Outsourcing Turns Inside-Out as Indians Open US Centers – Businessweek

Janie James says she was cool at
first when Indian outsourcing giant Infosys Ltd. (INFO) approached her
about a job near Atlanta, even though she was unemployed. She
didn’t know much about the company, and it seemed a step down
from her old vice-president post at Primerica Inc. (PRI)

In the end, she decided she could use experience gleaned
from her work at life-insurer Primerica and another stint at a
financial-investment company to help Infosys build its insurance
outsourcing business. Now James is an operations manager at the
Bangalore, India, company’s first predominantly U.S.-staffed
center, which opened in April.

“They saw this was a city with a lot of people who were
out of work and had the skills they needed for this center,”
she said. “Anything that can be done to decrease unemployment
is a great thing.”

James is one of thousands of workers filling outsourced
jobs that are coming back to the U.S., or at least not going
offshore. Indian and U.S. outsourcing companies, along with
corporate icons like General Motors Co. (GM) and General Electric
Co. (GE), are reversing a 20-year outgoing tide.

These companies and others, including software developer
GalaxE.Solutions Inc., say some complex functions, such as
human-resources and software development, are better to have
closer to their own operations and to respond to customers.
Indian outsourcing companies are finding it tougher to get visas
for workers brought from India, and some U.S. businesses want to
outsource — yet keep jobs in the country. State tax breaks also
provide incentives to hire locally.

Lowest Cost

“It used to be just about getting the job done at the
lowest cost,” said Madhusudan Menon, who heads Infosys’s
Atlanta center and delivery of U.S. business-process
outsourcing. “Now companies are saying some jobs are best done
closer to where they are, not cheap as possible somewhere else.
They’re rebalancing their onshore and offshore outsourcing.”

U.S. companies with more than $1 billion of revenue sent
1.1 million technology and back-office jobs offshore during the
past decade, according to the Hackett Group (HCKT), a Miami-based
consulting company. While it forecasts a slowing outflow
beginning in 2013, it calculates another 400,000 positions will
be lost offshore through 2016.

A survey of 617 outsourcing industry executives by Boston-
based HfS Research in July and August found the U.S. is seen as
the most desirable region in the world to expand IT and
business-services delivery centers in the next two years. India
was second.

Largely Satisfied

Respondents have been largely satisfied with the offshoring
of low-end jobs, such as call centers and routine IT
maintenance, according to Phil Fersht, chief executive officer
of the outsourcing-research company. With more complex tasks,
the survey showed the headaches may have outweighed the savings.

“We’re at an inflection point,” Fersht said. “They have
picked much of the low-hanging fruit offshore, but they’re
frequently not getting the quality they need with the more
complex functions there.” For example, 72 percent of companies
said they were satisfied or very satisfied with domestic
outsourcing of human-resource services compared with 41 percent
who had those tasks done overseas.

The Indian offshore giants are establishing beachheads in
the U.S. for political, as well as business, reasons, according
to Fersht. President Barack Obama and Republican presidential
candidate Mitt Romney have traded charges of being “outsourcer
in chief.”

Outsource Onshore

Menon sees opportunities for Infosys to capture business
from companies that want to outsource some operations while not
being accused of sending jobs overseas.

The principal customer at a Milwaukee center Infosys
announced in July is Harley-Davidson Inc. (HOG), which insisted that
the 75 business-processing jobs it wanted to outsource at lower
cost remain in the country, according to Maripat Blankenheim, a
spokeswoman for the motorcycle company. Infosys said it plans to
have a total of 125 employees at the center by attracting other
clients.

Picking up new onshore business from U.S customers could
help Infosys buttress its position against competitors such as
Cognizant Technology Solutions Corp. (CTSH), which surpassed it in
revenue for the first time in the quarter ended June 30,
according to data compiled by Bloomberg.

Market Share

Cognizant, based in Teaneck, New Jersey, has doubled its
market share during the past seven years to 18 percent for the
year ended in March, according to an April 19 report by CLSA
Asia-Pacific Markets. Infosys’s market share fell 4 percentage
points to 21 percent, the report said. Cognizant, whose
workforce is mainly in India, has stepped up its high-end
outsourcing services and is hiring more employees with
relationship management, consulting and deep industry
experience, President Gordon Coburn has said.

Infosys has been operating in the U.S. for 25 years, though
up until the past two years, only 20 percent of employees were
Americans, Menon said. Infosys had about 12,000 workers in the
U.S. on H-1B and L-1 visas as of June 30, according to a
Securities and Exchange Commission filing by the company.

Infosys and its Indian peers now are having more difficulty
obtaining U.S. visas. Last year, 54 percent of Indian
petitioners’ initial requests for L-1B visas, which allow
employees with “specialized knowledge” to work in the U.S.,
were rejected by U.S. Citizenship and Immigration Services,
compared with 4 percent in 2007. Infosys said in an SEC filing
that the immigration agency has “increased its level of
scrutiny in granting new visas,” and cited difficulties meeting
the requirements for L-1 visas.

U.S. Presence

Tata Consultancy Services Ltd. (TCS), the biggest Indian
outsourcing concern with $10 billion in revenue, also is growing
its U.S. presence, opening an outsourcing center outside
Minneapolis in September to employ about 300 IT workers.

In 2011, Tata Consultancy augmented the work it already was
performing for Dow Chemical Co. (DOW) in Mumbai by setting up
outsourcing operations in Midland, Michigan, near that company’s
headquarters. Tata Consultancy currently has 400 employees
there, according to spokesman Michael McCabe, handing back-
office functions, including supply-chain scheduling and planning
for Dow and other clients.

Even with the 2,000 U.S. workers Tata Consultancy plans to
hire this year, which is a 25 percent increase from 2011,
Americans remain a minority of its approximately 20,000
employees in the U.S. and Canada, McCabe said. About 92 percent
of Tata Consultancy’s 250,000 workers worldwide are Indians,
according to the company.

Create Opportunities

Still, the onshore outsourcing centers create opportunities
in cities such as Atlanta, where unemployment has been above the
national average since May 2010. The area’s jobless rate was 8.9
percent in August, the latest month available, while the
national rate was 7.8 percent in September.

Infosys was attracted to the area because of its many
insurance and health-care businesses, according to Menon. His
company saw outsourcing opportunities in those industries and a
large pool of unemployed, experienced workers, he said.

“When I told the Georgia Department of Labor what I
needed, they gave me 5,000 people without a job in those
sectors,” Menon said. He led an Infosys team that interviewed
scores of candidates at that agency’s suburban Marietta offices
in January. Others, like James, were recruited.

The offshoring reversal also can be seen in U.S. companies
such as GM and GE, which were early adopters of outsourcing and
now are repatriating jobs.

Innovation Centers

GM said it plans to bring 90 percent of its IT work in-
house and, in many cases, onshore, hiring 10,000 workers over
the next three to five years. The automaker said it will open
four U.S. technology “innovation centers,” one in Austin,
Texas, with 500 employees, another in Warren, Michigan, with
1,500 jobs and two others in cities yet to be determined.

GE also is building a technology center outside Detroit,
where it plans to employ 1,100 people, as part of a broader
initiative to reseed the company’s IT capabilities in the U.S.

Mike De Boer, who led the recent development of a
technology center in New Orleans for the company’s GE Capital
unit, said the business needs a rapid-response approach to
technology changes, such as mobile-phone applications, which
requires proximity.

“The speed you need to meet customers’ requirements is all
about being near to the customer,” said De Boer, who’s hired 27
IT workers so far for a facility that is slated to reach 300
employees.

Opportunities Reappear

U.S. software engineers who have lost jobs, such as Michael
Zureich, say they are heartened to see opportunities reappear in
their field. Zureich, who worked in auto-manufacturing processes
for 24 years, was laid off by Siemens PLM Software in 2009. He
became a math teacher in 2010 after a fruitless 18-month job
search, he said.

Then he heard of GalaxE.Solutions, a Somerset, New Jersey,
company that is shifting some of its 2,000-employee workforce
from India to the U.S. It opened an office in Detroit, where it
now has 200 on staff, to help develop software for U.S.-based
health-care clients. GalaxE.Solutions, like a number of
companies that have been repatriating jobs, received state tax
breaks as an incentive to influence location.

“The complexity of the business and the agility required
was increasing, and I didn’t feel we were achieving the
collaboration and innovation our customers required,” Tim Bryan, chief executive officer of GalaxE.Solutions, said in an
interview.

Zureich, 54, who joined the company in March 2011, said
while he’s earning a little less than he made at Siemens, “I’m
getting significant job satisfaction and regained a lot of the
confidence I lost.”

At the Infosys center outside Atlanta, James said she is
way past thinking of an outsourcing job as a step down and is
learning a business that is here to stay.

“I like challenges, and it’s a notch on my belt,” she
said. “Infosys is making a transition, too; when you want to do
business here, it helps to give people more opportunities.”

To contact the reporter on this story:
John Helyar in Atlanta at
jhelyar@bloomberg.net

To contact the editor responsible for this story:
Kenneth Fireman at
kfireman1@bloomberg.net