Why Indian IT companies are outsourcing – to US

Two decades after they began running US operations from Bangalore and other cities, Indian IT companies are hiring Americans to do work that was once outsourced. What gives?

On a top floor of an office building in Atlanta's posh and wooded Buckhead district, workers man a call center for a US healthcare company. Their computers' 'copy/paste' function and Internet browsers are disabled as they answer questions about plan benefits and handle personally sensitive data. Their manager watches from a glassy office.

Nearby, recent Georgia Tech and University of South Carolina graduates train in how to handle information-technology (IT) clients. Attitude is the most important part of working with customers, the trainer says. Hadn't they learned that from Donald Trump's "The Apprentice"?

These scenes are hardly out of the ordinary except for one thing: The managers and trainers are from India. So is the employer, outsourcing giant Wipro, which set up shop here in 2008. Just as Japanese automakers began manufacturing in the United States in the 1980s, Indian outsourcing companies are locating in the US to reap similar benefits. Wipro calls it "reverse outsourcing."

Some of the benefits are, surprisingly, economic.

"You can never compete [here] with an India cost model," says Suraj Prakash, vice president for global delivery organization at Atlanta Development Center (ADC), Wipro's American IT center. But as the company takes on more ambitious projects – working on a large software development project, for example – it spends more on travel to handle the intensive interaction with the client and sees higher costs from time delays in getting feedback and errors from not understanding the local business context. "You easily end up spending all of that money doing rework," Mr. Prakash says.

Other Indian outsourcing firms move in

That may be one reason why Wipro's two larger competitors in India are also locating in the US. Infosys is planning a subsidiary in Dallas that will hire locals and seek US government contracts. Tata Consultancy Services (TCS) has reportedly hired at least 300 at its new campus near Cincinnati.

Locating in the US "helps us and our customers reduce overall infrastructure and overhead costs" and better serves customers, writes Amar Naga, the head of TCS's US center, in an e-mail.

"These companies have gained so much experience that there's a process of maturation," says economics professor Usha Nair-Reichert, of the Georgia Institute of Technology. "They really are trying to become global players."

A bid to expand into new markets

Locating in the US not only helps companies handle more complex projects, it offers them an entree to new markets.

"Certain customers feel the need to have the outsourcing company in close proximity" says Vinod Kadadi, who oversees IT projects for US clients done at the ADC. Wipro can get contracts with US healthcare clients, government agencies, utility companies, and defense contractors that don't allow their data to go beyond the US border. "What we're trying to [build] in Atlanta is very similar to what we have in Bangalore," he says.

The scale is different. Bangalore, India, is the site of Wipro's largest operation, employing about 23,000 people. Its Atlanta operation employs 500, which the company hopes to expand to 1,000 employees by 2013.

Nevertheless, the ADC's job creation – about 75 percent of its hires are local – could yield political benefits.

A White House meeting

Since nearly 60 percent of Wipro's revenue comes from US clients, creating American jobs is "pretty useful" for Indian IT companies, Ms. Nair-Reichart says, given the long-simmering political backlash here against outsourcing.

Wipro and other Indian IT firms use thousands of H1-B visas, designed for skilled workers, to send Indians to work at US client sites. Wipro's CEO reportedly met with US officials, including White House economic adviser Lawrence Summers, last June to warn that proposed curbs on H1-B visas could start a trade dispute with India. Wipro's concern: a Senate bill that would require firms with more than 50 employees to have no more than half of them on skilled-worker visas. Indian firms were the top four users of H1-B visas in fiscal year 2008, with more than 10,000 visa grants.

Though proposed curbs on visas are one driver for their move, its executives say there are many reasons behind the shift. They compare themselves to Japanese automakers who, in the 1980s, began setting up shop in the US.

"There came a time for the Japanese automakers when it was no longer practical or economically feasible or politically pleasant, let's say, for them to keep importing cars from Japan," says Joydip Mukherji, ADC head of operations. The American worker "works hardest," he says, so "get what is the best process that you have and bring it out here, and you'll find the ability to deliver products that are better than any others in the world."

Popping in on a training session for recent graduates, Mr. Mukherji quotes one young woman's grade point average off the top of his head and boasts of having a former Georgia Tech football player also in the room. There are 19 universities within an hour's drive, and these "temples of learning," he says, are a main draw for Wipro to Atlanta.

Atlanta is welcoming, too. Wipro received in February an award from the Metro Atlanta Chamber of Commerce for being a top source of job creation in the previous year and an expected source of future growth for a city with a new emphasis on attracting Indian businesses.

If this "reverse outsourcing" model works, Indian firms could be looking to expand in the US.

"The plans are that once we perfect the Atlanta model, [we'll] replicate this model in other places," says Prakash of ADC. "There will be enough work to be done in the US."