Return to Virginia Business - May 2004

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- Postcard from India

by Jim Strader
Virginia Business
May 2004

After landing a position at Travelocity’s call center in Dickenson County, Joshua Colley thought he’d found a job with a future. He and his wife, Stephanie, both left Pizza Plus restaurants — he was the assistant manager at one, she waited tables at another — to take customer service calls for the online travel agency. The new job was five minutes from home, and Travelocity offered more pay — $320 a week for 40 hours — plus overtime. “It’s really good pay for not having a college education,” he says. Plus, the young couple was able to work the same shift and share days off.

But after working two months at the call center in Clintwood, the Colleys got bad news: Travelocity announced it would close shop by year’s end in this Southwest Virginia town, laying off about 275 employees and sending their jobs to India, where labor is cheaper.

Colley, 19, and his wife both found jobs with a new call center being opened by America Online in Norton, about 25 miles away. The starting pay is the same and Colley likes the work. Still, given his experience with Travelocity, he can’t help but wonder about job stability. “You think of it more after you lose a job that’s moving to another country.”

Ronnie Gardner Jr. shares the same uncertainty. For him, finding the Travelocity job marked a return to call-center work after three years in the coal industry. Taking calls offered Gardner, 25, the opportunity to cut his workday from 14 hours to 8 hours and still earn the same pay. After the company announced the closing in February, Gardner went to work in Norton in the billing department of a company that arranges transportation for Medicaid recipients. He was glad to find another office job, particularly in this corner of the state, where unemployment stands in the double digits.

The anxiety of these workers is part of a growing national debate over the wisdom of moving American jobs to low-wage countries at a time when job growth here is so uncertain. In fact, offshore outsourcing as it is also known, has moved center stage as a controversial issue in the presidential campaign, especially since jobs being lost now are increasingly in white-collar fields such as software development. The debate shines light on the pros and cons of offshoring and what role it should play in future corporate growth strategies. It’s being played out against a drumbeat of patriotism, with labor unions crying foul and presidential contender John Kerry labeling companies that seek tax havens and outsource overseas as nothing less than traitorous.

Offshoring is a natural offshoot of free trade, say supporters, that boosts productivity, creates jobs and keeps inflation in check at home. Some Virginia companies credit offshoring for their ability to grow and compete, while keeping prices low. Others have run into problems. For Texas-based Travelocity, the lure of saving money by hiring in India was like a free upgrade from coach to first class – too good to turn down. Like a growing number of American companies, Travelocity was attracted by India’s well-educated, English-speaking labor force eager for jobs and willing to work for less money. “Some of Travelocity’s competitors were already doing outsourcing elsewhere,” says Steve Horne, general manager of the Clintwood center. “Travelocity felt it needed to do that to compete.”

Travelocity’s decision to pull out of Southwest Virginia — already hard hit by job losses in the coal mines and textiles — comes amid growing criticism in some quarters that companies are turning more to cheap overseas labor instead of developing ways to be more efficient and keep jobs here. And as jobs leaving the country climb up the economic ladder, people with college degrees are starting to wonder if their job is safe.

While it’s no longer news when a manufacturer decides to shut a factory and move routine work functions to countries such as Mexico or China, the migration of higher-skilled and higher-paying jobs such as software engineers has prompted a backlash against foreign outsourcing, with six in 10 Americans expressing concern in a recent survey that they, a friend or relative may lose a job because of this practice. In March, the Information Technology Association of America in Arlington reported that the transfer of computer software and service technology jobs to low-wage foreign workers eliminated 104,000 American jobs between 2000 and 2003, or about 3 percent of the positions in the U. S. technology industry. However, the report also says that economic benefits from offshore IT outsourcing created more than 90,000 new jobs in 2003 and are expected to create 317,000 new jobs in that sector by 2008.

Offshoring was a success for Sudhakar Shenoy’s company, Information Management Consultants in Reston. By opening an India subsidiary in Pune in 1995, CEO Shenoy says, his software company was able to develop a new line of business in bioinformatics that would have been cost-prohibitive had the work been done in the U.S. In India, coding could be done by computer engineers who earn $10,000 to $12,000 a year, compared to their counterparts in Northern Virginia, who make $60,000. When the new product increased business, his company ended up hiring six more engineers in Reston. “It worked well and helped us to grow the company,” says Shenoy, who is also chairman of the Northern Virginia Technology Council.

Ideally, that’s the way free trade should work. Stephen S. Fuller, director of the Center for Regional Analysis at George Mason University, says the furor over offshoring has been “severely overstated.” While a study by Forrester Research projects that 3.3 million jobs and $136 billion in wages could leave the country by 2015, that is just a small portion — about 2 percent — of the nation’s work force, he says. Virginia actually gained 75,000 jobs in the past four years, Fuller adds, excluding self-employment and small businesses. Perhaps what people need to keep in mind is “onshoring,” the investment by foreign companies in operations here. “They don’t onshore $3- to $5-an-hour jobs here, they onshore $50- to $60-an-hour jobs,” says Fuller.

According to a recent report, Virginia ranked 13th in the country in terms of the number of jobs—171,300 — generated by foreign companies at U.S.-based operations. Stihl Inc., which has its U. S. headquarters in Virginia Beach, is on its third expansion there, building a $60 million addition, which will create 200 new jobs.

One point that seems clear is that offshoring is here to stay. In Virginia, the practice has even spread to jobs funded by tax dollars. Phone inquiries from food-stamp recipients are routed to a help desk in India, because the company Virginia contracts with to administer this part of the program — J.P. Morgan Chase & Co., which performs this same function for other states — has outsourced its call center there. That discovery prompted howls of indignation from politicians who promised to step up efforts to ban the offshoring of government contracts at state and government agencies.

Driving the trend overall, says Virginia Secretary of Technology George Newstrom, “is absolutely productivity, bottom line productivity, trying to get more dollars on the bottom line.” Newstrom handled outsourcing issues in his previous job running the Asia operations of EDS, a data-management company. “Companies are literally looking at every option there is” for cutting costs, he says.

As the domestic economy strengthens, some American companies rely on overseas workers to keep costs down while waiting for indications of a lasting recovery. McLean-based BearingPoint, one of the world’s largest business consulting firms, announced plans this year to hire 2,000 software developers in India and build its own facility in Bangalore. “The market is driving us to provide our services at a much lower cost,” says Craig Franklin, BearingPoint’s executive vice president for global technology services. Clients can contract directly overseas, he said, but may see advantages to hiring a U.S.-based company that finds foreign workers.

Those benefits can include more direct contact, greater confidence in the management of offshore employees and political cover at home. “It’s much easier to talk about awarding BearingPoint a contract versus awarding it to Infosys in India, even if the very same number of jobs went offshore,” Franklin says. The economics of offshoring gives his company the flexibility to compete for more work, he adds, which can lead to more U.S. jobs for project managers.

At TechBooks, a Reston-based company that prepares textbooks for publication, the work force is divided between the United States and India. About 350 employees work at four U.S. locations, running the company and working with customers, says CEO Ranjit Singh. About 2,000 employees work in New Delhi, handling the production process. The projects are then returned to publishers or sent directly for printing.

The work TechBooks sends to India used to be done by freelancers in the United States. “Anything that can be done remotely will tend to move offshore,” Singh says. “Anything that requires customer interaction, understanding of the market, understanding of who your customer is and what their needs are and getting in front of them will stay here.”

Yet as companies rely on staffs divided by a dozen time zones, managers face special challenges, says Singh. “One is keeping your employees on both sides of the world motivated so that they actually work as a team. The person here can very easily say, ‘If I start to involve them more, they’ll take my job away.’ On the other side, the employee may think, ‘Why am I just getting donkey work? I’m just as smart.’”

The availability of financially savvy workers in India led SNL Financial, a Charlottesville-based firm that provides corporate information to Wall Street, to hire 40 workers in Ahmedabad to help speed the collection and delivery of data to clients. Company President Mike Chinn says the cost was about 75 to 80 percent less than in the U.S., and the savings allows SNL to reduce the turnaround time on financial information, especially in peak earnings and regulatory filing periods. “We’re not really looking at this as replacement labor in any way,” says Chinn, whose U.S. employees number about 250, almost all of them in Charlottesville. “We’re looking to be able to supplement our labor force here.”

Offshoring can have its drawbacks, as the Lillian Vernon catalog company found after it moved some jobs from its Virginia Beach call center to India in November. After Hurricane Isabel knocked out the beach call center for several days, “That convinced us of the need to have a backup center in a different time zone and a different part of the world,” says company spokesman David Hochberg. The company chose New Delhi and shut down its overnight shift in Virginia Beach. As few as two and as many as 50 people work the overnight job for Lillian Vernon, the hours that were the toughest to staff in Virginia Beach. Time zone differences put those jobs on the day shift in India.

The change came in the midst of Lillian Vernon’s busy Christmas shopping season and resulted in some customer complaints. “The major area concerned the language issue,” Hochberg recalls, even though employees at the India operation speak English. “Some of them have a very strong accent, which some people find hard to understand.” Plus, the economic impact of offshoring was not lost on some customers. “A lot of American consumers are very cognizant of jobs overseas,” Hochberg says. “People object on ethical or moral or political grounds. … They don’t stop ordering, but I think they’re more perturbed.”

Lillian Vernon is evaluating its India experience with the goal of making a decision on whether to continue operating there before this year’s busy shopping season. The company has “a lot of choices,” Hochberg says, for its backup location, both in the United States and elsewhere. For McLean-based Capital One Financial Corp., one telemarketing operation in India was halted after several workers began offering customers unauthorized credit terms. The company continues to use Indian vendors who employ people to provide call center and limited data entry services, even as the company consolidates call centers in this country.

At the root of offshoring is consumer demand, says Allie Young, an analyst for technology research firm Gartner Inc. “You know who’s asking for it? You and me. We don’t think that, but we are. We’re asking for lower prices for goods and services.”

Americans have choices to make, says Singh. In his work, textbook publishers get pressure to lower prices from school officials, who are themselves under pressure to keep taxes down. Yet, taxpayers may not realize that their desire for lower taxes is part of the reason companies like TechBooks send jobs overseas, so it can remain competitive by keeping costs down.

One argument in favor of offshoring holds that as more jobs requiring lower skills move overseas, American workers will be able to take jobs with higher skills and higher pay. White House Council of Economic Advisers Chairman Gregory Mankiw sparked a political firestorm when he said as much, calling offshoring “probably a plus for the economy in the long run.”

The point is a good one in theory, Newstrom says, but does not appear to have translated well to the real world. “I would certainly like to see empirical evidence of that,” he says. “I don’t see what’s going to replace high-tech jobs, at least the ones that are going away right now. One of the assertions made is that outsourcing makes businesses more competitive and that they can reinvest the money they save. I don’t see it.”

Clintwood Mayor Donald Baker is also unconvinced. His town has led Virginia in unemployment for the last three years — the rate was 12.4 percent in February — and stands to lose 15 percent of its job total when Travelocity closes. “I haven’t seen those jobs and I don’t believe I will, either. It’s certainly not happening here,” he says, as the city struggles to find another occupant for what will soon be an empty building.

In the entry-level younger generation, workers such as Joshua Colley soldier on and hope that offshoring won’t steal away any more of their jobs. “If you look at it from a business point of view, they’re doing what’s going to help them,” Colley says. “I understand it; I don’t really like it.” Until companies can make the hurt go away, offshoring will remain a tough sell.

Return to Virginia Business - May 2004