The second wave

For the past twenty years, India's IT outsourcing industry was built on “lower costs” software engineers. Beginning this year, Indian companies are hiring thousands of “higher costs” software engineers all over the world. This shift reflects the coming of the second wave of globalization and the growing complexity of knowledge work that requires higher levels of skills not found in India. As demand grows but limited supply, Indian companies are sending representatives to find skilled workers wherever they can find them. At the same time, U.S companies like Hewlett-Packard, IBM, Microsoft, Google, Facebook and Accenture also have massive recruitment efforts to find talents overseas. The global competition for skilled workers has started.

When U.S tech companies begin to recruit software workers in Eastern Europe, many Indian companies were already there, at least several months ahead of them. According to a senior managers of Wipro, his company is hiring thousands of software engineers all over Eastern Europe to meet the global demand. Today Indian IT companies are battling with U.S companies for global business and the key in this battle is to hire the best talent possible regardless of the costs.

The competition is also fierce in the U.S. Surya Kant, president of Tata Consultancy Services in North American said his company begins the hiring in March in just few months already has over 2000 American employees. “We are hiring more if we can find them" he said. Infosys Technologies also has plans to hire several thousand Americans this year to meet the growing demand in the U.S. As Indian companies are aggressive hiring and willing to pay more, many American companies suddenly found themselves on the defensive mode. Company like Google immediately declared a big raise in salary to every employees to prevent the exodus of workers to competitors. Fast growing companies like Facebook, Twitter are also having difficult to find skilled workers as it slowdown their anticipated growth rate for years to come. Despite the recession and high unemployment elsewhere, software industry is still growing at significant rate. Many Indian IT companies are now setting up software development centers in the U.S and Europe as the demand keep growing fast.

A senior Indian IT manager said: “The low cost game is over. Now it is about skills. We are no longer the “low-cost labor” company but want to be the best. We want to challenge IBM, Microsoft, Oracle and Google. We want to be the largest software company in the industry”. His comment reflects the new positive attitude among Indian's software engineers. In past years, the number of Indian millionaires and billionaires is growing as their industry is booming. Among the top fifty richest people on earth, ten come from India and six are in IT business. An Indian IT senior executive told the local newspapers: “Few years ago, many companies came to us because they want our lower costs. Now they come to us because they need our skills. Few years ago, we considered few hundred thousand dollars contract as good. Now we focus on contracts worth million dollars or more. Few years ago, a million dollars profit was great news. Today we measure our profit in billion dollars. As far as the higher skills are needed, we are moving away from cheap labor since our customers are willing to pay much more for our services.”

In this post recession time, the outsourcing market is already changing. Few years ago, most company would do architecture and design then outsource programming and testing to lower cost countries such as China and India. Today, most companies are returning to their “core competency” and outsource the entire software development as it is not their key competency. Automobile companies are focusing on building cars NOT information systems. Financial companies are focusing on financial transactions and investments NOT information systems. By consolidate the business, companies find themselves more focus to stay competitive in this global market. Many get rid of their information systems by outsource them to companies specialize in information system. The concept of “Cloud computing” and “Software as a service” have transformed the entire approach of implement information technology. Companies all over the world are now getting rid of their own information systems to focus on what they do best. That is why IT business is exploding and so does the need of highly skilled workers.

Few years ago, many software jobs are leaving the U.S to India and China but now it beginning to change course. The demand is so large that Indian companies do not have the skills to do it all so many Indian companies are moving to the U.S and hire skilled people here. Today, a large number of U.S software developers are working for Indian companies to do architecture, design and set up system infrastructure but the coding and testing are still shifting to India to take advantage of the lower cost there. As the level of sophistication of outsourced work increases, the traditional outsourcing model is becoming obsolete. One IT manager explained: “In the past U.S companies do architecture and design and send their design to India or China for coding and testing. Now since we are here in the U.S, we have many U.S developers who could do these highly skills so we take over the entire development from A to Z. Without a strong U.S presence and knowledge of the changing market, many outsourcing companies from other countries suddenly found themselves losing business to these aggressive Indian companies.

What works well in traditional outsourcing is lower skills, simple works such as coding, testing. The highly skilled works, where experience and judgment is required, are usually done closer to the customers. By having a strong highly skilled workforce in the U.S and hiring skilled U.S software developers, Indian companies are strategically blocking the current outflow of IT works to other countries. One Indian IT executive declared: “Why not have the whole cake and eat it all. Why share with other when you can have the whole thing?”. This change in business model will have significant impact on the future of outsourcing market in the next few years. One industry expert predicts: “If Indian companies could strategically implement it in the U.S and Europe, it would be very difficult for anyone to compete with them. You cannot patiently wait in your own country for customers to come to you because you have lower cost. Your competitors in already in the home of your customers and grab the whole thing, they can offer both high skills and low cost too. If China and other countries do not make a similar move, there will be nothing left.”

As some newspapers praise the brilliant strategic move of Indian companies. Actually this move is more of a response to the change in U.S immigration policy rather a well planned strategy as it is becoming tougher to bring overseas employees to the United States. With such high unemployment in the U.S, Congress has restricted the issue of special foreign worker visas called H-1B and L visas. The process of obtaining visas to bring overseas employees to the United States has become much more difficult, particularly following allegations that many Indian companies have taken advantage of these laws to bring so many Indian workers to the U.S. when many U.S citizens could not find works. The allegation has led to a federal investigation but Indian companies denies the charges.

Today the growing needs are highly specialized skills such as Requirements engineers, Business analysts, Project managers, System architects, Information system managers, Services managers, System designers, and Security specialists. These highly skills are currently taught only in few top universities in the U.S and Western Europe but not available elsewhere. Indian companies need these special skills to expand their business. They know that the only place they can get them is in the U.S. and that is why they are moving quickly to relocate their development centers in the U.S.

With globalization, technology market can change fast. Experts in the industry agreed that outsourcing business is already changing. The day of low labor, lower skills is over and being replaced by higher wages, higher skills. As many companies are struggled to survive in the post-recession era, they cannot afford to do so many things anymore. They must focus on their own core competencies so they have to quickly getting rid of their information systems, laid-off their IT people, and moving into “Cloud Computing” where information systems is handled by external professional IT companies. This change has led to a huge demand for highly skilled people in IT and create a shortage of skilled workers all over the world. The large hiring effort that is happening now reflects the changing nature of outsourcing and signal the coming of the second wave of globalization, where quality and highly skilled workers are needed.

Sources

  • Blogs of Prof. John Vu, Carnegie Mellon University

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