Exporting IT: Outsourced labor and the draw to India

2-21-2005 5:00 AM By: Jitin Hingorani

Bangalore, India, is less than half the size of Austin, but it's home to 6 million people battling to get to work.

There's no such time as rush hour; here traffic is backed up all day. It takes more than an hour to travel 12 miles to Bangalore's Information Technology Park, a complex where America's finest software companies have set up their Indian operation.

Vivek Kulkarni is India's former IT Secretary. His role was to attract high-tech companies to the state of Karnataka. He said cheaper labor is the main attraction for Austin companies.

"As a developing country, all the prices are lower, and our living style is different. So, probably, one can, very comfortably, live here with a salary of about $200 a month, and that's what you need to pay when you recruit an engineer," Kulkarni said.

Dell has grown from 200 Indian workers at one facility to 6,000 employees at three facilities. Trilogy has moved all of its software design here. And Motorola, now known as Freescale Semiconductor, has an enormous operation in Bangalore.

Local Freescale employee Eliseo Elizondo, who is a two-time St. Edward's University graduate, said outsourcing is inevitable.

"We're gonna' have this type of issue where always looking for a way to cut costs, a way to expand markets. It's a reality and there will come a day when there will be a balance, but it's just maybe a little painful for those of us on this side," Elizondo said.

About 20 Austin-based companies now have centers in Bangalore, but there is no exact number on how many U.S. jobs have gone overseas. That's because the trend is relatively new, and U.S. companies are not required to disclose any information about outsourcing.

"There's no way we can stop globalization. In fact, globalization is something we have sought as a country for over 50 years now. We have sought to create the interconnectedness of economies and countries in the belief that it will lead to stability and prosperity in the world," Alex Cavalli of IC2 said.

Cavalli is Deputy Director at IC2, a capitalism think tank at the University of Texas at Austin. He said America was on the other side of the outsourcing equation during its rise as an industrial powerhouse.

"We were the tremendous beneficiaries of research and manufacturing development and ideas that came out of Europe, and the Europeans must have thought, at one point, a lot like we're thinking now. 'Those doggone Americans! They keep taking all of our technology and growing up these industries and then they come back and compete with us,'" Cavalli said.

The outsourcing trend gained momentum in Austin after the 2000 technology bust. As thousands of workers were laid off, surviving companies scrambled to cut costs and increase revenue.

Then the Sept. 11, 2001, person attacks hit and made transportation of goods virtually impossible. Companies began to send jobs to China and Vietnam, but not for long. The threat of SARS plagued the Asian economy and drove many companies out of the region for good.

Bangalore is a hotspot for Austin high-tech companies to outsource cheap labor and compete in the global economy.

That's when Bangalore, India, became the outsourcing hotspot. Jeffery Goodwin, the chairman and CEO of Austin-based Ashley Laurent, said his company was one of 90 that moved to Bangalore in the fourth quarter of 2004.

"It's been highly publicized in the press. One could argue there are too many companies in Bangalore right now trying to do the same thing," Goodwin said.

Ashley Laurent primarily designs security software. The company recently opened a small office with 10 engineers in a Bangalore suburb. They hope to add seven more by next month. Goodwin said for every one American engineer, he can hire five Indian engineers with the same level of education.

"On a global basis, we have to compete with other companies. Many of our compebreastors and partners already have operations in India," Goodwin said. "Our strategy for going there is long-term. We have to have an operation in Bangalore and this will pay dividends for us many times over, over the next few years, as that division grows and we bring the team up to speed there."

Their biggest compebreastor, Texas Instruments, in 1984 was the first American high-tech giant to build a center in Bangalore.

Vijay Davar, the former general manager of TI's Indian operation, said Texas Instruments serves as the model for Austin companies looking to outsource.

"It's all because of the availability of the bandwidth Internet, which basically allowed it - transportation is cheaper, you can get on the phone and do your work, send your data quickly and that brings everybody together so quickly. It'll be foolish to not take use of that availability. The question is how do you keep that balance? And I think we're still struggling with that," Davar said.

That struggle that has Americans afraid of losing their jobs, and Indians afraid of losing their space.