Testing the Offshore Waters

By Hannah Wallace May 31, 2004

When former city of Sarasota engineer Asim Chauhan started Infosun in 1999, a business that originally focused on outsourcing computer-aided drawing work for architectural and engineering firms, he turned to the place he knew best-his native India and its well-educated and motivated technical talent. Chauhan knew that Indian technicians-70,000 graduate each year-would work for approximately $12,000 a year, a fraction of the $70,000 salaries of their U.S. counterparts. That was a benefit, Chauhan figured, U.S. companies would pounce on.

Chauhan was right. Infosun has flourished, moving from a back room in his home to a large office suite in Sarasota's up-and-coming Rosemary District. Today it is a multi-million-dollar company that counts several Fortune 50 companies among its clientele. With his six-person management team of experts in energy, healthcare, financial services and transportation, Chauhan has focused on marrying the right Indian talent with the right U.S. enterprises. Infosun acts as liaison-a broker, really-between U.S. and Indian companies, smoothing the way for a successful offshore venture by providing staffing, infrastructure and project management assistance.

Chauhan has been at the forefront of that much-debated labor trend called offshore outsourcing-the movement of high-tech and other white-collar jobs to lower-wage markets in the lesser-developed countries. (The movement of blue-collar jobs overseas in the '70s and '80s was called offshore manufacturing.) A political firestorm is burning over the loss-perceived and real-of high-end U.S. jobs to cheap overseas labor. In 2002, Forrester Research predicted that as many as 3.3 million white-collar jobs would make their way overseas by 2015. Last year, Deloitte Research reported that the country's top 100 financial services firms planned to transfer two million jobs and $3.56 billion in operations offshore in the next five years. Bills designed to stave offshore outsourcing have been introduced in Congress and in state legislatures around the country; and it is one of the political hot buttons of the 2004 presidential race.

Sarasota-Manatee, which is not a high-tech center like Silicon Valley or North Carolina's Research Triangle, may not seem to be a likely hotbed of offshoring. But a number of companies, including those involved in software development, medical office administration, architecture, engineering and insurance, are tapping into the offshore labor market. Although some did not want to be interviewed for fear of backlash, most were keen to explain that they are creating businesses and U.S. jobs that wouldn't exist without cheap offshore talent.

That's true for his Copytalk, says Sarasota software entrepreneur Norm Worthington. He says the synergy between the United States and India enabled him to create the service, which allows people to receive and send e-mails, and update computer and handheld appointment calendars by telephone. No more lugging around a laptop or trying to find an Internet connection while on the road or in the field. A Copytalk computer communicates with the subscriber's office or home computer and then calls the subscriber if there is e-mail. The computer reads the subscriber his e-mail and dictates the response. That response is automatically transcribed by the computer and sent to an operator in India who adds the human touch, transforming the computer-generated message, which inevitably contains errors, back into normal speech that recipients can easily understand. All this happens in the same amount of time it would take to log on to your computer and check e-mail yourself if you were in the office. Subscribers can even call into the service to dictate e-mails from scratch, to update their phone and address books, or mark an engagement on their calendar.

U.S. engineers oversaw the technology design, and a dozen American workers provide quality assurance and training. But the service would be cost-prohibitive without the hundreds of employees occupying three call centers in India to convert computer-speak into standard American English.

"At Copytalk, we are hiring people with the equivalent of master's or doctoral degrees to do basic clerical work," Worthington says. "Once you add up salary and overhead, the cost to keep an employee in India is about half of what it would cost to hire someone with a high school diploma here. If we didn't outsource to India, it would cost $100 a month to deliver a product to our customers, and the company wouldn't exist. By outsourcing, we can provide the service for a quarter of that."

Venice entrepreneur Brad Baker also saw the benefit of outsourcing when he was looking for an engineering team to help develop the technology for his newest venture, Nexus Biometrics. A Rotary International Scholarship recipient to Sri Lanka in 1990, he turned to old friends in this South Asian country.

Nexus Biometrics, rolling out this month, offers an innovative approach to fingerprint identification. People will be able to identify themselves by placing a finger on an embedded sensor attached to a Motorola cell phone (future versions will place the sensor on the phone itself). A central computer will verify the user's name, address and other distinguishing information. The technology also works with GPS (global positioning systems), which new cell phones must contain as of this year, so that the location of the person who's being identified by Nexus Biometrics can be pinpointed. To start, Baker is marketing this identification system for monitoring the whereabouts of children, driver's license verification and parolee monitoring.

But it wouldn't have been financially feasible without Sri Lankan labor. "I was able to get 10 engineers working on R&D around the clock for about an eighth of what it would cost me to use the same level people in the United States," Baker says. "An entry-level engineer with a master's degree from a U.S. school will work for $2,400 a year in Sri Lanka, and that's working seven days a week. Here an engineer at that level would command an annual salary of $60,000."

Along with salary considerations, Baker notes that the culture in Sri Lanka is conducive to getting the job done. "They speak English in Sri Lanka and have the second highest level of literacy in the world," he says. "The workforce is highly educated, often U.S.-trained, and they think like we do."

In fact, Baker says, some Sri Lankan engineers are so keen to work on U.S. projects that they will even work for free. Some work out of their homes, on kitchen tables, after putting in a full day at their regular jobs. The U.S., Baker explains, is seen as a land of immeasurable opportunity; and Sri Lankan workers will do almost anything to get in on the ground floor of a promising U.S. venture.

But infrastructure issues arise when outsourcing high-level technology development projects to lesser-developed countries. "The telephone technology we are developing is cutting edge. Fingerprint technology takes some pretty sophisticated tool kits," Baker explains. "We had to send tooling and testing equipment to Sri Lanka for the engineers to use and we had to simulate a Nextel tower. GPS technology, an integral part of the Nexus Biometrics system, doesn't work over there."

Worthington has had outsourcing challenges as well. "There are definitely large cultural differences in India that have to be addressed," he says. "Productivity in general is a bit lower than in the U.S. Indian workers might take long breaks that last hours and then offer no explanations. They work strictly on a salary basis, never hourly, and family is a priority even if it interferes with the work day."

Negotiating styles are also different. "Indian businessmen may think it is an insult to tell you no," Worthington says. "That can be a problem in negotiations, especially when what they really mean is no." Still, he stresses, "for the most part, Indians do great work. Any problems we have had lie with our unexamined assumptions about how people act in a business setting."

Chauhan agrees. "If you ask every U.S. executive who has ever done offshore outsourcing what is the biggest challenge, the answer will be the inability of offshore programmers and managers to communicate effectively with their U.S. counterparts. This occurs not because of language differences, but cultural differences. In Indian culture, one must show a great deal of deference to elders and those who are above you in the corporate or social hierarchy. Being direct is considered impolite. And since the U.S. client falls into this category, in many instances the Indian managers or programmers will not convey the right message for fear of possibly offending the client. This causes enormous problems because the client cannot get an accurate assessment of the situation."

Chauhan also points out that Indian managers are reluctant to admit failure because it connotes weakness. Oftentimes, instead of admitting mistakes, Indian managers will try to correct them on their own, sometimes to the detriment of a project.

Simple language differences in English can also pose a problem.

"In some non-English languages, when someone has a simple follow-up question, he or she might say, 'I have a doubt about that,'" Chauhan explains. "Imagine a customer's reaction to a call center agent who says, 'Yes, I understand that you are having a problem with your computer, but I have a doubt about what you are telling me.' This could send the already frustrated customer over the edge."

Getting an outsourced operation up and running can be an arduous process. Land in India is expensive, and even if you are able to find an affordable location for your offshore enterprise, you'll still face logistical and technological challenges. "You have to deal with multiple locations, encryption issues and the problems of redundancy," Worthington says. "All of these factors are costly. You can't just look at the lower salaries and think you are necessarily going to save money by going offshore."

Telecommunication differences also frustrate an offshore enterprise. "In order for offshore outsourcing to be successful, voice and data communications from offshore providers must be extremely reliable," Chauhan adds. "And this is often not the case. If connections to the offshore provider are not quick and reliable, customers end up waiting for information to populate their screens."

Then there's the time difference. Many call-center employees work the graveyard shift in Asia, which translates into daytime hours in North America. "The time difference between the U.S. and India can range from nine to 12-and-a-half hours," Chauhan says. "On one hand, this time difference is perfect because it allows for a 24-hour operation, but it can also become a major hassle when trying to communicate in real time. If staff in both countries is working on a daytime shift, you barely have a two-hour overlap to communicate. If you miss that two-hour overlap, it can result in the loss of days of productive time."

Infosun is working with one of the nation's largest health insurance companies to create a policy administration system in India. But since health insurance is not common in India, most Indian workers lack a frame of reference for the work. Add the fact that the insurance industry is highly regulated and complex, and it becomes apparent that an intermediary is needed to bridge the gap between the Indian specialists' technical expertise and the industry rules and standards to which they must adhere.

Cultural and infrastructure concerns aside, perhaps the greatest challenge outsourcing entities face is security. "When you let an organization take control of part of your business, you open yourself to risk," explains Mark Swanson, president and CEO of the Tampa-based Cerebit. "By giving overseas companies access to your sensitive data, you run the risk of IP theft, fraud and abuse."

Another concern is the loss of skills within the U.S. companies to the outsourced workers. "When you outsource processes, you're going to lose your ability to perform those functions in-house. You'll lose your benchmarks," Swanson says. "What that means is if you need to pull out of a country, you would have lost your ability to perform the outsourced function yourself."

Cerebit exemplifies the new business opportunities arising from offshore outsourcing, Swanson says. The company provides a security gateway so its customers can control exactly what offshore employees do and see within their systems. It provides a complete audit trail on a transaction-by-transaction basis, keeping the knowledge base required to move the outsourced operation back to the United States if necessary. And while the company has outsourced the majority of its software development to Pakistanis, it has also created jobs on the U.S. side. Cerebit employs 15 people in its Tampa, Atlanta and Washington, D.C. offices.

The offshoring trend, says Swanson, does not necessarily bode badly for the American white-collar workforce. He believes change offers opportunity. "If you look at the history of business innovation, money is always made in leveraging the trend in ways that were never anticipated when the trend started," Swanson says. "What we're doing at Cerebit is taking the opportunity to actually create more jobs by facilitating the entire process of outsourcing. There is really only one way to look at trends like outsourcing," he adds. "You can adapt, or you can die."

Worthington agrees that offshore outsourcing does not always take away American jobs. "With Copytalk, we have created jobs at home and abroad," he says. "I needed the able skills of U.S. technology workers and the political and economic structure of the U.S. to create a company like this. And I needed a low-cost labor pool in India to be able to deliver a viable product. One could not exist without the other."

But Worthington also says it is important to recognize the human costs that come with the outsourcing phenomenon. "The biggest advantage America has is its innovative energy. Entrepreneurship is in our blood," he says. "So to succeed, we have to continue to provide a social and political climate for entrepreneurship while at the same time providing a mechanism for ameliorating the shocks. Relying solely on the market to take care of the shocks is irresponsible."

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