Accenture, ranked third globally, has been IBM's lone credible rival in India with a count of 35,000 India hands. IBM says it hires according to customer requirements but rivals and industry insiders say it has set an ambitious target of 100,000 employees in India by end-2008. A director at a top three software services firm likens IBM to a cyclist among a bunch of long-distance runners. ''It suddenly just pedals away,'' he says, requesting anonymity. ''Six billion dollars is a staggering amount of money; no [technology] company has talked this scale in India,'' says Sudip Banerjee, president of Wipro's enterprise solutions division. ''If anyone can do it, IBM can.''

How will the $6-billion IBM investment pan out? The company lists ''increased resources, including hiring and train- ing; infrastructure costs (facilities, real estate, taxes); capital expenditures to support IBM and client requirements; and expansion of our software development in India'' as the important heads under which the money will be spent.

Big Blue—a nickname that stuck with IBM because of its large, blue mainframe computers of the 1960s— has established over 25 centres in India across Bangalore, Chennai, Gurgaon, Kolkata, Pune, Hyderabad and Mumbai.

The India investment plan is key to IBM's global financial targets. The megacorp aims to grow its $8.65 billion earnings 10%-12% in the years ahead on slower revenue growth goals of 6%-8%. ''Specifically, by moving more of its services delivery and support to lower-cost countries and increasing integration between its various geographies, IBM is targeting total net savings of $300-400 million dropping to the bottom line,'' Goldman Sachs & Co managing director Laura Conigliaro wrote in a Tuesday report.

IBM expects its global services business—which accounts for more than half Big Blue's $91 billion total revenues—to be the lead segment driving its topline. Of its suite of services, 'business transformation services' driven out of low-cost locations like India will grow two to three times industry rates, Mike Daniels, senior vice-president of IBM's global technology services told analysts at the Big Blue's analyst conference in Bangalore this week.

The advantages are clear: most of the 43,000 IBM-ers are engaged in servicing overseas clients and the process of shipping work to a low-cost location like India will continue in the next few years when nearly a third of Big Blue's employees work from Indian shores. Average costs of an IBM employee is less than $1,000 a month, a fifth of median US tech wages. Rising Indian worker costs will chip away at this offshore advantage but a $4,000 monthly differential is a huge gap to cover and will take time.

Analysts attending the Bangalore schmooze-fest were less sanguine and picked holes in the company's topline targets. ''That ($ 6 billion) is a big number. You got to take it with a grain of salt,'' says John MacCarthy, Forrester Research Inc's vice president of Asia research. ''If they have already invested $2 billion and let's say they are going to double to $4 billin, then they are going to have 80,000 people. I don't see where they are going to get at $6 billion.''

MacCarthy could be right. Unlike homegrown majors, IBM and Accenture have been primarily growing by making hires of experienced workers. Companies such as TCS, Infosys or Wipro, in contrast, have almost entirely hired fresh technology—and, increasingly, science—graduates and training them for up to three months. Such a strategy helped the companies hire in thousands that the tech and back office industry needed to meet booming demand.

Industry insiders the foreign service firms' 'lateral hires' strategy may not be sustainable in the years ahead. India's technology and call centre worker pool is over a million. Says the software firm director: ''Hiring from the existing pool can be a tough act to keep going in the long run. Eventually, these (foreign) companies will have to get into training big time.''

According to recruitment firms, salaries at foreign tech and BPO employers are as much as 20%-25% more than at remuneration at their Indian counterparts.

And, it will not be easy for foreign firms like IBM to get into training workers in large numbers. ''Large Indian companies run universities on campuses,'' says Wipro's Banerjee. The company has a 75-strong permanent faculty, 30 managers who actively interact with trainees and visiting teaching staff. The net result: at any given point in time, Wipro has 3,000 workers in its training rooms. The numbers are similar or higher at Infosys and TCS.

The other option, then, for IBM could be acquisition-led. McCarthy predicts that IBM could go on an acquisition spree. ''I don't think they are going to physically build out $6 billion in India,'' he says. ''With $6 billion, they may not get it the top three (Indian software houses) but somewhere between top three and ten among the players.'' Indian software's top three companies are valued between $15 billion and $20 billion leaving them out of reach for even an acquirer of IBM's size.

IBM's chief financial officer Mark Loughridge focus on the company's acquisition experience at a presentation in Bangalore led Merrill Lynch to wonder if buyouts may accelerate ahead, analyst Richard Farmer wrote to investors on Wednesday.

The need for companies to get help in their R&D efforts was highlighted on June 14 when IBM announced it will be tuning its consulting operations to assist its customers in R&D projects, some of which IBM might carry out itself through its worldwide research capabilities. The initiative is being carried out by IBM's Global Consulting Services unit and complements the company's Technology Collaboration Solutions initiative, launched in March, in which IBM seeks to make its own R&D work available to customers.

"They want to teach clients how to fish," said Navi Radjou, an analyst with Forrester Research, in Cambridge, Mass. "There are some areas of R&D that are ripe for outsourcing, and IBM can do them. It's not body shopping, but brain shopping."

Radjou said companies, particularly in the United States, need R&D assistance because of a shrinking talent pool. In a report published in March, he reported that, since the mid-1990s, engineering and physics Ph.D.s in the United States have declined by 15 percent and 22 percent, respectively.

Indian outsourcer Wipro claims to be the world's largest provider of R&D work, handling $800 million annually, or 37 percent of the company's annual revenue, according to Ayan Mukerji, Wipro's senior vice president for product engineering solutions for North America, in Dallas.

Wipro typically works with the world's largest companies, but smaller companies need help as well. LeftHand Networks needed a helping hand when it was creating its SAN/iQ product, an iSCSI storage platform. The Boulder, Colo., company found it in Patni Computer Systems, to which LeftHand outsourced automated testing.

Patni, with headquarters in Cambridge, Mass., and development offices in Mumbai, India, developed routines and test scripts, performing the work at a Mumbai facility. Working with Patni enabled LeftHand to go from its 1999 startup to its first product rollout in 2001.

The relationship continues, as Patni helps LeftHand move the SAN/iQ software from one hardware platform to another by doing the integration work necessary so that the software can run on such platforms as the Hewlett-Packard ProLiant DL380 server. LeftHand now does between $1.5 million and $2 million of work each year with Patni, which has approximately 35 employees on the contract.

"Our business model is to take our core SAN/iQ technology and open up as many channels as possible," said Bill Chambers, CEO of LeftHand Networks.

When cell phone and video games company, Global Wireless Entertainment (GWE), needed to create a new motor-racing game, it contracted the services of Paradox Studios in Mumbai, India.

The San Diego-based video-games publisher owns the rights to a game based on the exploits of legendary race driver Mario Andretti. Using Paradox, GWE could save 40%–50% from its production budget. "People think of India as a place with good programmers, but they don't realize that we have a very large pool of creative people as well," says Salil Bhargava, CEO, Paradox Studios. "We have a movie industry that is larger than Hollywood."

The trend of large corporations outsourcing repetitive production tasks such as data processing, accounting or even computer programming to offshore facilities is now seeing a change to them outsourcing the creative aspects of their business such as content creation, video editing and video-games production. Some of the world's largest media companies have begun the process, and are outsourcing content creation and journalism to India and the Philippines.

Creative content is now the new frontier in the outsourcing business. CNet's Builder.com, a Website for software developers is outsourcing about 40% of its content, while Reuters has hired over 300 journalists to cover 3,000 small and medium sized U.S. companies from its offices in Bangalore, India. These efforts, largely unreported by mainstream media, are blazing new territory in these service-delivery areas; yet paradoxically enjoy the benefits of trailing edge adoption curve when it comes to governance. In short, no one is having to re-invent the wheel when it comes to managing these processes.

Seeking Contentment

There's a bevy of so-called big media companies such as Reed Elsevier, McGraw-Hill and LexisNexis that have been looking abroad for more and more of their content-creation needs. Now cellular companies, television production companies and even video-games developers are outsourcing everything from mobile content for the cell phone, to video editing to companies in India. Most are characteristically shy about talking about outsourcing their content, lest customers and investors regard them poorly.

Even so, the advantages outweigh the disadvantages, and the cost savings can be great. "Companies can save between 40%–60% from their production cost, streamline their production process and mitigate the risk of relying too heavily on one region for all their content needs," says Mike Maziarka, Director, InfoTrends, a consultancy in Weymouth, Mass.

For example, GWE contacted Paradox last year, and the Indian wireless company gave its employees the task of researching on the life of Mario Andretti. Two weeks later, there was a proposal in San Diego.

Once that was approved, a game-design document was drawn up by Paradox. "In the alpha stage, we do the basic programming and develop the graphics," says Paradox's Bhargava. "Then by the beta stage, we have a playable demo."

The whole process takes between three to six months. Now Mario Andretti is available on the Verizon platform.

Bhargava stresses on companies securing their intellectual property by working with reputed companies when outsourcing creative content. "Our computer labs have no USB ports, zip drives, CD burners or access to the Internet," he says.

First Software, Now Hardware Development Moves to India
Indian companies have established themselves as key providers for offshore software development, and are now beginning to make their presence known in hardware development.

Indian corporations have established themselves as the key provider for offshore software development, and are beginning to make their presence known in hardware development as well, including integrated circuit (IC) design and board design (Fig 1).
The trend by equipment manufacturers to outsource core development decisions to Indian firms, including the division between functions implemented in software and those implemented in hardware, was begun several years ago by US vendors. In the last year or two, however, the Europeans have picked up the practice, and now Japanese companies are following suit.
Japanese manufacturers have been leaving some equipment development tasks such as board design up to Indian firms for some time now, but only after making in-house decisions about dividing functionality between hardware and software. Recently, however, there has been a rising trend towards entrusting high-value development processes to Indian vendors, and the dependence on Indian industry is likely to continue to rise in the future (Fig 2, p30). According to the Japan office of Wipro Ltd of India, the largest outsourced design services provider in India, "Japanese mobile phone manufacturers are considering just finalizing the specs, and outsourcing the whole equipment design process. We are planning on starting design from the second half of 2006, for products to ship in 2007 or 2008."

IC Development
Equipment manufacturers are not the only Japanese firms outsourcing design work to India, though: more and more control of IC development is also shifting to the subcontinent. As with equipment design, most semiconductor manufacturers outsourced verification processes to Indian firms for selected chip circuits. The scope of the outsourced work, however, is beginning to expand into sectors with higher value-added content, such as circuit design and overall chip development (Fig 3).
NEC Electronics Corp of Japan, for example, certified Wipro and major outsourced design services provider Tata Consultancy Services Ltd (TCS) of India as design services partners for its instant silicon solution platform (ISSP) structured application-specific IC (ASIC) in May 2006. When equipment manufacturers want to use the ISSP in a product, they can outsource high-level design (logic design, etc) to Wipro, TCS or other firms.

Cost, Personnel
As a source at a Japanese mobile phone manufacturer explained, the driving force behind recent outsourcing of core development processes to India by equipment, semiconductor and other manufacturers is recognition that, "If the present development stance is maintained, it will become impossible to meet customer requirements, for both cost and development personnel reasons."
The underlying cause is intensifying competition in the world market. Manufacturers incapable of developing products that are superior in function and performance, and which are faster and cheaper than products from their competitors, are being driven out of the global marketplace. One solution attracting considerable attention is outsourcing development to Indian companies.
By outsourcing work to Indian design houses, it becomes possible to utilize far more designers, and at lower cost, than those available to Japanese firms in-house or at cooperating domestic firms, which have to handle every development process. A comparison of monthly cost per designer, according to the Japan office of Wipro, is "About  1 million for a major Japanese manufacturer, about maybe Y700,000 to Y800,000 for a Japanese design service. Our developers, handling development offshore, get by on only Y400,000 to Y500,000."
There is no difficulty in finding development engineers in India, either. Not only does India have a large population, at about a billion people, but it also enjoys a growing number of engineers specializing in software - and more recently, hardware - design. Wipro had about 400 hardware designers in around 2000, but today boasts about 1,500. Of these, 700 or more are IC designers handling ASICs, ASSPs and other chips. An engineer at one Japanese IC manufacturer, one of the "top ten" worldwide in revenues, said, "I hate to admit it, but that's a lot more than we have." And Wipro is not the only firm. HCL Technologies Ltd of India, another major design services supplier, has about 1,000 designers, while TCS has about 500 hardware engineers and Sasken Communication Technologies Ltd of India has 400 to 450.
All of these major outsourced design firms are working to boost the number of hardware designers they employ. For example, TCS plans to increase employed hardware designers by 60% annually, reaching about 3,300 people in 2010. Wipro also plans to increase its hardware design workforce by 20 to 30% a year.

Indian Firms Mature
With the appearance of the Indians, the flow of hardware development by Japanese manufacturers is likely to change considerably. Until now, hardware manufacturers and semiconductor manufacturers have independently subcontracted work to Indian firms, but now those Indian suppliers are showing the front-end development capabilities needed to make decisions about implementing functionality in hardware vs software for equipment development, about system and logic design in semiconductor development, and verifying it all.
In the future, these Indian companies will handle the entire spectrum of development, from equipment to ICs (Fig 4), and may even end up raising questions as to just why existing equipment and semiconductor manufacturers are needed any longer.
For example, the Indian engineers will begin to make their own semiconductor, component and other selections, replacing the equipment manufacturers who make those decisions now. This situation is already beginning to emerge in some equipment design projects. "When we handle the equipment architecture design, we are actively involved in making key decisions like whether it would be better to use ASICs, ASSPs or FPGAs," explained a source at Wipro in Japan.
The fact that this structural change cannot be ignored is evident in recent tie-ups between semiconductor manufacturers and Indian companies. For example, NEC Electronics, which has entered into agreements with Wipro and TCS, revealed that one of its objectives is to get Indian design firms, which are rapidly controlling more and more of the semiconductor selection process, to choose the ISSP. NEC Electronics plans to expand the agreements in the future, covering cell-based ICs and other items.
At the end of 2005, Tensilica Inc of the US certified Tata Elxsi Ltd of India, a design services supplier, as a recommended designer for its Xtensa configurable processor, almost certainly for the same reason.

Development Shop
The changes in the design flow will have a major impact on development by Japanese manufacturers. If dependence on Indian firms increases, for example, there are likely to be more cases of Indian engineers coming to development sites in Japan. This is because the more a manufacturer outsources high value-added work to India, the more it treasures not only the low cost and labor supply advantages, but also the technical strengths of the Indian engineers.
This trend is already becoming evident. One Japanese manufacturer has outsourced the development of the signal processing IC for a digital camera featuring 10 million or more pixels, slated to ship in a few years, to Wipro. The IC is directly related to the value-added content of the camera, and as a source at Wipro in Japan said, "Given the value of the industrial secrets inherent in the design data, the client was against offshore development in India." In response, Wipro brought Indian engineers to Japan, and has them working at the client's facility.
Part of the reason for this trend is the fact that the chip design expertise of Indian firms is rapidly approaching the level of leading semiconductor manufacturers in Japan, the US or elsewhere. Wipro, for example, has already designed a chip with 23 million or more gates, and is now working on designing chips using 65nm process technology.

Building Up from Spec
As the transfer of design work to Indian firms picks up speed, manufacturers that can get along well with them will find it easier to boost competitiveness. This is where Japanese firms are lagging behind firms in Europe or the US, though. One design services provider in India explained why: "Compared to European or American manufacturers, the Japanese often don't draw up tight specs. They still haven't made the shift from how they've always handled development in-house, or with domestic suppliers." Japanese manufacturers need to learn how to clearly define which development processes they will handle and which are the responsibility of the Indian supplier, and how to draw up specifications to international standards to ensure that Indian engineers can understand them immediately.
The move is also effective in the construction of an industry-standard development platform, because Indian design resources can be leveraged to boost platform competitiveness. The Open Multimedia Application Platform (OMAP) application processor from Texas Instruments Inc (TI) of the US is an excellent example. Of the 1,500 hardware engineers employed by Wipro, about 300 are working only on TI jobs. As Wipro explained, "That is the largest single-client engineer allocation we have made. The team handles design for a wide range of peripheral circuits in OMAP, such as drivers." The company has also allocated about 300 software engineers exclusively to TI projects.

by Motoyuki Ooishi

Websites:
AMD: www.amd.com
Cadence: www.cadence.com
Elpida Memory: www.elpida.com
GDA Technologies: www.gdatech.com
HCL Technologies: www.hcltech.com
NEC Electronics: www.necel.com
Rambus: www.rambus.com
Sasken: www.sasken.com
SemIndia: www.sem-india.com
STMicroelectronics: www.st.com
Tata Elxsi: www.tataelxsi.com
TCS: www.tcs.com
Tensilica: www.tensilica.com
Texas Instruments: www.ti.com
Wipro: www.wipro.com

In contrast, within three years there will be 130,000 offshore workers delivering software and IT services for U.K. organizations--double the number currently, according to the research.

Ovum predicts the number of U.K.-based staff hired by offshore companies will continue to increase over the period--but not sufficiently to offset the overall decline in U.K. software and IT services (S/ITS) jobs.

But rather than fight this trend the analysts urge companies to focus on business-centric IT skills which will be critical to the success of both the IT sector and the wider U.K. economy.

Ovum senior analyst Phil Codling said in a statement: "We will see the UK-based S/ITS workforce shrink in size under the effect of offshoring."

He said there is "no point" trying to fight the decline in jobs that can be readily offshored or automated and added that companies should instead focus on developing more business-focused skills.

But he warned industry may not be well-prepared for this challenge as workforce development has slipped down the agenda for many IT organizations.

September 05, 2006 (IDG News Service) -- Accenture Ltd. has opened its 10th delivery center in India, as part of its strategy to locate its services delivery facilities close to where there is good quality staff in the country.

The company is locating the new facility at Gurgaon near India's capital city of Delhi. Gurgaon and Noida, also near Delhi, are part of the National Capital Region (NCR), which is a booming center for software development, call centers and business process outsourcing (BPO).

Besides serving the company's global customers, the new facility at Gurgaon will also address growing demand within India for its services, Accenture said Monday.

Accenture will be recruiting staff from the NCR for the new facility, which will have a capacity of 1,100 seats. It will also offer opportunities for experienced Accenture professionals across levels and technology specialties to relocate to Gurgaon, the company said.

The company's other nine facilities in India are spread across five cities – Bangalore, Chennai, Hyderabad, Mumbai and Pune. The company has increased its staff significantly in India over the last three years from less than 4,000 in 2003 to 19,000 as of May this year. These staff service over 200 Accenture customers.

A number of multinational services companies including IBM and Electronic Data Systems Corp. are expanding in India to take advantage of the country's highly skilled and low-cost staff. French IT services company Capgemini SA said earlier this year that it was making India its offshore services delivery hub.

Accenture announced earlier this year that it has set up a lab in Bangalore, India that will focus on research and development in the areas of systems integration and software engineering.

This vitriol has fueled a "searing anger" among the Indian employees, says Vinod Shetty, a Bombay lawyer who has formed a collective for call-center workers. "A lot of trauma is caused."

Debalina Das, 22, a computer help-line agent in the city of Hyderabad in south India, punched the button last winter for a call from the United States.

The caller greeted her with a torrent of racial and sexual slurs, accused her of "roaming about naked without food and clothes" and asked, "What do you know about computers?"

The diatribe ended with the comment:"This company is just saving money by outsourcing to Third World countries like yours."

Such telephone tirades are fueled by outrage over outsourcing, which is expected to move 3.4 million U.S. service-sector jobs overseas by 2015, according to the consultancy Forrester. Most of the work comes to India, where young, low-cost employees now handle a range of American tasks -- they draw cartoons, interpret heart scans, adjudicate insurance claims, reserve flights and chase debtors.

Das, who quit the job after four months, said she learned to dislike Americans. "Rarely, there are people who are good," she said by e-mail, "but then others remind me that all they believe in is cursing, and they don't have respect for others."

Her opinion is not uncommon among many workers in India's burgeoning call-center industry.

Relations between India and the United States have grown closer in recent years. India now sends more students to American colleges than any other country.

Indians form the wealthiest and one of the fastest-growing immigrant groups in the United States. And in the last decade, American companies have increasingly sought Indian customers and employees.

Not everyone is happy about the growing ties between the two nations. An anti-outsourcing movement has drawn wide support as layoffs continue to mount at such U.S. companies as IBM, which is cutting 13,000 jobs in Europe and the United States and adding 14,000 in India, according to the Washington Alliance of Technology Workers.

In the first three months of this year, state legislators proposed 112 bills to stanch the exodus of American jobs, according to the National Foundation for American Policy.

Some opponents of outsourcing, often fired workers themselves, have rechanneled their rage at job-slashing CEOs toward India. On the Web forum Is Your Job Going Offshore? ( isyourjobgoingoffshore.com/forums/) contributors variously describe India as depraved, as a haven for terrorists, a "giant leech" and a nation of "back-stabbing cowards."

It is this kind of commentary that has shaped a perception among India's customer-care workers that Americans are intolerant. "Everybody thinks like that," said Samik Chowdhury, assistant manager at an IBM office in northern India. "Every time, it's racism only."

This attitude is not typical of most urban Indians, who tend to admire the United States for its strength and entrepreneurial spirit. In a recent 16-country Pew poll, India had the highest percentage of citizens with a favorable opinion of the United States, 71 percent.

The less favorable view, though, is beginning to seep into Indian popular culture. The scripts for a new sitcom called "The Call Center," scheduled to air this winter on the leading channel NDTV, depict Westerners as arrogant, immoral and comically rude.

The show's villain, the Indian manager of a call center, is an India-bashing blowhard, a disposition he picked up at an Ivy League business school in the United States.

One of the episodes recreates a real-life exchange that occurred in January between an American and an Indian agent that has become notorious among the call center crowd here. On the Philadelphia radio show "Star and Buc Wild," host Troi Terrain phoned an Indian call center pretending to order hair beads for his daughter. The call quickly turned vicious.

"Listen to me, you dirty rat eater," Terrain growled, to muffled laughter in the studio. "I'll come out there and choke the -- out of you. You're a filthy rat eater. I'm calling about my American 6-year-old white girl. How dare you outsource my call?"

Indian offices have taken measures to thwart such attacks: Agents typically adopt anglicized names, undergo "accent neutralization" and U.S. cultural training, and sometimes claim to be located in the United States. They are taught to suffer attacks politely and try to calm customers. Failing that, many offices now offer callers the option to be transferred to agents in the United States.

These humiliations, say observers, are tolerated by a labor force that savors the opportunity to join India's growing middle class. With monthly incomes of about $200, call-center employees live well in a country where many are poverty-stricken.

"They feel like it is their duty" to swallow insults, says labor researcher Babu Remesh.

Sumit Bhasin, a 25-year-old call-center worker for HCL BPO Technologies in the northern Indian city of Noida, says American customers tend to have an "egoistic, bossy kind of attitude." When he was young, he said, he used to dream of traveling to the United States, as many Indians do, but after working in call centers for several years, he is not so sure anymore.

However, he loves his job, because he makes $440 a month and gets to learn about high technology like routers, modems and concepts of networking.

But for others, the abuse is taking its toll.

A group of SBC call-center workers, also in Noida, sat recently on the clipped grass in front of the silver-glassed office building where they field Americans' Web connection problems. Callers often dismiss them the moment they detect their Indian accents, they say.

"A whole lot of the time, people are yelling," says Kapil Chawla, 23. "They just want to talk to an American."

Saurabh Jha, a 22-year-old in blue jeans, says a woman phoned from Texas recently and told him that, thanks to outsourcing, "You are getting money, food, shelter. You should be starving."

She berated him for 12 minutes before she finally allowed him to offer advice that promptly fixed her problem: to unplug her computer and plug it back in.

"I was speechless," he says. "She didn't even give me a chance."