Offshoring – the India phenomena and its impact

Anyone who knows me knows I am always interested in things from a global perspective. One one of my favorite tech topics is the whole trend towards offshoring, and specifically offshoring to India.  A little background on myself may serve well to lay the groundwork of how I got to the views I have today.

In 1987 I spent my school year in Copenhagen, Denmark.  It was something my mother had wanted me to do, since both my parents were from Denmark and I had a rather large family to get to know while I was there.  During my school year we traveled a lot as part of the program.  We went to Budapest and Prague during the first semester (this was before the wall fell) and visited with companies local to the respective areas, met with politicians and went to Karl Marx University.  In the second semester we went to Stockholm and then to the European Union Headquarters in Belgium.   The second semester in particular had a huge focus on the European Union and what was emerging at the time – a Europe without borders.  I think all students were exposed  to a new way of thinking as we had all grown up in our own countries borders (US, Canada or Australia).  It greatly influenced my thinking on how the world works and how it is evolving.  I think rather than be concerned about the issue of offshoring I have moe or less embraced the concept.  The initial leader without question has been India and despite a series of new entrants it remains the head of the class to this date.

One of India’s unique advantages stems from its history as a colony ruled by the British Empire.   By all accounts the British ruled India with anywhere from 20,000-200,00 people.  When you consider that India wa a country of hundreds of millions of people it raises the question of why didn’t Indians band together and stampede over the British?  Not an easy question to answer, but I think it is important to note the idea of India as a country is a British concept.  India is a collective of different religions, castes, languages  and people,  that it operates more or less like thousands of counties (not states or provinces).  A great book to read and help understand India is Edmond Luce’s “In Spite of the Gods”.   But the legacy of British involvement in India has provided India with a lot of benefits.  For starters, since there are 22 recognized languages in India and 122 languages spoken by 10,000 people or more India has adopted as its official language Hindi, but more importantly as its second language it adopted English, the predominant language of international business.  In the early going of offshoring it made India a great place to offshore both IT and Business Process Outsourcing (BPO). 

Though offshoring had been around since the mid 80’s it did not come to public or industry attention until the latter part of the 90’s and the leader of this movement, surprisingly to many, was India.  A lot of people would ask how does a country with over 700 million poor people become a leader in a highly educated discipline?  Having been in the tech industry for 18 years I have had the opportunity to meet a number of people in the tech industry who either hail from India or have strong ties to India.  At  Microsoft there were many Indian’s who rose up to become executives (Sanjay Parsathayarthay, Jawad Khaki,  etc..).  In the bay area there were a ton of startups led by Indians, Venture Capital firms led by Indians etc.    The list is long. How does this happen?  I think two things have led to this innovation:

  • US University System
  • H-1b Visas

On the first point we have the finest university system in the world in the United States.  Every state in America can claim to have at least one university which is a leader in research, academia or something in the world.  If you go to any university you will also see a lot of foreign students who are taking advantage of that system.  A lot of those students getting Engineering and Computer Science degrees come from India.  Many of those students will stay in the United States and compete for jobs an thus help the never-ending cycle of the US economy and growth (a little challenged as of this writing).

The second area is US immigration law and H1-B visas.  These are for companies who hire people from outside the US and get them a work visa in the United States (nice legal piece located here).  In technology the game of recruiting is pretty simple: the tech sector needs really smart people.  Technology does not care if you are white, black, Chinese, Nigerian, Russian etc..Tech does not care if you are atheist, Catholic, Islamic, Jewish etc…It only cares about the intelligence you bring to the table.  Where you live is just an annoyance, but it will be dealt  with if a H1-b can be completed.  The aftermath of 9/11 unfortunately has created a problem as H1-b quotas are limited to 65000 per year and linked with immigration reform in the US Congress.  The H1-b visas are all gone within 3 months.  The jobs available for H1-b visa hires are good paying  jobs , most which cannot be filled by the local employee base in the US.  Instead these jobs sit vacant.  With collaboration software making great strides and with the promise of 100gb networks the use of teleconferencing will be second nature in business in the near future.  The reality will be that these jobs that are not filled today will be filled, just not in the Unites States.  At a time when the US economy is struggling the current quota set for H1-B visas makes no sense to me.

In my line of work towards the end of the 90’s you started to hear a lot more about these companies – namely WiPro, Infosys, Satyam and Tata Consulting Services.  Some Telecoms would have nothing to do with it – BellSouth was very much a case of do it in America.   Others like ATT Wireless started down the path as they looked to cut costs and get positioned to sell the company.  How companies handled these transitions is what led a lot of Americans to dislike offshoring.  It became a presidential campaign issue in 2004.  Employees were told their job was being moved to India and their last act would be to go to India to train their replacement. I witnessed this myself covering ATT Wireless as an account.  To be honest it is a brutal reality and may seem unfair, but one thing about public companies that has always been true and will always be true, if they can save money on the bottom line, they will, do not expect loyalty for your services.

Another area we hear a lot about is the large number of engineers graduating from Indian universities.   Some if the Universities are good, such as the India Institute of Technology (IIT), which was modeled after the famous MIT,  However as Nandan Nilekane points out in his fantastic book “Imagining India” many universities have along way to go.  He recently got involved in his alma mater, and to his point while the US has a large base of alumni to help support the university system, this concept of alumni as a financial donor is still relatively new in India.

One of the largest events to happen in my lifetime was the fall of the Berlin Wall.  As we looked at the world we no longer had to look at as east and west.  The US had won.  We saw a great many countries start to open up their economies.  Having pursued a Socialist economic policy, following British rule, India found itself faced with bankruptcy in 1991 and had to make a bold decision.  Under the guise of, then finance minister, Monmohan Singh, started to open its markets and pursue a free market policy. 

The second event that accelerated India’s growth as an offshore leader was the dotcom boom.  As I wrote in my earlier blog “The dotcom boom and its legacy”, the dotcom boom was a success for many in the 3rd world.  As was well written in Thomas Friedman’s classic book, “The World is Flat”, billions of dollars were poured into the dotcom infrastructure that enabled many to get on the internet super-highway and ride for free.  With the internet available it simplified communications and distribution of the software project taken on by offshore vendors.  I know a lot of people will argue that the software quality was poor, that projects were delayed and did not meet the original specifications and in the end it was not cheaper and would have been better left alone.  I don’t see it that way.  I agree that a lot of poor code was written and the savings did not measure up, but it is still early on in the offshore model.  As time passes things are worked through and resolved.  These are just business process and technical hurdles that will be overcome.

One thing I have noticed in the Indian community is many have a strong desire to return home to India.  I think this gets back to the point of the American dream.  Many view the american dream as the sole ownership of people within the borders of the United States.  And that is the big change.  There is opportunity in the world to make your dreams come true it just does not have to happen solely in the US.  If you look at the Forbes richest people in the world a lot are outside the US, some place you expect like Japan, but a lot are in India, China and Brazil.

In my view the idea of offshoring as a business model is still early in the game and maturing.  It is not a temporary phenomena, but something that will continue to grow as part of the normal economic evolution that has been going on for centuries.  It will challenge the United States and other countries as jobs start to move around the globe more dynamically then they have on the past.  It will challenge global economies in news ways.  When 100 million Indians own cars do you think that will cause global oil prices to increase?  In order to succeed in the world of globalization it will be important not only to expand outward, but to reflect inward.

I was talking with my friend Methun from India one night and as we did when I worked at Microsoft we talked about his homeland.  A country I have never been to but have been fascinated by for years and I have read a great many books on India..  We argued, we laughed and as always I enjoyed my conversation with my friend.  One comment that Methun made that greatly interested me was that after having lived in the US for 10 years he believed the American dream is fading.  I am not sure I totally agree, but I will say it is changing.  With everything I have noted I believe that the American dream is no longer solely American.  Many people dream of returning home to where they were born and making a difference,  To achieve those dreams they had when they were young.  When you look at the Forbes richest people you see more and more are coming from outside the US.  Things are changing very fast around the world and for the most part many of those changes are positive.  The great thing about the fall of the Berlin Wall is we  no longer have to think of east versus west.  Countries can now pursue economic policies that fit their social and economic needs.  It has spurred great innovation on a global scale and allowed more to participate in the American dream.  In short the American dream still exists….. it has just gone offshore.

Good Night and Good Luck.

Hans Henrik Hoffmann

March 22, 2010

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