As the campaign against H1Bs and offshoring takes off in the US, are Indian companies doing enough to deal with the backlash?
This article first appeared in Dataquest Vol XXI No.4, p 36-43
This is first of a two-part story, on backlash to offshore outsourcing.
Also In This Story
November 22, 2002: Michael Emmons, an IT worker on contract at Siemens Information and Communication Networks, Lake Mary Fla, quit his job. He was due to be replaced next month by a TCS employee on an L1 visa. Irked at being replaced, and having to train his replacement to top that, Emmons set up a site called www.hannatroup.com. Under a section called “Our Indian Replacements from Tata Consulting India”, the site lists names of TCS employees, their telephone numbers, e-mail IDs and, in some cases, names of their children.
“Americans trained these foreigners and then the Americans got laid off,” it says. The agenda of hannatroup.com –to get people to sign a petition to stop H1B workers coming to the US.
January 2003: American consulates in Delhi and Mumbai are rumored to have stopped processing all H1B and L1 visas. While the rumors are never confirmed, what definitely happened instead was increased scrutiny of all visa applications and a whole lot of 221Gs given out to Indian software companies with blanket L1s.
(221G is a clause that allows the consulate to ask for more information. It’s in some ways worse than a rejection because there is no way of figuring out when, if ever, a 221G will ever get a reply from the embassy).
February 2003: The US Department of Labour begins an administrative law hearing on a case filed by Guy Santiglia, a former systems administrator at Sun Microsystems. His charge — Sun Micro laid him off and thousands of other employees even as it retained H1B workers and was applying for the ability to hire thousands more.
The company says Santiglia’s charges have no merit and that the Equal Employment Opportunity Commission and Department of Justice had already dismissed his claims. However, there are other H1B cases in the offing including Pete Bennett, an out-of-work Web programmer who filed a claim with the Department of Justice saying he had been refused a job with another company on the basis of national origin. Bennett co-runs the site www.nomoreh1b.com.
Route 66
The road from San Jose to San Francisco is in many ways a trip across the heart of Silicon Valley. The exits on Interstate 280 tell the story of the late 20th century’s greatest revolutions — Saratoga, Redwood Shores, Mountain View, Palo Alto, Stanford University… The homes of some of IT’s greatest minds and greatest companies.
And yet, the valley is today going through a churn. The revolution is turning on its head. As the downturn cuts into jobs there is a certain panic in the air. And it’s looking for a scapegoat. Increasingly, Indian companies and immigrant H1B workers in the US are beginning to be the target of that angst.
Apart from the intense lobbying on the H1B cap issue (see Dataquest issue of January 15, 2003) there are signs all over the net — www.zazona.com, www.fairus.org, www.h1bprotest.com, www.hireamericancitizens.org, www.stopimmigration.org, www.numbersusa.com ….
Ashok Mukherjee, Chief Manager, HR at TCS whose employees’ names figure on some of these sites, is concerned but not perturbed. As yet.
“It’s still an undercurrent,” he says, “our employees have faced no harassment on the ground level so far.” The company has however taken up the issue with Siemens where its employees are posted. Siemens is in turn talking to various government agencies and industry associations.
Ashok believes the undercurrent will never burst out —Americans are too polite for that. “But if it ever does, we have a real problem on our hands,” he says. Other India IT Services providers too are finding themselves in similar situations.
Bank of America cut nearly 3700 of its 25,000 tech jobs last year some of which came to Infosys. Boeing outsourced some of its work to Russia and Wipro in India. Ditto with Storage Tek — 300 sacked in Minneapolis as jobs moved to India.
These deals generated a lot of hate mail and a whole lot of activity in chat rooms that some Indian companies now actively monitor. A reason, says the Marketing head of a large software services provider, “why large deals, specially BPO deals, are increasingly shrouded in secrecy.”
It’s also why on March 19th Wipro is calling its prospective clients to meet with an existing one — Lehman Brothers. The company hopes the Lehman Brothers’ CIO will talk about how he dealt with employee issues when he outsourced jobs to India.
But is this enough? Are Indian IT services companies paying sufficient attention to the issue?
Is your job next - Backlash discussion at NASSCOM
At the NASSCOM strategy summit this February, the issue was certainly on everyone’s mind. Almost every single speaker mentioned US job loss and protection issues (vis a vis the New Jersey Bill), at least in passing.
For instance, Zensar CEO Ganesh Natarajan spoke of when he went to meet the CEO of a BPO firm in Florida the previous week. “He was carrying a magazine whose cover said, Is Your Job Next?” British Minister for Small Business, Nigel Griffith took a dig at the US when he said, “the British government’s attitude to outsourcing is very strong. The environment couldn’t be more favorable and is in total contrast to growing protectionism in the US.”
Professor Sabyasachi Mitra of Georgia Tech Dupree college of management spoke of “lot of resistance in the US to people coming there who don’t walk, talk and look like them. But Protectionism is not the kind of thing the US does. Besides, business has a lot of lobbying power.”
Besides, there are indications that NASSCOM itself is beginning to take the issue seriously. Phiroz Vandrevala, past Chairman and executive vice president NASSCOM told members that the body’s executive committee had decided on a public relations campaign and hired Hill & Knowlton for the job. “The four pillars of that campaign are the media, analysts, B2B messaging and Public Affairs.” Vandrevala’s key concern vis a vis Public Affairs: the Totalization agreement (that will protect Indian immigrants from dual taxation) and the ongoing debate on the H1B cap.
Paul Taaffe, CEO of Hill & Knowlton however had a slightly different take. “Job losses is a political debate. It’s what brings and throws governments out of power. Besides, these people are completely emotionally not ready to deal with losing white collar jobs to countries like India.”
Taaffe’s prescription: you have to both defend and attack.
“The emotions the Forrester study generated (predicting 3 million jobs in the US will go over the next 5 years) — you cannot fight them with facts.”
In fact, says Taaffe, an Australian working in the US, “you cannot win the argument over the next 12 to 24 months.”
Question then is: will the issue go away after 12 to 24 months? And are Indian companies geared to deal with it in the meantime?
March of history
History teaches us that the issue will die its own death. Though the ability of Indian companies to deal with it in the meantime may still be an open question.
Says Ashok, “there have been waves of immigration to the US and of jobs moving out in the past. Whenever the economy is at a low, xenophobia begins to set in. But that changes as the economy begins to look up again.”
Like Ashok, just about everyone talks of how American manufacturing and textile sector jobs moved overseas. And how the US re-skilled and re-adjusted itself. Says Laxman Badiga, Chief Executive for Talent Transformation at Wipro Technologies, “we’ve seen the US worker switching and doing something else in the past. In IT Services that will not be a problem. These people will switch to something else.”
That, in fact, is the crux of the Indian argument.
However, lessons from history aren’t always dependable bellwethers for future policies. This time, the situation just might be different.
Says former Infosys marketing chief Phaneesh Murthy, “when manufacturing started getting globalized the US economy shifted to services, driven by an over-valued dollar and low productivity. There was a compelling cost-to-value equation then and today 82% of American workers are in the services sector.” Now, he says, "we have the same drivers for Services moving out."
But here's the importance difference from the past says Phaneesh:
"Few people realize that the US labor market is fundamentally disadvantaged because they are working in a developed market cost structure and selling in a global/growing market cost environment.”
What this means is that there are drivers other than just offshoring to India that is driving jobs out of the US. Besides, when manufacturing moved out, people shifted to a services economy. Now, as Phaneesh says, “they don’t have that luxury. Where do they move from here?”
The Past Doesn't Always Foretell the Future
That’s a difficult question to answer. In many ways the services economy is already seen as the highest end of the value chain. While some IT services professionals and companies are likely to move up to R&D and new technologies, a very large chunk will not make that shift.
As Laxman Badiga says,” In the BPO sector the kind of person being displaced is a low skilled person. He will find it difficult to get a new job.”
In fact, technology forecaster and Director of the Institute of the Future, Paul Saffo (see interview) believes there is by now “structural unemployment in Silicon Valley.” He believes that there is already a recovery underway but it’s a strange “jobless recovery.” When the economy recovers, he says, “Silicon Valley will not recover with it.”
Phaneesh Murthy says those who are betting on things getting better once the economy takes off “are betting that the global market will expand. But that is not really a done deal.”
At the moment the Indian argument rests around two things:
(a) that the US is not really a protectionist country and that it will not do anything to stop jobs moving out and
(b) that history vouches for the fact that things will eventually find their own equilibrium.
While both of these assumptions might be true, it might perhaps be facile to rest on them. While companies and countries might see the virtue of producing more efficiently, individuals who lose their jobs might not. Hundreds of thousands of jobs moving out is at the end of the day both an economic and emotional issue. Either way, as Wipro Technologies CEO Vivek Paul said at the Q3 results recently, “We’ll hear more and more of this as time goes on.”
Ends
Gartner Study: Employers should move cautiously
A recent Gartner study warned of a work-life balance backlash in the making. That is -- IT employees getting tired of longer and longer hours at the office, and through 2004, likely to wrest some control on their lives back. Here we look at a December 2002 study by Gartner VP (workplace studies) Diana Morello, on workforce management issues related to offshore outsourcing in the US and Europe...
CIOs will consider offshore outsourcing for three main reasons: cost savings, access to specific skills and a general sentiment that internal staff cannot be trained quickly or effectively in new skills.
Without a significant upturn in IT investment in Europe and North America, the movement of work overseas will lead to job cuts and layoffs in IT, starting first with IT vendors and IT service providers and moving steadily into IS organizations within user companies
Some business executives will promote the efficiencies and economies of scale gained through IT offshore outsourcing while downplaying the implications on employment, jobs and employee trust. Missteps will occur.
North American and European companies that fail to acknowledge the impact on IT-related employment, especially in a down market, will be ripe for employee activism, community backlash and disruptive shareholder actions.
Discontinuity in IT jobs, skills and support roles will create upheavals in compensation, rewards and incentives in the US, Canada and Europe. Some enterprises will proceed clumsily, threatening outsourcing, unless their staff makes compensation concessions.
Enterprises that move cautiously and respectfully will keep performance high and defuse employee anger.
'Call Centers Can be Exploitative’ - The Paul Saffo Interview
Based out of Menlo Park, California, Paul Saffo is a technology forecaster with a yen for making assertions that often seem to fly in the face of common sense. He was the man who said technology would not abolish intermediaries, that technology doesn’t drive change–people do, that the personal computer revolution never really happened. Once again flying in the face of popular rhetoric, technology forecaster and futurist Paul Saffo says call centers could end up being exploitative of India’s youth; and that the threat to US jobs will only get worse…:
Do you see a long-term impact of outsourcing/offshoring on the US economy? Will US services jobs moving out be a long-term issue?
It’s going to get worse. In fact, it’s going to accelerate. Folks can wring their hands all they want about it, but their jobs are going to go out. And guess what? They are going to go to countries like India not just because of low cost but because of better quality. Today 40% of Silicon Valley consists of Indians. They are better technically, they are beginning to get into management consultancy, they are even better at handling phone calls in contact centers.
Outsourced workers are everywhere. Recently the Pentagon bought a supercomputer, gave the software out to a US company and parts of its code is written by Chinese programmers. Wait till the nay-sayers hear that an ex-commie is writing code for the Pentagon.
The US has a whole world of problems coming its way both in the short term and the long term. There is structural unemployment in Silicon Valley and when the US economy recovers, Silicon Valley is not going to recover with it. In fact there is already a recovery underway but it’s a strange kind of jobless recovery. Those lost jobs are not likely to come back — automation, increased efficiencies and offshoring will take care of those.
Which is one of the reasons we’ve seen a lot of vocal opposition to outsourcing to India in recent months. The New Jersey bill and four other states for instance. Do you see a long-term impact on India as a result of this?
Well, the US is a nation that likes to blame others. So yes, India is going to get some of the blame for lost US jobs. And post September 11, the US is reacting in a really stupid manner. We’re making Silicon Valley a very hostile place for foreigners.
And we’re already beginning to see the effects of the H1B protests. A northwestern hospital complex for example says it is losing a billion dollars a quarter because of inability to get skilled people in. Universities are complaining that H1B restrictions are affecting basic research. The only ray of hope is that the current administration is so profoundly stupid that I think we are soon going to see George Bush’s popularity drop and a lot of the ongoing repercussions of the so-called war against terrorism might come to an end.
Americans are basically good people. They take a little long to recognize injustice but when they do, they protest.
There is a lot of optimism in India about the Back Office/Call center industry. The argument is that anything that creates jobs is a good thing. What’s your take on the long-term impact of the call center industry on India?
Shortening education to go to work is a mistake. We did that in the 1950s when we told our young people — you don’t need to go to college…you’ll get a job at General Motors right out of high school. And guess what happened when General Motors moved manufacturing out of the US. Call centers are a job, but it not clear that they can offer a career. As the industry grows in India, care has to be taken to ensure that there is a career path beyond call centers— otherwise, what began as well-intentioned creation of jobs could end up being exploitative of India’s most important resource, it’s youth.
In particular, the Indian industry should look closely at the evolution of call centers in the US. Back there, call center workers have complained of stressful work environments and over-supervision. Some have even called some US call-centers “sweatshops,” comparing them to the problems of overwork on factory floors. India has the chance to learn from mistakes made in America, and thus avoid the risk of burning-out the very people who will make the next Indian revolution happen.
There is one other risk — advances in voice recognition and AI eating into the low-end of the call center business. Computers won’t replace humans answering complex questions, but they are already are replacing operators at AT&T and elsewhere for simple voice-interaction with callers.
White caller tele-center workers in the US have already lost jobs to computers, and the trend will continue as technology advances.
With inputs from TV Mahalingam in Bangalore
Note: TVM died young a couple of years ago, so there is sadly no way to link this post to any of his social media identities. But suffice to say, we had a great time working together.
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