Offshore outsourcing is turning on its masters

The shift of well-paid technology jobs to India, China and other low-cost offshore centres is beginning to cause Western companies public relations headaches.

This week the investment bank Morgan Stanley estimated the number of jobs going to India from the US alone would double to about 150,000 over the next three years.

Its analysts predicted up to two million programmers, software engineers and applications designers' jobs would shift to low-cost offshore stations by 2014.

But the biggest companies looking to "offshoring" to cut costs are becoming increasingly reluctant to attract attention to their actions for political reasons, experts say.

"The problem is that companies aren't sure if it's politically correct to talk about it," said Jack Trout, a principal of marketing and strategy firm, Trout & Partners.

"Nobody has come up with a way to spin it in a positive way."

Where large corporates previously bragged about the potential cost savings of shifting their labour forces to the sub-continent, they are now seemingly more keen to take a backroom approach, only giving details where absolutely necessary.

Blunt announcements have resulted in some stinging responses from those who stand to lose most, as IT services giant Accenture found last month.

When its Indian executives announced they would be doubling company staff in India to 10,000 in 2004 the news triggered a deluge of angry calls to the company's US offices about jobs losses for US nationals.

Offshoring companies "are paying Chinese wages and selling at US prices," said Alan Tonelson, of the US Business and Industrial Council, a trade group for small businesses.

"They're not creating better living standards for the countries that built them up."

According to one senior US representative of an Indian IT services company whose clients include Walt Disney, Time Warner, CNN and Fox, directors signing off national jobs to Bangalore, Mumbai and Hyperbad are asking for "strategic" public disclosure of the news.

Discretion it seems is becoming key as "outsourcing" - once defined as the cost-cutting miracle that reversed poor nations' ailing economies - has become a dirty word amongst the Western public.

Indian service suppliers like Infosys Technologies, Wipro and Satyam have stopped identifying new customers altogether, much as one suspects they would like the publicity of winning the contracts.

Cost advantage?

As more Western companies bundle in to Asia to cut costs, the increasingly difficult search for quality programmers with good communications skills and experience means rates for the right skills sets and background are rising dramatically.

"The market there is heating up," says Erran Carmel, associate professor at American University's Kogod School of Business.

The probable result of that is that wages and turnover will go up as employees job-hop.

A recent report from outsourcing firm Hewitt Associates and the National Association of Software and Service Companies, an industry association representing Indian IT companies, notes that compensation is on the rise for Indian IT employees as a means to combat attrition rates.

According to the report, performance-based salary increases among IT companies grew by 23 per cent in 2003.

It follows that the very costs Western companies were looking to cut by exporting jobs to developing countries are rising at a rate that could see them parallel with existing European and US rates within 10 years.

Earlier this week, 172 business-technology executives engaged in offshore outsourcing said they expected to spend significantly more on offshore outsourcing in 2004 compared to 2003.

Indian IT workers with five years' experience are typically earning $25,000 to $30,000, says Sundip Padmanabhan, vice-president of human resources at Indian outsourcing firm Tata Consultancy Services.

The equivalent Western salary is currently approximately $60,000 to $80,000, he says.

But the margins are shrinking from a gulf just five years ago, to a canyon young people in India have every intention of one day traversing.

Some Western companies are keen to lend a hand - knowing full well that out of the 350,000 engineering graduates the country produces every year, a few will be capable of helping them to create the next big thing.

Search engine godfather Google said in December it planned to hire about 100 engineers at a new software-development centre in Bangalore in March and was prepared to pay well to get talent that reflected its position in the market.

The company's gross could reach $700 million this year, estimates say, so there is no cost cutting exercise involved in Google employing in India.

Many young programmers based there stand to gain good experience from working for the company - but few other Western companies that big can honestly say their reasons for sourcing work from the sub-continent are so altruistic.

Still, it's all good news for competent PR firms hired to smooth over the damage back home.