Outsourcing and Offshoring of IT to India

Introduction One of the hottest trends today for big corporations is outsourcing and offshoring. Outsourcing simply means a company based in one nation will hire from other nations in order to more efficient accomplish its goals. It makes sense on the part of the corporation, why pay a programmer in the US $80,000 a year when they can pay a programmer in India less than 1/10th of that salary, and make him a very happy man. This because even when he is earning 1/10th of the US salary, he is still earning more money than he ever hoped to get in that industry in India. It seems like a win-win situation1, but there is still a loser: The growing unemployed population of the US. As more jobs go overseas, more US citizens are finding themselves becoming obsolete.

Recent History of IT in the US Between 1987 and 1997 imports used in US manufacturing rose from 10.5% to 16.2%2 and in High Technology rose from 26% to 38%. The US has a long history of outsourcing blue-collar jobs, including those that are intermediate steps within business processes in many industrial sectors. Manufacturings outsourcing success can be attributed to the lower cost structures found in many East Asian countries such as China, Taiwan, South Korea, and Malaysia and others2. These countries not only provide a lower cost structure, but also have a highly educated work force and business friendly environment. Outsourcing of blue-collar jobs has increased the demand of whitecollar jobs in the US. The focus on white-collar jobs by US firms has pushed US profitability upwards. The outsourcing trend continues to eat up the value chain from blue-collar jobs to white collar jobs3. The software industry is experiencing an outsourcing trend to countries such as China and most significantly to India. The proliferation of the Internet has opened easier access to information and collaborative environments. Previously communication costs and access to mind power was limited. The Internet made communication costs virtually free and collaboration with groups around the makes software engineering and collaboration tasks easier. In additional, liberalization of free markets across international lines has made it easier for companies to set up and outsource engineering tasks throughout the world. Business-process and software outsourcing rely on cheaper cost structure as found in East Asia with manufacturing4. In addition countries benefiting from software and BPO outsourcing5 trends including India, Malaysia and the Philippines also have important skills such as English as a medium for business, common accounting systems, and similar laws, savvy college graduates and favorable time differences for pipelining events. Recent History of IT in India In June 2003, Indias information technology enables services employed over 200,000 people account for $2.3 million in exports. Of that, 70% is from the US. The IT industry in India is still small compared to US heavyweights, however a healthy growth rate of 60% will help grow the industry over the next several years. Indians National Association of Software and Service Companies (NASSCOM)6 predict software exports to reach $50 billion in the next five years. According to their study, India will employ over 2 million people for outsourcing exports alone, and job creation at about 8million in the IT sector overall. Why Outsourcing and Offshoring In the late 1990s high employment and robust growth allowed spin-off and secondary work in

software-related sectors to be outsourced. Labor outsourcing was due to tight labor markets in the US, and a shortage of workers. During those years, outsourcing played a supplemental role to the US software industry. With the recent downturn in the economy, concerns about outsourcing supplanting US jobs is a rising concern. Some anecdotal evidence puts the outsourcing trend, coupled with a weak US economy in perspective. Between the first quarter of 2001 and second quarter of 2003, employment in network communications, Internet service providers and software publishing has fallen 15.5%. In Silicon Valley rich California, these sectors fell off 21%, causing 1 million and 200,000 jobs lost respectively. Lower wages coupled with highly skilled workers in sluggish economy is attractive to corporations trying to stretch their bottom line. India and China have shown their ability to turn out educated workers at a level that increasingly competes with US education output. Barriers still exist to creating a highly educated workforce in India. In India, primary education still lacks standards. In china the language barrier and cultural barriers maybe hinder progress. Nonetheless both countries have done quite well. They may be the victims of their own success. As employment and demand rises in their respective countries, so do wages. As wages increase, and companies demand even higher profits, secondary low wage markets alternatives will look even more attractive to corporations. Maximizing returns means finding the lowest waged, skilled worker wherever they may be in the world. Following the principle of outsourcing to cut costs and maximize profits, US companies are not hesitating to follow the money out of the country. A Forrester Research report2 forecasts by the year 2015, approximately 3.3 million jobs will be lost irreversibly to outsourcing and offshoring, or 250,000 jobs per year. This number may accelerate as the populations of countries such as India increase their levels of education, training, and English skills, and employers and corporations take advantage of the cheaper labor. Effects on US and Indian Economies US The toll software outsourcing will take on the US economy is yet to be seen. A few scenarios may materialize. One scenario is that outsourcing continues, and with this brain drain occurs. Once brain drain, and innovation are driven outside of the US, the US will lose its competitive advantage. If this occurs, employment and salaries in software will continue to decrease until an international equilibrium is reached. Only at this time will the software sector in the US stabilize. Growth expectations will lower as internal competition stiffens. Another scenario is that there reversal on policy towards globalization. If the US takes a protectionist policy, short term, software jobs will be retained. However, many US companies are seeking to broaden their markets into the emerging and lucrative Chinese and Indian markets. A short-term protectionist policy may result in reactionary measures by the Indian and Chinese governments in response, thus hurting US growth in the long term. A third scenario sees outsourcing but not offshoring occurring. Larger companies in the US outsource to smaller companies within the US in areas that are relatively cheaper, thus keeping American software workers employed. The genie has been let out of the bottle thanks to the Internet, globalization, and a sagging US economy. The best-case scenario is that design and innovation continues to thrive in the US, while business process and routine back office work is sent abroad. Highly skilled IT workers in the US will continue to be employed while feeding the corporations hungry for increased profits. India The Indian government has taken proactive steps to encourage outsourcing into the country. The

government regards IT as one of the top five industries in India. It is part of the national agenda, and national policy is framed with keeping Indias IT competitive7. India has embraced globalization in the IT sector, understanding that the benefits would be enormous. To this end, the Indian government has opened foreign investment to Non Resident Indians including Overseas Corporate Bodies (owned by Non Resident Indians). Laws and policies are important to protect intellectual property. Many opponents of offshoring have expressed doubts over Indias ability to pass legislation to protect IT. In the 2000, an IT bill passed that gives a legal framework for the recognition of electronic contracts, preventing of computer crimes and electronic filing of documents. In addition NASSCOM is working closely with the government to protect the IT sector in India which now makes up over 3% of Indians GDP. The ITES, Indias information technology enabled services sector, is the primary destination of business services outsourcing from Western countries. Currently, they employ over 200,000 people and gross around $2.3 billion in exports. This sector might seem small, but it is growing at an annual rate of 60%. The software services sector alone exports about $9.5 billion. NASSCOM predicts that exports will hit the $50 billion dollar mark in the next five years, employing over 2 million people, and supporting over 8 million jobs within the entire IT industry. Moving outside of India, firms involved with software services are rapidly sprouting in the Philippines and in Malaysia in the form of call centers and other back-office BPO. In China one can find embedded software firms and financial firm backoffice BPO. Ireland is pursuing packaged software and product development, while Russia and Israel are doing high end customized software and expert systems. Ethical Issues Involved While corporations are currently benefiting from the huge profits associated with outsourcing. Soon the bosses who today are laying off American employees might find themselves laid off too one day. The underlying principle of outsourcing is to achieve the best price for the work, with as little consideration to ethics or the potential long-term consequences as possible. When jobs are exported, not only is income lost to families within the country, but also a sense of pride. Knowing that we invented the latest chip or the hottest software brings a sense of pride that is priceless. Without that pride, its hard to motivate future generations to achieve the same level of success as the one before them. Also, it acts to create a sense of resentment towards other countries for stealing our jobs. It is true that when American businesses make more profit, due to outsourcing, they can pass that profit onto the consumer. However, when unemployment rises, those consumers still cant benefit from the reduced costs. Also, when there is a high unemployment rate, there is usually a large amount of unrest and agitation through the nation, which leads to other problems. There is also a concern for the right of employees overseas. If there are no restrictions placed on companies, then it simply comes down to who is willing to work for the cheapest rate. This would turn all blue and white-collar jobs into actions, where the lowest bidder wins. There needs to be strict policies in place to prevent software engineering from turning into sweatshop labor. When companies outsource, they make cheaper products, but when the consumers in the market cant afford to purchase these products, it comes back to hurt the company. It is however a great opportunity for third world countries who have a highly educated population to provide those educated citizens with a chance to earn a decent wage, and experience, even if only briefly, the promise of a bright future without financial burdens. It will be interesting to see how this trend of outsourcing plays out, and how different governments around the world act to protect the benefits of their own citizens. Personal Standpoint One issue to be considered is that it is not entire nations specifically that are being hurt or benefiting, but rather specific regions. California, for example, was hurt much more severely than the rest of the nation due to outsourcing8. This is because, as people say these days, any job that involves typing on a computer is in jeopardy. This means that Silicon Valley is the prime target for outsourcing, which

makes the Bay Area one of the biggest victims of outsourcing. On the receiving end, however, it is a different story. These new regions where the outsourced jobs are located may only be a small part of the nation, but the money generated from this new employment makes up a significant part of the nations income, and thus the receiving nations are very eager to adapt their laws to attract companies to them. It leads to ethical issues where nations have to do what is best for their citizens, both morally and financially. Whenever work is exported to another country, one of the main driving forces is cheaper labor. This puts a moral obligation on the country where jobs are being exported to, to make sure that foreign companies arent exploiting their citizens in order to save a few bucks. The Utilitarian approach says that the ethical action is the one that provides the benefit to the greatest number of people, and does the least harm. From that perspective one could say that one very wealthy nation taking an economic hit, in order to bring several other nations up who are currently living in poverty is an ethically sound action. However, we need to make sure that those nations, even though their status might be better today than it was yesterday, are not being exploited unfairly. When nations are too friendly to foreign companies just to attract them and create job opportunities for their citizens, they also act to cheapen the value of their citizens work. This means that businesses also must have an ethical duty to not allow these countries to tempt them with a lack of workers rights, or minimum wage laws. Basically, companies and governments must both make this ethical consideration in order to ensure that citizens arent exploited. Corporate and Government policy makers must both embrace the virtue approach to making ethical decisions, which asks, what kind of person would I become if I did this? If everyone involved in the policy making procedure used this approach, then we could ensure that outsourcing, regardless of its financial harm to certain countries, would not exploit innocent citizens anywhere. Conclusion The issue of offshoring is a sensitive issue that polarizes both parties involved. Economic theories and Ethical theories do no always go hand in hand. In the instance of offshoring, the Internet has opened the floodgates to a global software industry. An ethical approach to labor laws, practices and standards within the global software industry will help create a equilibrium of economic opportunity for all involved. This sensitive issue cannot be solved with extreme viewpoints, namely free trade with no standards or checks and balances, nor will protectionism help all countries involved. An ethical medium should take into account labor laws and practices as well as the economic well being of all countries involved. The solution is not an easy one, and the ethical issues that will affect national software policies of India and the US are still to be seen.

India is evolving from its role as the world's back office into a knowledge and innovation hub, despite the limitations imposed by the country's weak infrastructure and antiquated education system. Indian outsourcers have also evolved into world-class research and development (R&D) centers. As a result, the call centre operators in India can now found to be helping enhance patient care for US hospitals, optimize financial transactions for Australian banks and streamline parts management for European engineering firms. Similarly, the Indian IT companies can be found developing mission-critical avionics systems, next-generation telecom technologies and complex medical devices. This is bound to benefit not just India but the global economy as well. This is a far story from about a decade ago, when prominent Indian IT companies such as Infosys Technologies Ltd, Tata Consultancy Services Ltd (TCS) and Wipro Ltd were bidding for small contracts to help Western companies fix the Y2K bug in their computer systems. Despite severe hesitations, Western companies sent their mission-critical systems to India for repair as they did not have the manpower or skill to fix the time ticking bomb. This opportunity was used by Indian outsourcers to expand operations, build new skills and, most importantly, get to know their customers. However, it was not easy as the Indian industry had to hire hundreds of thousands of engineers at a time when the output of its engineering colleges was severely limited. In 1999, India graduated only 76,000 engineers, and most did not receive high-quality education. The Indian Institutes of Technology (IITs), no doubt, produce world-class engineers but they graduate less than 5,000 engineers in all every year. To make matters worse, the advanced types of engineering jobs Indian companies were bidding for required engineers with Master's and Ph.D. - level degrees. Anyway, the Indian companies met the challenge head- on and the Y2K catastrophe was averted. This benefited both sides. Indian firms used this as a launching pad for bigger projects and entry into more strategic ventures. This, in turn, increased the demand for engineers and by 2004 India doubled the number of graduating engineers it produced in 1999. However, this gave rise to another problem the number of Ph.D.s was not even enough o staff its growing universities. In 2004, India graduated only 17,000 Master's and 900 Ph.D.s in engineering. This resulted in fierce competition for experienced talent and caused huge increases in salaries and attrition rates. For a while, it looked like the Indian outsourcing industry would implode, like it had just been a flash in the pan. But it was not so. By 2006, India started graduating at around 222,000 engineers. In 2007 itself, India's top five IT companies TCS, Infosys, Wipro, Mahindra Satyam and HCL added around 120,000 engineers.

Accenture and IBM India Pvt. Ltd added 14,000 each. Thousands of other smaller companies also expanded and recruited. That is to say, such a huge number of engineers were absorbed which indicates the extent of growth of IT companies in India. It became possible due to the ability of Indian entrepreneurs to overcome all the hurdles that are thrown at them by the government and the society. Just as they were figuring out about installing their own power generators to deal with supply problems and purification plants to provide clean water, they had to figure out how to build their own surrogate education system. And it is here that the Indian companies have made their greatest innovation, i.e., they have developed the ability to take the output of a weak education system and turn these workers into R&D specialists who can compete in the global arena. In the process, the Indian industry changed the way it recruited, trained, developed and retained its workforce. It not only adapted the best practices of companies that were outsourcing R&D to India, but even started improving on these techniques and methods; refining and integrating them into a unified system. It was not an easy task in light of the fact the Indian industry was faced with severe talent shortages, escalating salaries and a lagging education system. The Indian industry, however, made some changes. They started hiring for competence rather than skill, i.e. ability and aptitude was given preferred rather than only specialized technical skills. They invested substantial time, money and effort in providing employee training to bridge skill gaps. Leading companies mandated that employees receive between one and three weeks of training every year in areas where they are weak. Many companies tied salary increases and promotions to the completion of such training modules. Most companies also offered extensive management training, internally and externally, especially through MBA-type programmes, to meet shortages in managerial talent by building pools of potential managers internally. Companies like HCL introduced performance management system which included parameters like performance, strategic vision, ability to communicate, problem-solving skills and responsiveness. All these changes led to the Indian IT firms witnessing one of the lowest attrition rates in the industry. It also explains how firms in India are able to hire bright but largely inexperienced talent to successfully engage in R&D and other innovation. Even during the economic slowdown, Indian talent supply has been able to catch up with demand. This has led the Western companies, which are more desperate than ever to cut costs, to consider outsourcing option to India. Considering the fact that outsourcing to India can offer them 30 to 40 per cent cost savings, they are now outsourcing their most strategic internal systems. In addition, due to a combination of the recession in the US and that country's flawed immigration policies, a flood of highly educated and skilled talent is returning home to India.

Those who see more opportunity in India than abroad, and want to be near family and friends, are returning with the latest skills and an understanding of foreign markets. Thus, the Indian outsourcing industry is gaining a second wind. If the process continues, it will not take more than a decade for India to become the world's second-largest R&D centre after the US. A new India, symbolized by information technology and its possibilities, can also be seen evolving in other sectors such as automobiles, chemicals and telecom. Indeed, innovation has rapidly acquired a status of a business concept, which is not only allowing previously timorous Indian firms to go global, but also persuading previously imperious global firms to move into India. The journey of India's new approach to innovation has just begun. People and companies are silently giving India a steely new cutting edge with its laboratories, offices and minds working to achieve its ever-expanding ambitions to the personal dreams of those who make it happen.

The university everywhere in the world is an important institution, for the advancement of the people. The traditional view of a university which was regarded as a place where students would carry on their scholarly activities and build themselves as intellectuals, isolated from rest of the society, has to be changed to a place where it becomes an institution fully conscious of the changes taking place in society and making due contribution to this change. Universities in India have been functioning in the past under several pressures, viz., excessive specialisation, overcrowding, highly expensive organisations conflicting political interference, etc. The fast development that is taking place in society, thus, makes university life complex. The student now finds himself a victim of sudden breaking of social tiesfamily, village and culture. He finds that his studie* have no roots in his own culture and his university education based on foreign standards is cracking. No wonder, the student spreads among the youth. This unrest sometimes shakes the very freedom and integrity of the university itself The solution lies in better communion and understanding of the purpose of . university education among the teachers anil the tauelit and in the creation of a sense of community. Student" and teachers are supposed to be mindful of the real purpose of education and re-orient it to suit the changed conditions The university authorities should on their part, be careful not to assume that new techniques of teaching are good simply because thevarenew. Very often the craze for change in curriculum has opened the flood gates of agitation, thus making nonsense of real education. The university should give more prominence to new experiments in education. There is great scope for consolidation between the teacher and the taught. Views and wishes of the students need to be given sympathetic consideration instead of being brushed aside as just foolish, excessive or unreasonable. The present students unrest in the university campus can be attributed partly to the fact that the university education does not equip the graduate youth for any useful work, or make him an alert citizen, orthat it just satisfies certain socially acceptable standards. Education should be treated as a profession and teachers should be expected to adopt a professional attitude towards their work.The existing attitude of looking upon education as a mere interlude between childhood and real life of gainful employment should replace the attitude .of looking upon university education as an expensive, subsidised apprenticeship helping students to acquire skills. On the question of student-participation in university adminis-tration and proper functioning of the student unions, modern educationist emphasise that it should be permitted but subject to a number of improvements in the methods of election of office-bearers with a view to induce really capable students to get in. It is also proposed to seek diversification of the unions activities so that they could become useful institutions and impart training to students in the art of maintenance and management of university administration, satisfying at the same time studentsurge to participate in university life. It would be most unfortunate to regard students as indisciplined and, therefore, to be kept away from responsibility. It is high time that some kind of a committee, on national level, comprising students, teachers and eminent educationists is set up to involve a suitable machinery to implement educational policy. The universities set up a three-tier administrative machinery improve his lot. When universit.es will assumethis ^^J of promoting knowledge as well as social welfare, all will be wen with the Indian nation and the Indian people. to receive, consider and remove student grievance without delay. Quite often it has been observed that even ordinary students problems like messing insanitary conditions in hostels, etc.. are not attended to causing, unrest backed by agitation. Let it be .realised that men and women of student-age now come to adult life much earlier than their elders came in the past. The future of academic unity and the role of students thus need to be modified and modernised. Education is one of the most important employers in the country but it is unfortunately one of the few careers which continue to dole out only meagre salaries to the teachers. There is a strong feeling that the old concept of a university is not adequate to meet the needs of the present-day society. Universities in the western countries are drawing out new ideas and experiments to meet the challenges of the modern world of science and technology, of explosion of knowledge and of consequent rapid changes in social life. This is even more necessary in the case of developing societies like India.

One important responsibility which the new universities have to assume relates to the development of programme of adult education for its alumni and for the improved categories of leadership in various walks of life. In particular, the universities have 10 do something to educate the rural leadership which moulds the life of 80 per cent of the people, elects 80 per cent of the legislators. The future of the country largely depends on the correct understanding of the national problems by this rural leadership. The most effective agency to implement this programme are the Departments of Extension of Service in the universities. Another task which a university has to undertake is service to society. There is need to realise that the maintenance of universities is a costly affair and the average Indian citizen , who is very poor makes a great sacrifice to support them. It is, therefore, our duty to serve. Every university should evolve itself deeply in the study of local, regional and national problems and assist in their practical solution. This need not imply any fall in academic standards ; rather this touching with reality will help to raise the quality. It will give the universities an opportunity to enable the students work and to participate in programmes of national service. It is only when new ground is broken that the universities begin to make their real contribution to national development. It is true that the universities owe their allegiance, first and foremost, to truth but they also stand, as Nehru once said, for humanism any for progress. They should combine the intellect of a Shankra-charya with the compassion of a Buddha and their pursuit of truth should be accompained by a solicitude for the welfare of the common man of India and by a commitment and dedication to improve his lot.all will be well with the indian people and indian nation