Microsoft Chairman and co-founder Bill Gates, left, is greeted by Infosys Director Narayana Moorthy at the Infosys campus in Bagalore, India, Wednesday, Nov. 13, 2002. Gates is on a four-day controversy-laced visit to the South Asian nation. Others unidentified. (AP Photo/Str)
Microsoft Chairman and co-founder Bill Gates, left, is greeted by Infosys Director Narayana Moorthy at the Infosys campus in Bagalore, India, Wednesday, Nov. 13, 2002. Gates is on a four-day controversy-laced visit to the South Asian nation. Others unidentified. (AP Photo/Str)

Janak Desai’s manager would joke it was never a good sign when the general manager came visiting accompanied by someone from Human Resources. “We heard about it on Thursday or Friday. They said it was for coffee talk,” says Desai. On Monday morning, along with the coffee, Desai and his fellow Hewlett-Packard (HP) employees in Atlanta got a somber talk on how much money the department had lost. Then came the dreaded euphemism—Workforce Restructuring Program. After working on his product for 12 years, six of them with HP, Desai found himself going through his first layoff.

But this time there was an added sting in the tail. The development and maintenance of his operating systems security product would be taken over by engineers in India, engineers Desai himself had once trained. “They were already doing support and doing a great job. So we lobbied upper management to let them do development so we could move on to new projects,” says Desai. “In the end we got ourselves out of a job.” Desai is just one of many software engineers who find themselves hearing the giant whooshing sound of software jobs going to India. According to management consultants McKinsey & Company, 203 of the Fortune 1000 companies are already outsourcing jobs to India.

• Intel will locate its new development centers close to the fastest growing markets for its products like India. “Our resources will go where our markets are,” Intel president Paul Otellini told reporters in Bangalore as he explained that the North American share of Intel’s revenue was slipping. According to Associated Press, the Santa Clara, CA-based company plans to invest $100 million to expand its staff in India to 3,000 and set up a software development center in Bangalore.

• The World Bank just awarded a long-term contract to Indian software firm Satyam Computer Services to develop software to run its offices, put its services on the Internet, manage documents, and send messages.

• Animation for the Russell Crowe’s Oscar-winning epic Gladiator and for parts of American classic Spider-Man was done in India.

The Backlash
In a struggling economy, the cost differential is huge, and offshore outsourcing is not surprisingly accompanied by a backlash. Britain already saw some of it when the Communication Workers Union (CWU) threatened a strike after British Telecom announced plans to create 200,200 customer service jobs in Bangalore in a bid to save money. The CWU said would hurt poor areas in Britain where call centers were often based.

Now the backlash has crossed the Atlantic. When New Jersey state Senator Shirley Turner heard that telephone inquiries by welfare and food stamps that clients under New Jersey’s Families First program were being handled by operators in Mumbai, India, after the contractor moved its operations there as a cost cutting measure, she was so perturbed she tried to introduce a bill requiring state government agencies to introduce a clause specifying that services under every state contract could be performed only by U.S. citizens or non-citizens legally resident in the U.S.

“It was seen as the best thing that had happened to both Indian business and the job market in a while. Maybe it was too good to last,” wrote K. Yatish Rajawat of the Economic Times, Mumbai, one of the first correspondents to cover that particular story. In fact, Turner used his story to make her point during a committee hearing in the Senate.

Software programmers at work at INFOSYS, one of the best known Indian software companies, in Bangalore, India, are seen in this Jan. 12, 2000.   (AP Photo/Namas Bhojani)
Software programmers at work at INFOSYS, one of the best known Indian software companies, in Bangalore, India, are seen in this Jan. 12, 2000. (AP Photo/Namas Bhojani)

Kanwal Rekhi, now CEO of and doyen of the Indian entrepreneurs in the Silicon Valley through TiE (The IndUS Entrepreneurs), is not surprised by Turner’s moves. “Politicians will always grandstand during hard times. Incidentally, the government work being outsourced will always be problematic. But I do not see this extending to commercial work.”

But Rekhi feels that attempts at laws like this are tantamount to commanding the tide to stop rising. “Outsourcing to India will enable us to do the jobs that no American will do at the wages Indians are paid,” says Rekhi simply. Desai at HP would agree. “Initially the guys in India were doing testing and support. We were giving them the work no one else here wanted to do. Management quickly realized that they were getting very good work for the price they were paying.”

“As long as customers want lower prices—and you will have to look very hard to find a customer who wants to pay a higher price—the growth will continue.” says Rajawat.

He points out that outsourcing itself is a well-established business practice in the U.S. But offshore outsourcing, which means sending the work outside of the U.S., is what is really taking off. Once upon a time, it was thought only manufacturing would move to cheaper sites like Mexico and China and South East Asia. “Brain” jobs like software development were supposed to stay in the fertile hotbeds of places like the Silicon Valley.

First it was the support and call centers that started moving offshore. Newspapers reported stories of how customer support technicians in India learned a smattering of American small talk so they could make their American clients feel at home as they tried to sell them a new plan. But how did the holy grail of software development jump ship?

“Outsourcing from India has brought the cost of getting customized work down by better than 50 percent,” says Rekhi. Three things that makes offshore development so lucrative—low cost of doing the work, trained personnel, and a global telecommunications network that has made it feasible for engineers to do their work from half a world away.

Desai is hopeful that this does not mean all software jobs will go offshore. The software industry is continuously evolving, and he thinks people on the cutting edge of technology will always find jobs in the American hubs of software development. But as an Indian-American, he finds himself in a piquant situation. Should he root for the bustling software industry in India getting a shot in the arm, or mourn for the jobs lost here, including his own?

In his case, he bears no grudge against the Bangalore engineers who are doing his work since he himself lobbied to get them that job. But he remembers how awkward it was for some employees in the accounting division who actually had to train their own replacements from Bangalore after their jobs shifted to India. “On the HP-alumni Yahoo group I was amazed at how much resentment there was to this,” says Desai. “Some people were blaming people from India for taking their jobs. Others were defending them. Everything was fine when the economy was good, but now everyone’s morale is down.”

Rekhi sees this as inevitable in the American model of prosperity. “Improved productivity is at the heart of American prosperity. The downside of improving productivity in short term is surplusing of labor unless there is a concurrent growth that is faster than the productivity growth. As Indians have been deployed to do the job cost-effectively, Americans have been losing jobs.” Rekhi hopes this is a short-term hiccup that will dissipate once the economy picks up.

But meanwhile, organizations like TiE could be faced with an interesting dilemma. On one hand an Indian-American engineer says: “Hey, my job is moving overseas. Help.” On the other hand, an Indian-American entrepreneur could come and say, “Hey, I want to move my software project to Bangalore. Help.” Rekhi says organizations like TiE are about entrepreneurship, not the location of jobs.

But he says what is happening is inevitable. “Opportunities in the Silicon Valley will be limited and will be available to the most qualified. That is the way it has always been and that is the way it will be in future too.” He points out that in the long run it makes no sense for jobs that can be done cheaper elsewhere to be performed in one of the most expensive places in the world.

Of course, cheaper does not mean it’s a cakewalk to pull your operations up in Sunnyvale and set them down in Gurgaon, India. Indian-American Shailen Gupta is cashing in on both his Indian heritage and the outsourcing boom. His company Renodis actually sits down with American companies and guides them through the pitfalls of outsourcing to a country as far away (and as different) as India.

Reverse Brain Drain
But as a culture, Silicon Valley was shaped by immigrant engineers, many of them from India, once straining the H-1B visa cap set by Congress. Sunnyvale and Newark still show signs of that explosion in the curry shops proliferating in strip malls and Indian video stores. Now the Naz Cinema with its multiple screens of first run Hindi movies has downsized. As the world’s global back-office moves to India, what happened to those throngs of desi engineers sent here by consulting companies in India?

Rajawat says Indian software industry, unlike the U.S. industry, derives only a small portion of their revenues from domestic industry. He estimates that the largest consultancy company, Tata Consultancy Services gets less than 10 percent of its revenues from the Indian market. India’s software association is sticking to its target of $50 billion in exports of software and allied services by 2008. Exports last year increased nearly 30 percent to $10 billion according to a report in USA Today.

Rajawat says some services still need to be near the customer and require customer handholding. For that Indian engineers will continue to be sent abroad by their companies. “But is the brain drain being reversed somewhat? Yes. Because of lack of opportunities and rising unemployment in the U.S. Also, now these engineers can work with companies in India and earn dollar salaries.”

Rekhi says the root cause for both the offshore outsourcing and the H-1B importing is the same. “America was not producing enough software engineers to start with. They tried to fix the problem by importing engineers from India, which economically does not make sense. Why bring people over and pay them U.S salaries when work can just as easily move there and be done cheaper?”

Now, as a sign of the reverse brain drain July saw Siliconindia career fairs in Santa Clara, CA and Iselin, NJ. The theme: Opportunities in India. The fair brought together recruiters, relocation experts, people thinking of returning to India soon. The irony of attending a career fair in the heart of Silicon Valley for opportunities in India doesn’t escape those like Desai who once left India to find opportunities in the brave new world.

Desai will not be attending the fair this time. Even as he enjoys visiting India, Desai finds it hard to think about following the offshore outsourcing boom back to the country he left in 1984. “My immediate family is here. I have made a life here,” he says. It took four- and-a-half months of looking, but he has found himself a new contracting job and is tightening his seatbelt for a bumpy ride ahead.