Global Policy Forum

By Amol Sharma

Remember that scene from "The Nutty Professor II" when Eddie Murphy morphs into a baby? It looks like Hollywood at its special- effects best. But the scene was produced in a studio 16 time zones - and a cultural world - away, in Bangalore, India. US companies have outsourced mundane data entry and programming to India for years. But increasingly, US firms are farming out much more sophisticated work to the world's second most populous nation, taking advantage of skilled accountants, market researchers, and medical technicians - even special-effects artists - who work for nickels on the dollar.

Behind the push is the need to cut costs, advances in telecommunications technologies, and growing confidence in India's labor force. "As large global corporations and institutions are becoming more comfortable with the offshore model and more sophisticated in managing business practices remotely, they are moving more complex processes offshore," says Peter Lowes, a partner in the outsourcing practice at Deloitte Touche Tohmatsu.

Forrester Research estimates that 3.3 million jobs will be outsourced to low-wage countries like India by 2015. India's leading technology trade group, NASSCOM, says the Indian back-office sector will grow 65 percent this year, to $2.3 billion.

The trend is not sitting well with laid-off workers in the US, who are protesting the phenomenon in online chat rooms and discussion groups. Six states are considering legislation that would ban taxpayer-funded contracts from going offshore, which means India in many cases.

But the austere US economy may leave companies with little choice."In order to drive earnings growth in an environment where revenues are flat, the only alternative is to cut cost," says Mr. Lowes. "But you have to do that while maintaining quality of service to your customers." India is attractive, he says, because the quality of service is often comparable to or better than in the US.

Years of outsourcing experience have convinced many American companies that Indian workers are highly skilled, efficient, and creative. "The comfort level of American companies with Indian workers is growing, and it will continue to grow," says Gurucharan Das, a leading economic analyst and a consultant for Indian companies looking to win outsourcing contracts.

Coming back for more

The quality of special- effects work done in India has apparently impressed the big Hollywood studios, who keep coming back for more. "The artistic traditions in this country are ancient, so we draw on that," says S.S. Dahiya, whose Bangalore firm, Compudyne Winfosystems, has crafted special- effects scenes in "Independence Day," "Men in Black," and "Swordfish," among others. Mr. Dahiya says he can do the same work as a Hollywood effects studio - but for 70 percent of the cost. The starting salary of a graphic artist at Compudyne is just $5,000 a year, paltry by US standards.

The outsourcing of animation and film production is just picking up steam and appears to be poised for a boom. The trade group NASSCOM recently pegged the country's animation and digital-media industry at $600 million, and said it is expected to grow to $5 billion by 2008. "The Indian animation market is suddenly waking up to a host of global opportunities," says NASSCOM president Kiran Karnik.

Another industry poised to send high-skilled jobs to India is financial services. Indians have proved their merit over the years in processing insurance claims and credit cards. Now some of the world's leading firms are handing over more sensitive, higher-end financial-services work.

Consulting firm A.T. Kearney recently released a study that made waves on Wall Street. It stated that 500,000 financial-services jobs will be outsourced to India in the next five years. The reason: Top Indian business graduates are viewed as highly competent - and their annual salary of $12,000 pales in comparison with the six figures demanded by top American MBAs.

This year, Ernst & Young started sending tax returns - which far outpace simple data entry in complexity - to its Indian office for processing. About 50 American companies now trust Indians to tabulate some 35,000 returns, a figure that is likely to grow dramatically, experts say. The Indians charged with this work are chartered accountants. Still, this sector may grow gradually, given that many firms aren't convinced Indians can learn the US tax code thoroughly and are reluctant to outsource such a sensitive process.

Investment banks are also taking a closer look at India's offerings. JP Morgan Chase & Co. said staff in its Bombay office will begin producing research reports on US stocks this summer. There is speculation in the industry that Deutsche Bank and Morgan Stanley plan to do the same, but neither company has officially announced such intentions.

Help on the night shift

India is making forays into medicine as well, building on years of experience transcribing dictation for American doctors. In a small Bangalore office building, Indian radiologists are downloading CT scans done at Boston's Massachusetts General Hospital, analyzing them, and sending back three-dimensional computer models highlighting problem areas - though not providing official diagnoses. Wipro, one of India's leading technology companies, has made the arrangement possible by building a telecommunications system that allows several gigabytes of data to be sent between Mass General and Bangalore every day. Unlike other outsourcing ventures, the primary goal isn't to save money, but to alleviate stress on Mass General's radiology staff, particularly during night shifts. "It's not really a cost advantage; it's a time advantage," says Sanjay Saini, head of CT services at Mass General and a professor of radiology at Harvard Medical School. "The best place to do that nighttime work is on the other side of the world, where it's daytime." But even if there are no savings for Mass General, the hospital is still getting a good return on its investment. The Indian radiologists are doing the work of US medical technicians and earning comparable pay, though their education and training is more like that of American doctors.Eventually, Dr. Saini hopes to bring Indians to the US to gain medical licenses so they can return to India and offer full patient care services, albeit remotely.But, he says, that idea is meeting with resistance. Some in the American medical community question the overall quality of Indian medicine - and the privacy safeguards for medical information sent to India.

Average yearly salaries for IT programmers

US $63,331

Poland and Hungary $4,800 to $8,000

India $5,880

Philippines $6,564

Malaysia $7,200

Russian Federation $5,000 to $7,500

China $8,952

Canada $28,174

Ireland $23,000 to $34,000

Israel $15,000 to $38,000

SOURCE: CIO Magazine, Nov. 15, 2002

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