Area businesses save money by importing Indian software and services. But U.S. workers fear their jobs are being exported in exchange.
Last in a four-day series
MUMBAI, India — If your child plays soccer in Washington state, you’re benefiting from globalization. The custom database that runs the Washington State Youth Soccer Association — and reports any sex offenses or criminal records among its 25,000 adult volunteers — was written here, the biggest city in India.
You’re also indirectly using Indian software if you buy shoes at Nordstrom, use lumber made by Weyerhaeuser or visit a doctor at Swedish Medical Center.
Although Americans are increasingly concerned about the outsourcing of technology work to India and politicians are calling for laws restricting the practice, they may not realize how pervasive it has become.
Software and computer services became global industries more than a decade ago, and India-produced software is woven into computer systems used by corporations, governments and nonprofit organizations.
Although that may be a harsh reality for out-of-work programmers in the United States, employers can find the potential savings of 50 percent to 70 percent irresistible.
Consider the state soccer association.
When it decided to computerize its system for doing background checks on coaches, referees and volunteers, it hired MAQ Software. The company was founded in Redmond in 2000, but three-fourths of its employees now work in Mumbai.
The MAQ programmers built a database that checks a vast list of volunteer coaches against Washington State Patrol records. In the past, the State Patrol lists were printed out, copied and mailed to 39 regional soccer leagues, where officials would manually check them against their own lists.
MAQ also added computerized services that let the association post team scores and standings on its Web page.
All that was done at a cost that kept the soccer association from having to levy a big increase in member dues.
“We got some excellent deals on the products, and they delivered a very professional product,” says Jake Henak, technology director at the group’s Federal Way headquarters.
Those deals can be traced to outsourcing. MAQ Software pays its engineers far less than their counterparts in the U.S. Programmers based in Mumbai get $10,000 to $20,000 a year; those working out of Redmond make $50,000 to $90,000 — still less than most American-based programmers.
For MAQ co-founder Rajeev Agarwal, the economics of building his company were simple:
“We started recruiting [workers] in the Seattle area,” he says. “They wanted $100,000-plus and did not even have a college degree.
“At that time I basically said I’m going to India,” says Agarwal, an India native who is now a U.S. citizen.
The boom in Mumbai
MAQ takes a piece of burgeoning business
MAQ’s glass-walled offices in Mumbai are a quiet oasis in this frenetic, overcrowded financial capital that’s riding India’s new wave of prosperity.
Formerly known as Bombay, Mumbai is a blend of Tokyo, New York and Los Angeles, crammed onto a forked peninsula jutting into the Arabian Sea. Its 11.9 million people include stock traders, movie stars, leagues of impoverished fortune seekers and 40,000 new computer-science graduates a year.
It is here that Agarwal, 39, brought MAQ, joining 3,000 other companies in India that export software and services, mostly to U.S. companies eager to save money by farming out work. Agarwal estimates that 70 percent of big U.S. companies have decided to hire someone else to handle part of their information-technology systems.
India’s educated professionals speak English, the international language of technology. Advanced telecommunications and the Internet make it possible to provide service without being physically present.
India’s software exports grew from practically nothing in the late 1980s to $9 billion last year — up 26 percent over 2002. That economic boost is in turn boosting the domestic market for software. Last month, MAQ signed up its first Indian customer, a petroleum company.
The boom in India’s tech industry also means stiff competition for good software developers. But Agarwal says he has been able to recruit from the country’s top schools and large tech companies by offering a work environment modeled on Microsoft.
Unlike old-line Indian companies, MAQ rewards employees for performance, not longevity. Women receive equal opportunities, the company rewards educational advancement and gives quality of life a high priority; breaks for yoga and meditation are standard.
Business is going well enough that Agarwal plans to increase the Mumbai staff from 45 to 60 this year, and double his staff in Redmond, from 15 to 30.
“Nothing out there”
As India booms, jobs scarce for some high-tech workers in U.S.
Economists and free-trade advocates say such outsourcing pays dividends back in the U.S.: India’s growing middle class is buying more American products, and U.S. consumers pay less for goods and services.
That’s little comfort to John McElhiney, a Kirkland software tester with six years of experience. He was laid off in October 2002, during the dot-com slump, and hasn’t been able to find comparable work since. He even went to Alaska to look but ended up selling his possessions on eBay to buy gasoline for the drive back to Seattle.
“I cook and vacuum, but it’s not the same as paying rent,” he said in May.
McElhiney, 34, worked for a time last spring as a sales clerk at REI. He now has a temporary job at an Issaquah telecommunications company and is living in his own apartment in Kirkland.
“I don’t see a light at the end of the tunnel for people in my shoes,” he says. “The only light is getting a job paying one-quarter as much, starting in a different field.”
His was one of 146,000 software jobs lost in the U.S. from 2001 to 2002. Altogether, 539,000 jobs in software and other high-tech professions were lost that year, and total employment fell to about 6 million, says the AeA, formerly known as the American Electronics Association.
Job losses slowed in 2002-03, when 234,000 jobs were eliminated, including 30,000 in software.
The trade group contends that most of the job loss can be blamed on a weak economy, improved technology and increased productivity — not on outsourcing. And it cites forecasts that tech employment will rise in coming years.
That’s not soon enough for Cort Odekirk, a 37-year-old Web developer with 10 years’ experience, who was laid off by InfoSpace, a Bellevue Internet and wireless-services provider, and is now living on temporary and part-time contracts.
In a bit of economic irony, Odekirk was laid off in December. But in exchange for a larger severance package, he agreed to stay until April to help and train an outside company that InfoSpace hired to do his old job.
Odekirk is now getting a master’s in computer science at Bellevue-based City University. But he wonders whether he’s wasting his time.
“There’s nowhere to go, now that the white-collar jobs are moving overseas,” he says. “What am I going to do? Work at Burger King? Probably eight out of 10 people I know are unemployed right now.”
InfoSpace investors are more upbeat about the changes. The stock has doubled over the past year as the company slashed expenses and began making its first profit since 1999.
From millinery to mills
Nordstrom, Weyerhaeuser, Swedish have India links
The pressure to cut costs — and the appeal of low-price software — has pushed other Seattle-area companies to India.
When customers buy shoes at Nordstrom, the cash register sends information about the purchase into a computer system developed partly in India. Since 1994 the retailer has outsourced system development to Infosys, a Bangalore-based company that some call the Microsoft of India.
One big project began as Nordstrom was trying to emerge from a slump in 2001. It delayed several new stores and cut 2,600 employees to trim expenses, but it needed to modernize its financial system. Infosys promised to do the complicated job at a fixed price.
“For us, Infosys is a supplemental model,” says Nordstrom spokeswoman Deniz Anders. “It doesn’t replace existing jobs.”
At Swedish Medical Center, patient charts are scanned into a database system that MAQ upgraded for Infomedx, a now defunct Seattle company that helped hospitals and clinics store and retrieve patient records.
And Weyerhaeuser took the outsourcing path in 2000 when it standardized software to run its mills.
The Federal Way-based lumber giant didn’t have the staff or expertise to handle the project on its own. But it had worked in the past with Wipro, a cooking-oil company in Bangalore that diversified into technology and is now one of India’s largest computer service companies.
Wipro was hired to customize, maintain and operate the mill software. It now has about 230 people dedicated to Weyerhaeuser’s system, and at any given time, about half of those Wipro employees may be working at the Federal Way headquarters or the mills.
The arrangement saved Weyerhaeuser an average of $12 million a year and resulted in no layoffs in Federal Way, according to company officials and an analysis by Aberdeen Group, a Boston consulting company.
“I’ve been with this program four years and to date we haven’t had to cut any jobs because of this program,” says Shawn Awan, a Weyerhaeuser manager.
Weyerhaeuser calls it “co-sourcing,” because it kept key parts of the project in-house to preserve jobs and control. Awan says Weyerhaeuser’s own programmers “work on cutting-edge stuff” while Wipro maintains and operates the system.
The company’s arrangement also demonstrates the many facets of globalization: Awan is an immigrant from Pakistan; the mill software is from Germany; and Wipro runs the system from India, working with a support office in Bellevue.
Outsourcing nothing new
Its use could accelerate as new approaches are developed
Outsourcing may be a hot topic in the news, but the practice is as old as computers themselves.
When computing machines were new, massive, expensive and mysterious, companies would hire specialized companies, such as IBM, to set up and run their information systems.
But as computers became desktop items in the 1980s — ubiquitous, affordable and user-friendly — even the smallest companies set up their own networks and tech staffs. The pace accelerated in the 1990s, with companies racing to buy the latest technology for fear of becoming obsolete.
Now the pendulum is swinging back to outsourcing.
Companies often prefer to focus on their “core competencies” — the service or product they provide — while someone else handles routine software tasks. At large U.S. enterprises, outsourcing accounts for 13 percent of the average information-technology budget, according to a survey published in December by Forrester Research.
Lately, computing giants such as IBM and Hewlett-Packard began pitching a new model of computing that could accelerate outsourcing in coming years.
Called on-demand or utility computing, this approach basically delivers computing power the way electricity is sold: Vendors run computer systems, hiring tech workers at computing centers around the world; users subscribe for service through a vendor, and pay for as much as they use.
Tech-service vendors IBM Global Services, Accenture, EDS and El Segundo, Calif.-based CSC are expected to increase their software-development and management capabilities by adding nearly 50,000 positions overseas, mostly in India, over the next three years, according to a report issued in April by IDC, a Framingham, Mass.-based research and consulting company. Those will include newly created jobs and jobs moved from the U.S.
Worldwide, companies and governments spent $76 billion on outsourcing last year, and the tech-services outsourcing industry will grow about 7 percent a year through 2008, IDC said.
The report said the growth in tech outsourcing will probably slow in a few years because there are only so many customers among the world’s top companies.
A pragmatic solution
Outsourcing saves Bellevue firm money and time
Controversial as outsourcing can be, it can also be pragmatic and cost-effective — and too tempting for small or financially strapped firms to ignore.
Bellevue-based Apex Learning provides advanced-placement courses and other online education programs, which are primarily used by students in rural schools. The company needed to replace its antiquated registration system, but the 12-member staff lacked the expertise and time to do the work in-house. And it was struggling in the sluggish economy, cutting staff and postponing new projects.
“The company’s not yet profitable so we were looking for the most cost-effective solution to acquire that talent to deliver the project on time,” says Andrew Lippert, Apex’s vice president of engineering.
Lippert had met Rajeev Agarwal, of MAQ Software, at an entrepreneur-awards banquet in Seattle. And he was comfortable with having a project done in India; during a former job at Amazon.com, he supervised work done by a call center the online retailer used in India.
So he hired MAQ to build a new registration system for Apex, then rehired the company to build a tool to help instructors update online course material.
The decision to outsource that project cut Apex’s costs by 75 to 80 percent, compared with doing the work in-house, Lippert says.
It also proved time-efficient.
MAQ’s standard practice is to write software code during the day and test it every evening, checking for bugs. Programmers in Mumbai finish their day by sending a progress report and the latest “build” of the software back to Redmond, where the workday is just beginning. Colleagues in Redmond work out bugs and present the program to the client.
When they need to work more directly, they jump on the Internet.
That happened one day when the Redmond team stayed into the evening to discuss client concerns about a Web page upgrade. It was morning back in India. The Mumbai team, gathered in a basement conference room with flow charts and bits of code scribbled on white boards, dialed the Redmond office to set up a videoconference.
After the two teams sorted out the issue, the Redmond group called it a night and the Mumbai crew went to work making the changes.
“Frankly the skills that are available are very price competitive,” Lippert says. “You can’t avoid that when you’re working in a small business where your core competency is education — it shouldn’t be software development.”
Placing the blame
Is outsourcing or a sour economy costing jobs?
Outsourcing doesn’t always go so smoothly. Agarwal guesses that seven of 10 companies probably have had a bad experience with an outsourced project. Communications problems can arise, expectations can get confused, or inexperienced programmers can be assigned to small projects.
“It’s still a market where you have to be very careful about what you do,” Lippert agrees.
But he says the backlash against outsourcing among laid-off tech workers may be somewhat misdirected, and economic conditions are really to blame.
“The economy’s been rough; there have been a lot of jobs lost, especially in the information-technology sector,” he says.
“Companies are faced with ‘now we’ve got to be profitable, what are our biggest expenses, what can we do about it.’ You’ve got to look at the cost of your staff and what are the alternatives.”
A former Navy pilot, Lippert taught himself computer skills and worked in consulting before joining the industry.
“My advice to software engineers and software-engineering managers is, where are you adding value to the business? It’s not just that you’re writing a line of code, it’s what does that do to the bottom line of the company,” he said. “If you’re not adding value, watch your back.”
Brier Dudley: 206-515-5687 or firstname.lastname@example.org
Ami Vitale is a freelance photographer working in India. Her email address is email@example.com.