The New Global Job Shift

Date: Monday, January 27, 2003 2:33 PM

H-1B and JOB DESTRUCTION NEWSLETTER

www.ZaZona.com

This upbeat story on the virtues of globalization will almost will make
you feel happy about losing your job. Now your CAT scans from
Massachusetts General Hospital are analyzed by five radiologists in
offices near Bangalore's airport, and whatever is left of your stock
porfolio is being handled by financial analysts in Manila. If your
Windows computer crashes just remember that Sivaramakichenane
Somasegar, Microsoft's vice-president for Windows engineering in
reference to moving jobs to India said. "But if I can save a dollar,
hallelujah."

According Doug Henton, president of Collaborative Economics, Corporate
America was forced to import hundreds of thousands of H-1Bs because of
the massive shortage of engineers. Now through the miracle of
globalization these so-called "routine service and engineering"jobs can
be shipped to other nations while American workers are "redeployed". Of
course Henton never said what American workers will be deployed to.

For those of you that think that globalization isn't such a great idea
for American workers, this endorsement probably won't ease your fears:

"If foreign countries specialize in high-skilled
areas where we have an advantage, we could be worse
off," says Harvard University economist Robert Z.
Lawrence, a prominent free-trade advocate. "I still
have faith that globalization will make us better off,
but it's no more than faith."
^^^^^^^^^^^^^^^^^^^^^^^^^^^

The one thing we can all agree on from this article is that white
collar workers "are headed for a tough readjustment". It's won't be
easy for the white collar jobless to learn how to sleep in cardboard
boxes when you are used to spacious homes in the suburb.

http://www.businessweek.com/magazine/content/03_05/b3818001.htm

FEBRUARY 3, 2003

COVER STORY

The New Global Job Shift
The next round of globalization is sending upscale jobs offshore. They
include basic research, chip design, engineering--even financial
analysis. Can America lose these jobs and still prosper? Who wins? Who
loses?

The sense of resignation inside Bank of America (BAC ) is clear from
the e-mail dispatch. "The handwriting is on the wall," writes a veteran
information-technology specialist who says he has been warned not to
talk to the press. Three years ago, the Charlotte (N.C.)-based bank
needed IT talent so badly it had to outbid rivals. But last fall, his
entire 15-engineer team was told their jobs "wouldn't last through
September." In the past year, BofA has slashed 3,700 of its 25,000 tech
and back-office jobs. An additional 1,000 will go by March.

Corporate downsizings, of course, are part of the ebb and flow of
business. These layoffs, though, aren't just happening because demand
has dried up. Ex-BofA managers and contractors say one-third of those
jobs are headed to India, where work that costs $100 an hour in the
U.S. gets done for $20. Many former BofA workers are returning to
college to learn new software skills. Some are getting real estate
licenses. BofA acknowledges it will outsource up to 1,100 jobs to
Indian companies this year, but it insists not all India-bound jobs are
leading to layoffs.

Cut to India. In dazzling new technology parks rising on the dusty
outskirts of the major cities, no one's talking about job losses.
Inside Infosys Technologies Ltd.'s (INFY ) impeccably landscaped
22-hectare campus in Bangalore, 250 engineers develop IT applications
for BofA. Elsewhere, Infosys staffers process home loans for Greenpoint
Mortgage of Novato, Calif. Near Bangalore's airport, at the offices of
Wipro Ltd. (WIT ), five radiologists interpret 30 CT scans a day for
Massachusetts General Hospital. Not far away, 26-year-old engineer
Dharin Shah talks excitedly about his $10,000-a-year job designing
third-generation mobile-phone chips, as sun pours through a skylight at
the Texas Instrument Inc. (TXN ) research center. Five years ago, an
engineer like Shah would have made a beeline for Silicon Valley. Now,
he says, "the sky is the limit here."

About 1,600 km north, on an old flour mill site outside New Delhi, all
four floors of Wipro Spectramind Ltd.'s sandstone-and-glass building
are buzzing at midnight with 2,500 young college-educated men and
women. They are processing claims for a major U.S. insurance company
and providing help-desk support for a big U.S. Internet service
provider--all at a cost up to 60% lower than in the U.S. Seven Wipro
Spectramind staff with PhDs in molecular biology sift through
scientific research for Western pharmaceutical companies. Behind
glass-framed doors, Wipro voice coaches drill staff on how to speak
American English. U.S. customers like a familiar accent on the other
end of the line.

Cut again to Manila, Shanghai, Budapest, or San Josi, Costa Rica.
These cities--and dozens more across the developing world--have become
the new back offices for Corporate America, Japan Inc., and Europe
GmbH. Never heard of Balazs Zimay? He's a Budapest architect--and just
might help design your future dream house. The name SGV & Co. probably
means nothing to you. But this Manila firm's accountants may crunch the
numbers the next time Ernst & Young International audits your company.
Even Bulgaria, Romania, and South Africa, which have a lot of educated
people but remain economic backwaters, are tapping the global market
for services.

It's globalization's next wave--and one of the biggest trends reshaping
the global economy. The first wave started two decades ago with the
exodus of jobs making shoes, cheap electronics, and toys to developing
countries. After that, simple service work, like processing credit-card
receipts, and mind-numbing digital toil, like writing software code,
began fleeing high-cost countries.

Now, all kinds of knowledge work can be done almost anywhere. "You will
see an explosion of work going overseas," says Forrester Research Inc.
analyst John C. McCarthy. He goes so far as to predict at least 3.3
million white-collar jobs and $136 billion in wages will shift from the
U.S. to low-cost countries by 2015. Europe is joining the trend, too.
British banks like HSBC Securities Inc. (HBC ) have huge back offices
in China and India; French companies are using call centers in
Mauritius; and German multinationals from Siemens (SI ) to
roller-bearings maker INA-Schaeffler are hiring in Russia, the Baltics,
and Eastern Europe.

The driving forces are digitization, the Internet, and high-speed data
networks that girdle the globe. These days, tasks such as drawing up
detailed architectural blueprints, slicing and dicing a company's
financial disclosures, or designing a revolutionary microprocessor can
easily be performed overseas. That's why Intel Inc. (INTC ) and Texas
Instruments Inc. are furiously hiring Indian and Chinese engineers,
many with graduate degrees, to design chip circuits. Dutch
consumer-electronics giant Philips (PHG ) has shifted research and
development on most televisions, cell phones, and audio products to
Shanghai. In a recent PowerPoint presentation, Microsoft Corp. (MSFT )
Senior Vice-President Brian Valentine--the No. 2 exec in the company's
Windows unit--urged managers to "pick something to move offshore
today." In India, said the briefing, you can get "quality work at 50%
to 60% of the cost. That's two heads for the price of one."

Even Wall Street jobs paying $80,000 and up are getting easier to
transfer. Brokerages like Lehman Brothers Inc. (LEH ) and Bear, Stearns
& Co. (BSC ), for example, are starting to use Indian financial
analysts for number-crunching work. "A basic business tenet is that
things go to the areas where there is the best cost of production,"
says Ann Livermore, head of services at Hewlett-Packard Co. (HPQ ),
which has 3,300 software engineers in India. "Now you're going to see
the same trends in services that happened in manufacturing."
The rise of a globally integrated knowledge economy is a blessing for
developing nations. What it means for the U.S. skilled labor force is
less clear. At the least, many white-collar workers may be headed for a
tough readjustment. The unprecedented hiring binge in Asia, Eastern
Europe, and Latin America comes at a time when companies from Wall
Street to Silicon Valley are downsizing at home. In Silicon Valley,
employment in the IT sector is down by 20% since early 2001, according
to the nonprofit group Joint Venture Silicon Valley.

Should the West panic? It's too early to tell. Obviously, the bursting
of the tech bubble and Wall Street's woes are chiefly behind the
layoffs. Also, any impact of offshore hiring is hard to measure, since
so far a tiny portion of U.S. white-collar work has jumped overseas.
For security and practical reasons, corporations are likely to keep
crucial R&D and the bulk of back-office operations close to home. Many
jobs can't go anywhere because they require face-to-face contact with
customers. Americans will continue to deliver medical care, negotiate
deals, audit local companies, and wage legal battles. Talented,
innovative people will adjust as they always have.

Indeed, a case can be made that the U.S. will see a net gain from this
shift--as with previous globalization waves. In the 1990s, Corporate
America had to import hundreds of thousands of immigrants to ease
engineering shortages. Now, by sending routine service and engineering
tasks to nations with a surplus of educated workers, the U.S. labor
force and capital can be redeployed to higher-value industries and
cutting-edge R&D. "Silicon Valley doesn't need to have all the tech
development in the world," says Doug Henton, president of Collaborative
Economics in Mountview, Calif. "We need very-good-paying jobs. Any R&D
that is routine can probably go." Silicon Valley types already talk
about the next wave of U.S. innovation coming from the fusion of
software, nanotech, and life sciences.

Globalization should also keep services prices in check, just as it did
with clothes, appliances, and home tools when manufacturing went
offshore. Companies will be able to keep shaving overhead costs and
improving efficiency. "Our comparative advantage may shift to other
fields," says City University of New York economist Robert E. Lipsey, a
trade specialist. "And if productivity is high, then the U.S. will
maintain a high standard of living." By spurring economic development
in nations such as India, meanwhile, U.S. companies will have bigger
foreign markets for their goods and services.

For companies adept at managing a global workforce, the benefits can be
huge. Sure, entrusting administration and R&D to far-flung foreigners
sounds risky. But Corporate America already has become comfortable
hiring outside companies to handle everything from product design and
tech support to employee benefits. Letting such work cross national
boundaries isn't a radical leap. Now, American Express (AXP ), Dell
Computer (DELL ), Eastman Kodak (EK ), and other companies can offer
round-the-clock customer care while keeping costs in check. What's
more, immigrant Asian engineers in the U.S. labs of TI, IBM (IBM ), and
Intel for decades have played a big, hidden role in American tech
breakthroughs. The difference now is that Indian and Chinese engineers
are managing R&D teams in their home countries. General Electric Co.
(GE ), for example, employs some 6,000 scientists and engineers in 10
foreign countries. GE Medical Services integrates magnet, flat-panel,
and diagnostic imaging technologies from labs in China, Israel,
Hungary, France, and India in everything from its new X-ray devices to
$1 million CT scanners. "The real advantage is that we can tap the
world's best talent," says GE Medical Global Supply Chain
Vice-President Dee Miller.

That's the good side of the coming realignment. There are hazards as
well. During previous go-global drives, many companies ended up
repatriating manufacturing and design work because they felt they were
losing control of core businesses or found them too hard to coordinate.
In a recent Gartner Inc. survey of 900 big U.S. companies that
outsource IT work offshore, a majority complained of difficulty
communicating and meeting deadlines. As a result, predicts Gartner Inc.
Research Director Frances Karamouzis, many newcomers will stumble in
the first few years as they begin using offshore service workers.

A thornier question: What happens if all those displaced white-collar
workers can't find greener pastures? Sure, tech specialists, payroll
administrators, and Wall Street analysts will land new jobs. But will
they be able to make the same money as before? It's possible that lower
salaries for skilled work will outweigh the gains in corporate
efficiency. "If foreign countries specialize in high-skilled areas
where we have an advantage, we could be worse off," says Harvard
University economist Robert Z. Lawrence, a prominent free-trade
advocate. "I still have faith that globalization will make us better
off, but it's no more than faith."

If the worries prove valid, that could reshape the globalization
debate. Until now, the adverse impact of free trade has been confined
largely to blue-collar workers. But if more politically powerful
middle-class Americans take a hit as white-collar jobs move offshore,
opposition to free trade could broaden.

When it comes to developing nations, however, it's hard to see a
downside. Especially for those countries loaded with college grads who
speak Western languages, outsourced white-collar work will likely
contribute to economic development even more than new factories making
sneakers or mobile phones. By 2008 in India, IT work and other service
exports will generate $57 billion in revenues, employ 4 million people,
and account for 7% of gross domestic product, predicts a joint study by
McKinsey & Co. and Nasscom, an Indian software association.

What makes this trend so viable is the explosion of college graduates
in low-wage nations. In the Philippines, a country of 75 million that
churns out 380,000 college grads each year, there's an oversupply of
accountants trained in U.S. accounting standards. India already has a
staggering 520,000 IT engineers, with starting salaries of around
$5,000. U.S. schools produce only 35,000 mechanical engineers a year;
China graduates twice as many. "There is a tremendous pool of
well-trained people in China," says Johan A. van Splunter, Philips'
Asia chief executive.

William H. Gates III, for one, is dipping into that pool. Although
Microsoft started later than many rivals, it is moving quickly to catch
up. In November, Chairman Gates announced his company will invest $400
million in India over the next three years. That's on top of the $750
million it's spending over three years on R&D and outsourcing in China.
At the company's Beijing research lab, one-third of the 180 programmers
have PhDs from U.S. universities. The group helped develop the "digital
ink" that makes handwriting show up on Microsoft's new tablet PCs and
submitted four scientific papers on computer graphics at last year's
prestigious Siggraph conference in San Antonio. Hyderabad, India,
meanwhile, is key to Microsoft's push into business software.

This is no sweatshop work. Just two years out of college, Gaurav Daga,
22, is India project manager for software that lets programs running on
Unix-based computers interact smoothly with Windows applications.
Daga's $11,000 salary is a princely sum in a nation with a per capita
annual income of $500, where a two-bedroom flat goes for $125 a month.
Microsoft is adding 10 Indians a month to its 150-engineer center and
indirectly employs hundreds more at IT contractors. "It's definitely a
cultural change to use foreign workers," says Sivaramakichenane
Somasegar, Microsoft's vice-president for Windows engineering. "But if
I can save a dollar, hallelujah."

Corporations are letting foreign operations handle internal finances as
well. Procter & Gamble Co.'s (PG ) 650 Manila employees, most of whom
have business and finance degrees, help prepare P&G's tax returns
around the world. "All the processing can be done here, with just final
submission done to local tax authorities" in the U.S. and other
countries, says Arun Khanna, P&G's Manila-based Asia accounting
director.

Virtually every sector of the financial industry is undergoing a
similar revolution. Processing insurance claims, selling stocks, and
analyzing companies can all be done in Asia for one-third to half of
the cost in the U.S. or Europe. Wall Street investment banks and
brokerages, under mounting pressure to offer independent research to
investors, are buying equity analysis, industry reports, and summaries
of financial disclosures from outfits such as Smart Analyst Inc. and
OfficeTiger that employ financial analysts in India. By mining
databases over the Web, offshore staff can scrutinize an individual's
credit history, access corporate public financial disclosures, and
troll oceans of economic statistics. "Everybody these days is drawing
on the same electronic reservoir of data," says Ravi Aron, who teaches
management at the Wharton School at the University of Pennsylvania.

Architectural work is going global, too. Fluor Corp. (FLR ) of Aliso
Viejo, Calif., employs 1,200 engineers and draftsmen in the
Philippines, Poland, and India to turn layouts of giant industrial
facilities into detailed specs and blueprints. For a
multibillion-dollar petrochemical plant Fluor is designing in Saudi
Arabia, a job requiring 50,000 separate construction plans, 200 young
Filipino engineers earning less than $3,000 a year collaborate in real
time with elite U.S. and British engineers making up to $90,000 via Web
portals. The principal Filipino engineer on plumbing design,
35-year-old Art Aycardo, pulls down $1,100 a month--enough to buy a
Mitsubishi Lancer, send his three children to private school, and take
his wife on a recent U.S. trip. Fluor CEO Alan Boeckmann makes no
apologies. At a recent meeting in Houston, employees asked point-blank
why he is sending high-paying jobs to Manila. His response: The Manila
operation knocks up to 15% off Fluor's project prices. "We have
developed this into a core competitive advantage," Boeckmann says.

It's not just a game for big players: San Francisco architect David N.
Marlatt farms out work on Southern California homes selling for
$300,000 to $1 million. He fires off two-dimensional layouts to
architect Zimay's PC in Budapest. Two days later, Marlatt gets back
blueprints and 3-D computer models that he delivers to the contractor.
Zimay charges $18 an hour, vs. the up to $65 Marlatt would pay in
America. "In the U.S., it is hard to find people to do this modeling,"
Zimay says. "But in Hungary, there are too many architects."

So far, white-collar globalization probably hasn't made a measurable
dent in U.S. salaries. Still, it would be a mistake to dismiss the
trend. Consider America's 10 million-strong IT workforce. In 2000,
senior software engineers were offered up to $130,000 a year, says Matt
Milano, New York sales manager for placement firm Atlantis Partners.
The same job now pays up to $100,000. Entry-level computer help-desk
staffers would fetch about $55,000 then. Now they get as little as
$35,000. "Several times a day, clients tell me they are sending this
work off shore," says Milano. Companies that used to pay such IT
service providers as IBM, Accenture (ACN ), and Electronic Data
Services (EDS ) $200 a hour now pay as little as $70, says Vinnie
Mirchandani, CEO of IT outsourcing consultant Jetstream Group. One
reason, besides the tech crash itself, is that Indian providers like
Wipro, Infosys, and Tata charge as little as $20. That's why Accenture
and EDS, which had few staff in India three years ago, will have a few
thousand each by next year.

Outsourcing experts say the big job migration has just begun. "This
trend is just starting to crystallize now because every chief
information officer's top agenda item is to cut budget," says Gartner's
Karamouzis. Globalization trailblazers, such as GE, AmEx, and Citibank
(C ), have spent a decade going through the learning curve and now are
ramping up fast. More cautious companies--insurers, utilities, and the
like--are entering the fray. Karamouzis expects 40% of America's top
1,000 companies will at least have an overseas pilot project under way
within two years. The really big offshore push won't be until 2010 or
so, she predicts, when global white-collar sourcing practices are
standardized.

If big layoffs result at home, corporations and Washington may have to
brace for a backlash. Already, New Jersey legislators are pushing a
bill that would block the state from outsourcing public jobs overseas.
At Boeing Co. (BA ), an anxious union is trying to ward off more job
shifts to the aircraft maker's new 350-person R&D center in Moscow
(page 42).

The truth is, the rise of the global knowledge industry is so recent
that most economists haven't begun to fathom the implications. For
developing nations, the big beneficiaries will be those offering the
speediest and cheapest telecom links, investor-friendly policies, and
ample college grads. In the West, it's far less clear who will be the
big winners and losers. But we'll soon find out.

By Pete Engardio, Aaron Bernstein, and Manjeet Kripalani
With Frederik Balfour in Manila, Brian Grow in Atlanta, and Jay Greene
in Seattle

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