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May 31, 2003

Caught between a threat to the L-1 and a decline in the H-1



As has been widely reported (including in the New York Times), John L. Mica, a Republican Congressman from Florida, has introduced a bill to prevent US companies from hiring foreigners with L-1 visas.

What makes the L-1 visa so important to Indian companies? For one, there is no cap on the number of such visas. The NYT article also points out that the L-1 does not require employers to pay workers prevailing wages. The Mica bill, if passed, would ensure that L1 visa holders can work only in their own company premises and not at a client location.

OK. But why do large Indian companies like Infosys and Wipro have to worry? After all, these guys can get most of the work done at their offshore development centers, right?

Well, that is certainly the goal. But, in reality (going by the trend in recent quarters), the percentage of onsite revenues has been going up. Analysts attribute this phenomenon to the new types of services being offered by Indian companies--particularly package software implementation and consulting which require significant onsite work.

Well, so what? Indian companies wanting to send techies for onsite work have the good-old H1-B visas to fall back on, right? That's what Sridhar Ramasubbu, investor relations manager at Wipro told NYT.

But, there's a problem on this front. Even now, the number of H1-B visas issued each year (currently at 115,000) gets exhausted within just a few months after the US consulate begins issuing them each year. What's worse, the quota will drop to just 65,000 per year on October 1--unless the US Congress approves an extension, a move that NYT considers "unlikely".

The key question therefore is whether Mica's bill will get passed. And as Wipro's Ramasubbu assured the NYT, the company (and presumably, others in the industry), would lobby against it. Mica's colleague Jay Inslee, currently visiting India, presents some cause for optimism here. According to a report in the Economic Times, the Congressman said such bills are considered by many in US political circles as impediments to trade. "If we want access to the world markets then we can’t create barriers to flow of intellectual capacity," he said.

According to Inslee, it is in the interest of the US economy to help the Indian economy grow. "As long as there are 300 million Indian who earn less than $1 a day, there is not much hope of them buying US products."

Quite well said. But, hope Inslee and company are listening too.

Heralding the arrival of 4G


4G mobile telelcom technologies combine Wi-Fi-style Internet access with the blanket coverage, and fewer base-stations, of a mobile network, says The Economist. And companies like IPWireless, Flarion, Navini, ArrayComm and Broadstorm are offering them to operators as a way to make money out of existing 3G licenses.

"Such 4G wireless-broadband systems can be seen in two ways: as a rival to Wi-Fi that offers wider coverage, or as a wireless alternative to the cable and digital subscriber-line (DSL) technologies that now provide broadband access to homes and offices. Mostly, the wireless operators evaluating 4G see it as the first, and fixed-line telecoms operators as the second," the article adds.

Click Here to read the full The Economist article

May 28, 2003

Congresswoman probing use of Indian IT workers by US insurance firms



According to a report in The Hartford Courant, Connecticut Republican Congresswoman Nancy Johnson has requested five leading American insurance companies with offices in Connecticut--Aetna Inc., CIGNA Corp, The Hartford Financial Services Group, The Phoenix Cos. Inc and Travelers Property Casualty Corp--to reveal how many Indian citizens they are employing in their IT departments.

The report said Johnson wants to know how many Indians the companies employ on H-1B visas now, whether that number has grown during the past two years and how many American IT workers the companies have laid off. "The congresswoman's interest in this is to see that Connecticut jobs are protected and that the law is followed," Johnson's press secretary said in the report.

The report pointed out that 165 employees of Infosys Technologies worked at various US offices of Aetna (as of last June) and 400 more of the company's employees served Aetna from India.

Click Here to read the full article.

Follow-up

Extract from InformationWeek article:

Aetna Inc., which responded to Johnson's query, has cut IT staff 13% to 2,500. It employs 13 H-1B visa holders and contracts about 90 workers through India-based Infosys for what a spokesman calls "a contingent, on-demand workforce."

Click Here to read the full article titled "Politicians Mull H-1B and L-1 Visa Reforms"

May 27, 2003

Bank of America tech worker's suicide linked to offshore outsourcing


Naturally, the "3-m plus-US jobs-to-be-lost" Forrester Research study figures prominently in the reports about the suicide.

Here are some extracts from the article headlined "Job losses sap morale of workers" in Contra Costa Times (May. 19, 2003).

One month ago, Kevin Flanagan took his life in the parking lot of Bank of America's Concord Technology Center, on the afternoon after he was told he had lost his job.

It was "the straw that broke the camel's back," his father said, even though the 41-year-old software programmer suspected it was coming. He knew that his employer, Bank of America Corp., like other giant corporations weathering the economic storm, was cutting high-tech jobs. He knew that Bank of America was sending jobs overseas. He had seen his friends and coworkers leave until only he and one other person remained on the last project Flanagan worked on.....

(Here come the Forrester numbers..)

...his death underscores the anxiety that has swelled among technology workers at Bank of America and elsewhere as more businesses shift high-tech jobs and responsibilities to contractors offshore even as they cut jobs in the United States.

A report by Forrester Research projects that, led by the information-technology industry, 3.3 million service jobs and $136 billion in wages will move from the United States to such countries as India and Russia over the next decade or so.

Another survey by A.T. Kearney said that U.S. financial-services companies are planning to send overseas 8 percent of their workforces, thus saving them more than $30 billion.

(The article also quotes Bank of America spokeswoman Lisa Gagnon. She has tried, quite gamely, to de-link job-losses from offshore outsourcing)

In the fall of 2002, it (Bank of America) signed agreements with Infosys, whose U.S. headquarters are in Fremont, and Tata Consulting Services, two of the largest players in information-technology consulting and services in India.

Overall, this deal should affect no more than 5 percent of the bank's 21,000 employees, or about 1,100 jobs, in its technology and operations division, Gagnon said. So far, it has been less than that, she added.

But Gagnon declined to say how many U.S. and Concord workers have been affected so far.

"It's important to note that just because we decide there is a good business reason to send a project (overseas) does not mean it will necessarily result in job displacement," she said.

(Gagnon's comments are supported by quotes from a Gartner analyst as well)

Growing overseas does not necessarily translate into a loss in the United States, said Debashish Sinha, principal analyst for information technology services at Gartner, a research group.

"Very rarely is there a direct staff substitution," he said. "Very rarely will a U.S. enterprise lay off their internal IT folk to hire an external offshore service provider."

(But, the reporter doesn't seem to buying these defences. The report's focus is firmly on painting a poignant tale of how the dead programmer's father is dealing with the sadness of his son's extreme step--and weaving together a story that subtly points the finger to companies that "ship high-paying tech jobs" overseas.)

Click Here to read the full article

May 25, 2003

Now, the UK's Telegraph worries about loss of local jobs



While the topic of the "backlash" is getting quite boring, what makes The Telegraph article reasonably interesting is that a) it is well written, and b) it throws some new numbers from a study of the efficiencies of financial services outsourcing conducted by accounting and consulting firm Deloitte & Touche. (*At last*, the media has found an alternative to the mysterious Forrester Research report--which supposedly says 3-m plus US jobs are set to go "poof" becuase of offshore outsourcing.)

(Some extracts by way of general background--ie, stuff that everyone--at least, in India--knows about:)

When the chairmen of the big UK banks and insurers get together, all they want to talk about is how fast they are relocating operations to India - and although they are all gung ho about it, they are slightly anxious about whether the Government will weigh in to slow the trend....

Centres in India handle the processing of student loans, queries about utility bills for Powergen and flight bookings for British Airways. A series of other British companies, including BT, HSBC, Prudential and Aviva, are shifting their call centres to the world's biggest democracy....

The big question is how America and Britain will cope as these forms of employment become extinct in their home economies. (Deloitte & Touche) estimates that 2m jobs in financial services alone are likely to move from developed economies to emerging nations in the next five years. Across all industries, the exodus of services jobs could be 4m....

(Here come the portions with the numbers:)

By 2008, financial services firms are expected to have transferred $356bn, or some 15 per cent of their total cost bases, to less developed countries, according to a recent study by Deloitte.

This would equate to annual bottom-line savings of $138bn, or an average of $1.4bn for each of the world's top 100 financial services companies. For leaders such as Citigroup and HSBC, there could be savings of two or three times that level.

By any measure the potential cost-savings are enticing. Processing costs, for instance, are estimated to account for about 20 per cent of a retail bank's total cost base.

A conservative saving of 20 per cent of that could lead to a 4 per cent improvement in the banks cost/income ratio - a key measure of efficiency - and a 2.5 per cent boost to its return on equity, according to Mercer Oliver Wyman, the consultant. In turn, these benefits could lead to an increase of 10 per cent to 12 per cent in the market value and share price of the average bank.

So banks such as Citigroup and HSBC are transferring even more jobs. Citigroup now employs 3,000 people in India in call centres and processing operations in Mumbai and Chennai. Analysts argue this has helped the group become the world's most profitable financial services firm: its revenues have grown by $35bn in the past five years, while costs have increased by just $12bn.

(The article's conclusion:)

But while the debate rages, it is clear that the economic forces at work are unstoppable. "We have to relocate these functions to India," says the chairman of a large British bank. "Not only are the running costs a fraction of what they would be here, but the quality of the workforce is significantly better. Taking advantage of that is a no-brainer."

(Extracts end)

Click Here to read the full The Telegraph article.

Why the critics of offshore outsourcing should relax: Conference Board


I *finally* came across an article that places the much bandied-about Forrester Research numbers (saying 3 million+ Americans will jobs due to offshore outsourcing) in proper perspective.

Fortune writer David Kirkpatrick in his column titled "Net makes job exports easy", as expected, quotes the Forrester Research "estimates that 3.3 million US jobs will move offshore by 2015". But, thankfully, he also spoke to Ms.Gail Fosler, chief economist at research firm Conference Board, who says "the critics should relax". Fosler doesn't think that the trend will significantly hurt US employment. Fosler also points out that the US services sector loses about ten million jobs every year even as it creates another 12 million. "So a couple hundred thousand jobs a year going to India is a drop in the bucket," she says. In addition, this new means of holding down costs will combat inflation, benefiting consumers. And it will help US companies remain competitive in an increasingly brutal global marketplace.

(Wow!)

The Fortune column also gives a lot of prominence to the "Better quality of work" delivered by offshore workers.

(Extract:)

BPO doesn't just save money; it generally results in better work. It attracts the top people in the new countries, since the jobs tend to pay more than most local positions. Turnover is low, and people work hard to improve their skills.

"The shock has been that the quality of the work's better," says Dennis McGuire, CEO of TPI, an outsourcing consulting firm in Houston. "It reminds me of back when we assumed that if something was made in Japan, it was worse quality. We were wrong."

(Extract ends)

Click Here to read the full Fortune article.

May 24, 2003

"What did you do during the 2000s?" : Seth Godin



Permission marketing guru Seth Godin is back to liven up entrepreneurs and other risk-takers with a new article in Fast Company magazine.

An extract:

"Here's a question that you should clip out and tape to your bathroom mirror. It might save you some angst 15 years from now. The question is, What did you do back when interest rates were at their lowest in 50 years, crime was close to zero, great employees were looking for good jobs, computers made product development and marketing easier than ever, and there was almost no competition for good news about great ideas?"

Click Here to read the full version of the article.


Is a Wi-Fi bubble building?



BusinessWeek examines whether Wi-Fi technology is headed the way of the tulips and the "dotcoms". The article sees the sector receiving "excess investment based on careless projections of future demand". (Quite a nice definition for a "bubble", right?)

BW's conclusion: "Wi-Fi is really two markets -- one consumer, the other corporate. And at the moment, they seem to be headed for divergent paths -- one difficult, the other more promising."

Click Here to read the full article.

May 23, 2003

Why Warburg Pincus finds the BPO business attractive



Some interesting extracts from an Knowledge@Wharton interview with Wolfe Strouse managing director at global private equity firm Warburg Pincus which has invested in Indian BPO company WNS

"In July 2002, WNS acquired a company in Britain called Town and Country, which provides claims processing services to the auto sector -- largely to self-insured fleets -- using an advanced technology platform. The company processes claims, but also it provides a preferred network of repair shops. We have moved some of the claims processing as well as the maintenance of the network to WNS operations in India. We have seen tremendous efficiencies from both the technology enablement and also from the highly skilled labor in India. Similarly, there may be processes that are not yet technology-enabled. One can technology-enable them and layer them with cheaper, better resources to get a doubly positive effect.....

Outside the technical support help desk area, I don’t think voice is the logical thing to move. For technical support or areas that have a large technical community it makes sense, but some of the customer service stuff doesn’t make a lot of sense. I think there are easier processes to focus on.

In the future, data intensive tasks such as mortgage processing and claims processing will move offshore. Claims processing in the healthcare side may not move immediately because it is complex and people haven’t figured it out well here. Other insurance back office functions such as subrogation or recovery will also move out over time. We have one customer at WNS for whom we are running their entire SAP financial systems out of India: accounts payable, treasury functions, etc. It’s like their whole finance department is in India. I think you will see more such arrangements, where control and strategic level remains with the customer but the processing piece moves offshore.

Click Here to read the full interview.


US, Australian states to pay cos. to keep jobs local



eFunds to open center in New Jersey, shift jobs from Mumbai


Financial services-focussed BPO firm eFunds Corp. is to shift call center jobs from its Mumbai office back to the US. In response to criticism from local politicians, the New Jersey state government has asked eFunds to open a new center in the state to provide support services for its unemployment welfare program. The state government will now pay eFunds 20% more for the outsourced services than envisaged in the original contract.

eFunds' new center at Camden, New Jersey is expected to employ about 10 workers earning $10-12 an hour as against the $2-3 earned by its agents in Mumbai, reports Rediff.com. To compensate for the increased cost of operations, the New Jersey government will pay eFunds $73,800 a month over and above the current monthly payment of $340,000.

Under its original contract beginning in February 2002, eFunds was redirecting toll free calls from New Jersey residents seeking information about electronic welfare or food stamp programs to its contact center in Mumbai. Upon reading local media reports about the contract, New Jersey state senator Shirley Turner had proposed a bill banning outsourcing of state government work to overseas locations. The bill had inspired similar legislation moves in other US states as well.

For more information:

New Jersey decides to move call center from Mumbai to Camden
Rediff.com

New Jersey is microcosm of protectionism debate
IDG News Service

Australian state might subsidize Telstra for not outsourcing


Prompted by a strident campaign in a local newspaper, Australia's Victoria state is offering to subsidize the country's largest telecom company, Telstra, to employ local IT workers rather than outsource work to Indian companies. Steve Bracks, Premier of Victoria, has said the State Government is willing to offer the subsidy since it would have "long-term benefits (for) employment in Victoria".

Victorian newspaper, Herald Sun, published a series of reports last week "revealing" how Telstra was using about 100 Indian IT workers from Infosys Technologies and Satyam Computers "on sweatshop wages" of $820 per month (as against Australian IT workers who would earn about $5000 a month). "The telco giant-- which is on track to report a $3.66 billion profit this year--would save $15-$18 million on the deal," the paper reported quoting an internal Telstra memo.

For more information:

Telstra worker tells of pay woe
Herald Sun

Telstra, Indian companies deny 'sweatshop' claims
The Sydney Morning Herald

BT responds to union protests on move to set up 2 contact centers in India



UK telecom giant BT has been facing protests from its unions ever since it announced plans to open contact centers in India. The union had conducted demonstrations in front of the company's UK contact centers and threated to strike work. Click Here to read Business Line's report (dated Martch 21, 2003) on the union protests and comments from union leaders.

In a press release titled BT Retail Chief Criticices Union Stance Over India the company's CEO, Pierre Danon, hit back at the union protests.

Here are some intresting points regarding the Indian centers made in the press release:

 the contact centres in India will be at least of the same standard as those in the UK and they will be managed by BT Retail, using its own systems, processes and technology;

 they will be superb working environments and the people will be paid at the upper quartile within the information technology-enabled services market in India;

 BT Retail's partners, HCL E-serve Technologies and Progeon, are both highly respected employers, who meet all BT Retail's requirements in terms of ethical trading and working practices.

In BT's March 7 press release confirming the move to set up the Indian centers, Danon had laid out the logic for the move.

"There are many reason why BT Directories has chosen to take work out to India. As a result of deregulation, we now face intense competition in this sector. In other countries, such as Ireland and Germany, established providers like BT have lost up to 40 per cent of market share," he said. "We will not allow that to happen to us. By trimming our costs we can remain very competitive on price and also protect the long term jobs of BT Directory operators in the UK," Danon added.

The Indian centers will initially handle parts of BTs directories and conferencing work. BT Retail is also considering moving parts of its other operations to the Indian contact centers, but no final decisions have been made yet.

BT Retail has set three criteria to identify future projects that could be outsourced to India:
 previously outsourced work which can be brought back in-house (like business telemarketing)
 existing work which is uneconomic to carry out in the UK (such as non-automated reservations for BT Conferencing audio calls)
 new work which can only be commercially justified in India (such as reminder calls to people who have forgotten to pay their bill)