Insourcing by Indian firms runs counter to the familiar narrative about them in America.
By Sujeet Rajan & Asif Ismail
WASHINGTON/NEW YORK: The powerful narrative in American minds about Indian companies, a result of years of campaigning against outsourcing, is that they operate in the United States mainly to send jobs back home, or wrench it by hiring cheap labour from India.
The meme is just as strong as the one that exists about the Chinese: Indians are responsible for the decline in service sector jobs, just as the Chinese are behind the job losses in the manufacturing sector.
But, unbeknownst to much of America, a new trend has emerged: insourcing by the Indian industry. Investments by Indian companies in the US have led to the creation of more than 100,000 jobs and saved thousands of jobs from being eliminated.
Data compiled by the Confederation of Indian Industries (CII) reveals that just seven Indian companies alone currently have 65,000 employees in the US, with the Tata Group alone employing 24,000 (see graphic The Biggest India Inc Job-Creators in the US).
A CII survey released last year showed that, in the past five years, Indian companies have invested more than $26 billion in this country across many industries, and have provided crucial support to recession-beleaguered states like Ohio, Pennsylvania, California, Louisiana and Michigan.
“We think of IT as the key part of the [Indian investment in the United States],” said Derek Scissors, a research fellow at the Heritage Foundation in Washington, DC. “[IT investment] is important and valuable, but there are other businesses. For instance, there are industrial investments in the United States, straight forward, manufacturing traditional industry and energy investments.”
The much vilified IT firms are also contributing to the US economy in a big way. According to the Indian IT Industry Association, its members employed over 100,000 workers in the country last year, up from about 20,000 in 2006. They also support more than 280,000 jobs, more than 70% of them US residents.
Of India’s $60 billion software-exporting industry, which employs roughly four million people worldwide, 7% work in US centres, comprising of client and development centres. Apart from the investments and job creation in the US, Indian IT companies here, despite generous tax breaks and incentives, have also contributed $15 billion in taxes in the past five years, foreign secretary Ranjan Mathai said, on a recent visit to Washington, DC.
Ron Somers, president of the US-India Business Council, who termed the bilateral relationship a “two-way street”, said local hiring is the way forward. “For an Indian company to succeed in the United States, of course it makes sense to hire an American workforce. Likewise, when American companies invest in India, their workforce will be Indian nationals.”
And the expansion and hiring spree by Indian IT companies here is going to increase significantly in the next few years, as the cost of labour increases in India, countries like Philippines make inroads into the outsourcing business, and multinational companies realise the significant advantage of doing business locally.
HCL Technologies has announced plans to hire 10,000 people, or about 12.4% of its current work force, in the US and Europe by 2015, reported the Wall Street Journal. Infosys declared it will increase its US head count by 1,500 in the next 12 months from 3,000 now.
Tata Consultancy Services (TCS) is planning to hire an additional 1,200 people in the US by next month, and Wipro intends to train and hire 400 American veterans of the wars in Iraq and Afghanistan, a theme encouraged by President Barack Obama.
To offset costs, companies are looking to hire graduates entering the workforce: HCL is working with 12 universities, including in Seattle, Rochester, NY, and Raleigh, NC, to offer a six-month elective course that graduating engineering students will have to complete before they can be hired by the company.
At Infosys and TCS, the increase in US hiring comes as part of an overall push to increase local work forces. Infosys has said it plans to increase its non-Indian work force to 15% of the total, from 6.46%, trying to emulate TCS, who say 98% of its hires in Latin America are local.
Also ramping up its presence is the Tata Group, the biggest Indian employer in the US. TCS has inked major deals with Citibank, Dow Chemical and Hilton Worldwide in recent years. The Hilton group of hotels hired TCS in 2009 to take over some back-office operations, such as human resources, financial systems and its intranet portal for the company’s 10 brands and 3,700 hotels. Hilton used to handle this work in-house or with hundreds of small consultants.
Last year, the Acting United States Secretary of Commerce Rebecca Blank, had high praise for Tata Steel, when she toured Thomas Steel Strip, a unit of Tata Steel, in Ohio. The manufacturing facility, which produces electroplated cold-rolled strip used in the casings of consumer batteries, automotive parts and other applications, employs over 275 full-time employees and plans to add a small number of additional staff to cope with rising demand.
In Ohio, approximately 1,300 people are employed by Tata companies, including TCS which has a software delivery centre in Milford, Ohio; Tata Business Support Services (TBSS), where staff work at a Reno contact centre; and Tata Technologies, which carries out engineering and design work for automotive, manufacturing and aerospace industries.
As Indian companies have increased their presence in the country, American legislators have encouraged them on. Senator Mark Warner, co-chair of the India Caucus, former governor of Virginia, and who co-founded the cellular telecommunications company Nextel, have exhorted Indian businesses to look at investment beyond northern Virginia, New Jersey, northern California, or the areas where there are already large established Indian and business communities.
“The value in Indian business investing in more rural communities and areas that have not seen the benefits of globalisation is enormously powerful,” he said. Warner pointed out how Essel Propack, since it invested $62 million and set up a polymer manufacturing facility in rural Virginia, in Danville, has grown three times over the past 10 years, with about 400 employees now, and the whole community’s view on trade and globalisation changed because they saw the benefits coming in both directions.
The former governor of Ohio, Ted Strickland, was instrumental in getting Indian companies to invest in Ohio. Other governors of US states have now started to woo Indian companies with trips to India and promises of even cash in return for investment.
Last year, Virginia governor Bob McDonnel, in a trip to Mumbai, said Indian companies and investors would get cash incentives based on the capital investment and actual number of jobs created in the state. Besides 31 of Fortune 1000 firms headquartered in Virginia, Indian conglomerates like the Tata Group and the Essel Group have a significant presence there.
Virginia is a hot-bed for Indian companies: there are over 150 Indian-owned small and medium companies in northern Virginia itself, known as the IT corridor of the state, and about 25 other companies in the manufacturing space, including Tata, Sendestra, Essel Propak and others.
Virginia’s neighbouring state Maryland’s governor, Martin O’Malley, in a trip to India in December last year, said that his trade mission yielded deals worth $60 million, including an agreement with the Federation of Indian Chambers of Commerce and Industry (Ficci) to create an India-Maryland Center to boost trade.
Wooing Indian companies has paid off well for Maryland: in the first nine months of last year, the Port of Baltimore saw $341 million in trade to and from India compared with $229 million from the same time frame in 2010, a 49% increase.
But why are Indian investments in the US merely a blip on the radar of national consciousness? One reason is the size of the American economy. “Indian investment is estimated at $25 billion in total,” said Heritage Foundation’s Scissors. “The US is a $15-trillion economy. Twenty-five billion dollars sounds like a lot, but it is not.”
Another reason is there is “not a lot of awareness” about Indian investments in the US is bad PR, according to Scissors. “Indian companies don’t engage the US government very well. Now I don’t want to advocate for lots of foreign lobbying… But India is not in danger of doing too much.” (Global India Newswire)