call-center employees in India are not only cheaper, they're more motivated than their U.S. counterparts, the study found.
Forrester Research, a Massachusetts-based technology-research firm, predicts that by 2015 3.3 million U.S. jobs will be sent overseas, 70 percent of them to India.
"This lends dynamism to the whole (U.S.) economy," said World Bank trade economist, Aaditya Mattoo. "There are substantial gains for consumers and businesses."
Economic growth would have averaged 0.3 percentage points less each year from 1995 to 2002 if global production of technology equipment had been blocked, according to Katherine Mann, an economist at the Institute for International Economics.
There is a limit to how far the job losses can go.
Many services jobs, including most in healthcare and education, can't be done overseas. Since January 2001, the number of information workers in the United States has fallen 12 percent to 3.26 million workers, while health and education employment has risen 8 percent to 16.7 million workers, according to the Bureau of Labor Statistics.
Enrollment in nursing programs increased 15 percent this year alone, the National League of Nursing said last week.
Pulling back from outsourcing
Some companies are pulling back from overseas because of the disadvantages of distance and language.
Lehman Brothers Holdings Inc. said this month it pulled its help desk out of India and returned it to the United States. In November, Dell Inc., the world's second-largest computer maker, said it would switch some corporate customer support calls from a call center in India to the United States after receiving customer complaints.
Still, the shift to lower-cost overseas locations will continue, and Thibodeau says he's happy to help companies make it happen.
"More and more companies know they need to go global; they just don't know how," he said. Those companies that don't try to expand overseas "are going to succumb to competitive pressures."
