Wisconsin companies struggle to compete with cheap labor in India
By Andrew Weiland, SBT Reporter
When the American owner of a personal computer calls technical support for assistance, the helpful voice on the other end of the phone line very often is coming from a call center in India.
Many American companies in recent years have outsourced call center, research and development, information technology (IT) and other high-tech work to India, where labor costs are far less.
"It is a national trend," said Tom Still, president of the Wisconsin Technology Council. "There’s not much question about that."
India has a large number of highly educated, English-speaking residents who are willing to work for significantly less than Americans in similar jobs.
Call center workers in the United States typically earn $8 to $12 per hour, Still said. By contrast, entry-level wages at call centers in India are about $2 to $3 per hour.
A chemical or electrical engineering graduate in India earns about $10,000 a year.
American high-tech jobs increasingly are being sent overseas. Forrester Research, Inc. of Cambridge, Mass., estimates about 3.3 million U.S. service industry jobs and $136 billion in wages will move offshore to countries such as India over the next 15 years.
The IT industry is expected to lead that trend, according to the research firm.
"It’s obviously a concern," Still said. "Especially to people who lose those jobs."
However, the outsourcing trend means more than lost jobs for American workers. It also results in lost work for many American companies, including some in Wisconsin.
"There are millions of dollars of projects that are going overseas without the opportunity for local companies to bid on those," said Michael Fitch, a sales and marketing executive for Stratagem Inc., a Menomonee Falls IT consulting firm.
Brookfield-based Impact Engineering Solutions has lost one or two projects in the last year to India, said president and chief executive officer Mark Peters.
"It’s a minor concern that’s going to grow into a major concern if left unchecked," Peters said. "We’re going to have to take action. We don’t see it going away."
Companies in India offering to do engineering and finite element analysis charge far less than what Impact charges its clients, Peters said.
Technological advances in communications has allowed increased overseas competition for high-tech work, Peters said.
"The work that you’re already doing could be done just as easily 6,000 miles away, and it would be like the guy is sitting in the cubicle next to you," he said. "Anyone from around the world with an Internet connection can look at your (computer) and troubleshoot it."
Over the past year, the issue of outsourcing to India became a domestic political firestorm of sorts in New Jersey.
APAC Customer Services Inc.’s call center in Green Bay lost a contract to answer calls from New Jersey residents with questions about that state’s welfare and food stamp programs. Scottsdale, Ariz.-based eFunds, hired by the State of New Jersey, shifted the call center work to a facility in India.
However, eFunds was pressured by New Jersey politicians who were outraged that state tax money was spent on jobs in India, so the company agreed earlier this year to move the call center work to Camden, N.J.
Ultimately, the Green Bay call center still lost the New Jersey contract, but no workers were laid off there as a result.
Deerfield, Ill.-based APAC, which owns the Green Bay call center, has also sent some work overseas. The company opened a call center in the Philippines this year to handle a new contract, said APAC corporate communications manager Debra Baran.
"The global market is a thriving market, and we’re looking at it like everyone else," Baran said.
Several American companies say they have added operations in India without eliminating jobs in the United States.
Racine-based Modine Manufacturing Co. is considering plans to add manufacturing operations in India to serve the company’s customers, such as John Deere, with operations in that country.
"We’re not transferring production from North America to India or outsourcing jobs," said Michael Lucareli, director of business development for Modine. "Our strategy is to set up new production. We don’t have any business in India today."
Some parts could be made in the United States and then assembled in India, he said. Some Modine employees would move to India to establish the operation there.
Modine is looking to partner with another firm in India for the operation, Lucareli said.
"We’ve really just begun the process in the last several months," Lucareli said. "It could take several months to a year to find the right partner."
Several American high-tech firms are trying to figure out how to compete with their overseas competitors.
To compete, American IT consulting firms such as Stratagem must focus on providing services at a higher level of quality that require unique skills, combined with superior customer service, Fitch said.
If American firms only offer similar quality to India firms, the work will go overseas to cheaper labor, Fitch said.
"You have to continue to position yourself to add more value to your clients than they would get offshore," he said.
Stratagem executives are devising their own strategy to compete with overseas competitors, Fitch said.
"It’s been a growing concern over the last couple of years," Fitch said. "Every locally based technology company I know of has that on top of their list as a concern. It’s there, it’s very real and we have to learn how to deal with it."
"We’re going to take an American theme to this," Peters said. "We’re not going to wait for external help. We’re going to have to get more creative."
Wisconsin leaders are trying to create and retain well-paying high-tech jobs to bolster the state’s economy.
The American Electronics Association says Wisconsin ranks 21st in the nation for high-tech jobs, with 79,300 in 2002. The number of high-tech jobs in the state fell 6.7% from 85,000 in 2001.
Nationally, the United States has lost 8.3% of its high-tech jobs.
However, Terry Ludeman, chief labor economist for the Wisconsin Department of Workforce Development, said industries providing high-tech jobs continue to grow in the state.
The industries with the most high-tech jobs are information, financial and professional and business services, Ludeman said. In Wisconsin, those jobs increased from 411,800 in 1998 to 443,900 in 2002.
"I don’t have any doubt people have lost jobs in technology, but it seems to be a dynamic and churning marketplace," Ludeman said. "New jobs seem to be springing up."
The U.S. government should make it more advantageous for businesses to keep work and jobs in the United States, according to U.S. Rep. Paul Ryan (R-Wisconsin).
"We’ve got to reduce the cost of labor in America," he said. "The way we reduce the cost of labor is not by reducing wages, but by reducing taxes, litigation, regulation and health care costs."
The United States also must take an aggressive stand to crack down on violations of trade agreements, Ryan said. For example, piracy of intellectual property, a major problem in China for U.S. companies, is also a growing problem in India, Ryan said.
In a recent report based on a survey of leading IT services vendors, IDC, a Framingham, Mass.-based market research firm, estimated that offshore work for the American IT industry will rise 23% by 2007, up from a 5% jump this year.
Some American companies looking for even cheaper sources of technical labor are exploring outsourcing possibilities in nations such as Romania, Russia, Hungary, the Czech Republic, the Philippines, Singapore, Thailand and Vietnam, according to IDC.
However, that will not necessarily result in significant IT job losses in the United States. American service firms will continue to use offshore resources to lower costs, but the majority of their IT workers will develop new skills and remain in demand, the IDC report said.
"While there will be a migration of some jobs overseas, it will be coupled with steady growth in a number of service activities on U.S. soil," said Ned May, program manager of IDC’s Worldwide Services research.
Dec. 12, 2003, Small Business Times, Milwaukee
