September 23, 2012
A Faux Wood Plank
US election year. Indian remedies to a fever-pitch outsourcing debate.
ASHISH KUMAR SEN
Special Issue: B-School Special 2012
Presidential elections in the US follow a scripted narrative. As the candidates battle for the highest office, everything is fair game. In a weak economy, that means it is open season on that familiar bogey: outsourcing of jobs. US firms, driven less by altruism than by a desperation to cut costs, send jobs overseas: a well-known story. A deep recession that cost many Americans their jobs fuelled a backlash against outsourcing's beneficiaries. And as the American economy has been making only a languid recovery, outsourcing has returned to being a political hot potato.
In his speech accepting the Democratic Party's presidential nomination, President Barack Obama threw in an allusion to outsourcing. His campaign has accused Republican rival Mitt Romney of investing in firms that moved jobs overseas when he was at the helm of private equity firm Bain Capital. Romney, whose campaign is run on the promise of creating American jobs, has distanced himself from that record and to show his critics where he stands on outsourcing, said earlier this year: "We will not let China continue to steal jobs from the United States of America." India, of course, gets pride of place in that narrative.
The truth is less simple. Actually, Indian-origin firms have over the years steadily established a foothold in the US, employing Americans, building the local economies and giving back to the communities in which they have put down roots. This trend is putting a dent in the tired argument that India, the most identifiable beneficiary of outsourcing, only "takes away" American jobs. While their US counterparts tend to be PR-savvy, the Indian companies have been reluctant to announce and promote their accomplishments. Largely due to a cultural difference, says Ameet Nivsarkar, vice-president of NASSCOM, the IT lobbying body.
A NASSCOM report in March found that Indian IT created over 2,80,000 jobs in the US in the past five years, of which about 2,18,000 are held by Americans or Green Card holders. "The US is the largest trading partner in the technology sector for the Indian industry and will continue to be so in the future. Over a period of time, more and more companies are getting closer to their customers. This kind of work can be outsourced, but it can't be offshored," says Nivsarkar.
It isn't just in the tech sector that desi firms have carved a niche for themselves. They are spread over a broad range of sectors, including education, energy, manufacturing, financial services, healthcare and hospitality. "Hundreds of Indian-origin companies currently operate in the US; these have put down roots, invested millions of dollars, and are today an integral part of the economic and social fabric," reads a Confederation of Indian Industries report.
"Rather than send American jobs to India, an Indian company is sending, safeguarding and even creating jobs overseas in the US." Mani Iyer, President Mahindra US
A list of firms that have established a presence in the US reads like a veritable who's who of Indian industry. Mahindra USA was incorporated in 1994 in Houston, Texas. It has four assembly and distribution facilities: Houston; Red Bluff, California; Chattanooga, Tennessee; and Bloomsburg, Pennsylvania. Mani Iyer, Mahindra USA president, has a unique take on outsourcing: Mahindra & Mahindra Ltd outsources jobs to the US in the form of Mahindra USA and its partner-supplier relationships. "Rather than sending American jobs overseas to India, an Indian firm is sending, safeguarding and creating jobs overseas in the US," he says.
Contrary to only 'taking away' US jobs, Indian firms have also created them. A fact they tend, without cause, to not promote.
In 1999, Madhu Vuppuluri opened up shop for Essar in North America. Today, Essar Americas has close to 10,000 employees; 99 per cent are Americans. Essar Americas operates three main businesses in North America—iron ore in Minnesota, coal in West Virginia and Kentucky, and BPOs. It has acquired three call centres in the past decade, two of which are based in Texas and are run under the banner Aegis. Its employee base in this sector has grown from around 2,200 at the time of acquisition to 5,000 American employees and around 55,000 employees globally. "We have stabilised the operation, increased the employee base, increased the reach of this company and made it into a truly global BPO company, which has nearshore, onshore and offshore capabilities," says Vuppuluri, who is president and CEO of Essar Americas.
Some Indian-origin firms have actually gone out of their way to hire Americans. Akhil Jindal, head of finance and corporate strategy at Welspun, says the company, steel pipe and home textile producers in the US, resisted employing Indians at its facilities. "We actually brought 200 unskilled Americans who had no experience making a pipe to India for training," says Jindal. "Indian companies probably have thought (in terms) of cost-saving, but at Welspun we have employed more than 600 people in Arkansas, one of the poorest states in America. When the US was going through a very difficult phase, we created more jobs and more opportunities, and that is also good for the company. It is not a social service," he adds.
And Welspun has also made greenfield investments, setting up operations from scratch. Similarly, Essar Americas is constructing a $1.7 billion iron ore pelletising project, one of the largest greenfield projects ever undertaken by an Indian corporation outside India, at the iron ore venture in northern Minnesota that it acquired in 2007. This undertaking is the first of its kind in the area in the past 35 years. "We are essentially engaged in manufacturing a revival, in some ways, in that part of the world," says Vuppuluri.
"We did not establish a call centre in India and move to the US. We acquired a US call centre and grew it. We were the first ones." Madhu Vuppuluri, CEO Essar Americas
Indian firms that have set up BPOs in the US may seem to go against the common wisdom that drives outsourcing. Essar followed a completely different model, Vuppuluri says. "We did not establish a call centre in India and move to the US. We acquired a call centre in the US, we grew that in the US and also grew outside the US. We were the first," he says. "The driving factor is that instead of setting up shop in India and looking for customers here, we thought we would first try and understand the business as it is run within the US and then try and grow outside the US in a logical way in which to bring value to the customer. We proved we can manage operations onshore and still keep the competitiveness of the onshore operations intact, not by huge but by healthy margins," Vuppuluri adds.
The US is an obvious destination for Indian companies looking to grow a global presence. New Jersey-based Maneesh Agarwal, senior VP (finance) at Birlasoft, a global IT services provider, says the US is at an advantage since it has the "largest share of the biggest companies in the world and whatever global expansion they are doing, there are a lot of residual benefits that come to the US, as far as innovation and profits go".
Doing business in the US, most Indian-origin companies find, is not easy. Experiential aptitude for circumventing these helps.
Besides employing Americans, Indian-origin companies are making significant contributions to the wider communities in which they are based. In Nashwauk, Minnesota, Essar Americas (the biggest employer in north Minnesota) uses cutting-edge technology, reducing environmental emissions. And Mahindra USA has sponsored a scholarship programme that recognises and celebrates the important role women play in securing the future of the agricultural industry. This year, it has pledged to donate a portion of revenue from its tractor sales to Operation Finally Home, a non-profit body that provides custom-made, mortgage-free homes to wounded and disabled war veterans as also war widows. It has also contributed money and resources to disaster recovery programmes, including after Hurricane Katrina. Welspun, meanwhile, has made healthcare for the needy its primary focus in Little Rock, Arkansas.
For most India-based companies, their US experience has been rewarding, but not without challenges. "Doing business in America is not a bed of roses," Vuppuluri points out. Yet, their Indian roots haven't hindered, but appear rather to have helped, firms seeking innovative solutions to the constraints posed by a cautious, post-recession US banking system. "We got a financial tie-up of our entire financing before the crisis and suddenly realised that all the banks that had sanctioned us money for the project were not that forthcoming because of their own challenges," Jindal says. His firm was forced to raise funds from the Indian banking sector. Essar Americas's Minnesota iron ore project too is financed through a club of Indian banks.
Yet such challenges have done little to deter their quests to grow their operations in the US. Jindal summed up the experience thus: "All in all, it's been a good experience in a difficult time." It's an assessment many would agree with.
Posted by Naxal Watch at 10:12 PM