The Future Of Outsourcing

Globalization has been brutal to midwestern manufacturers like the Paper Converting Machine Co. For decades, PCMC's Green Bay (Wis.) factory, its oiled wooden factory floors worn smooth by work boots, thrived by making ever-more-complex equipment to weave, fold, and print packaging for everything from potato chips to baby wipes.

But PCMC has fallen on hard times. First came the 2001 recession. Then, two years ago, one of the company's biggest customers told it to slash its machinery prices by 40% and urged it to move production to China. Last year, a St. Louis holding company, Barry-Wehmiller Cos., acquired the manufacturer and promptly cut workers and nonunion pay. In five years sales have plunged by 40%, to $170 million, and the workforce has shrunk from 2,000 to 1,100. Employees have been traumatized, says operations manager Craig Compton, a muscular former hockey player. "All you hear about is China and all these companies closing or taking their operations overseas."

But now, Compton says, he is "probably the most optimistic I've been in five years." Hope is coming from an unusual source. As part of its turnaround strategy, Barry-Wehmiller plans to shift some design work to its 160-engineer center in Chennai, India. By having U.S. and Indian designers collaborate 24/7, explains Vasant Bennett, president of Barry-Wehmiller's engineering services unit, PCMC hopes to slash development costs and time, win orders it often missed due to engineering constraints -- and keep production in Green Bay. Barry-Wehmiller says the strategy already has boosted profits at some of the 32 other midsize U.S. machinery makers it has bought. "We can compete and create great American jobs," vows CEO Robert Chapman. "But not without offshoring."

Come again? Ever since the offshore shift of skilled work sparked widespread debate and a political firestorm three years ago, it has been portrayed as the killer of good-paying American jobs. "Benedict Arnold CEOs" hire software engineers, computer help staff, and credit-card bill collectors to exploit the low wages of poor nations. U.S. workers suddenly face a grave new threat, with even highly educated tech and service professionals having to compete against legions of hungry college grads in India, China, and the Philippines willing to work twice as hard for one-fifth the pay.

Workers' fears have some grounding in fact. The prime motive of most corporate bean counters jumping on the offshoring bandwagon has been to take advantage of such "labor arbitrage" -- the huge wage gap between industrialized and developing nations. And without doubt, big layoffs often accompany big outsourcing deals.

The changes can be harsh and deep. But a more enlightened, strategic view of global sourcing is starting to emerge as managers get a better fix on its potential. The new buzzword is "transformational outsourcing." Many executives are discovering offshoring is really about corporate growth, making better use of skilled U.S. staff, and even job creation in the U.S., not just cheap wages abroad. True, the labor savings from global sourcing can still be substantial. But it's peanuts compared to the enormous gains in efficiency, productivity, quality, and revenues that can be achieved by fully leveraging offshore talent.

Thus entrepreneurs such as Chapman see a chance to turn around dying businesses, speed up their pace of innovation, or fund development projects that otherwise would have been unaffordable. More aggressive outsourcers are aiming to create radical business models that can give them an edge and change the game in their industries. Old-line multinationals see offshoring as a catalyst for a broader plan to overhaul outdated office operations and prepare for new competitive battles. And while some want to downsize, others are keen to liberate expensive analysts, engineers, and salesmen from routine tasks so they can spend more time innovating and dealing with customers. "This isn't about labor cost," says Daniel Marovitz, technology managing director for Deutsche Bank's global businesses (DB ). "The issue is that if you don't do it, you won't survive."

The new attitude is emerging in corporations across the U.S. and Europe in virtually every industry. Ask executives at Penske Truck Leasing why the company outsources dozens of business processes to Mexico and India, and they cite greater efficiency and customer service. Ask managers at U.S.-Dutch professional publishing giant Wolters Kluwer (WTKWY ) why they're racing to shift software development and editorial work to India and the Philippines, and they will say it's about being able to pump out a greater variety of books, journals, and Web-based content more rapidly. Ask Wachovia Corp. (WB ), the Charlotte (N.C.)-based bank, why it just inked a $1.1 billion deal with India's Genpact to outsource finance and accounting jobs and why it handed over administration of its human-resources programs to Lincolnshire (Ill.)-based Hewitt Associates (HEW ). It's "what we need to do to become a great customer-relationship company," says Director of Corporate Development Peter J. Sidebottom. Wachovia aims to reinvest up to 40% of the $600 million to $1 billion it hopes to take out in costs over three years into branches, ATMs, and personnel to boost its core business.

Here's what such transformations typically entail: Genpact, Accenture (ACN ), IBM Services, or another big outsourcing specialist dispatches teams to meticulously dissect the workflow of an entire human resources, finance, or info tech department. The team then helps build a new IT platform, redesigns all processes, and administers programs, acting as a virtual subsidiary. The contractor then disperses work among global networks of staff ranging from the U.S. to Asia to Eastern Europe.

In recent years, Procter & Gamble (PG ), DuPont (DD ), Cisco Systems (CSCO ), ABN Amro (ABN ), Unilever, Rockwell Collins (COL ), and Marriott (MAR ) were among those that signed such megadeals, worth billions.

In 2004, for example, drugmaker Wyeth Pharmaceuticals transferred its entire clinical-testing operation to Accenture Ltd. "Boards of directors of virtually every big company now are insisting on very articulated outsourcing strategies," says Peter Allen, global services managing director of TPI, a consulting firm that advised on 15 major outsourcing contracts last year worth $14 billion. "Many CEOs are saying, 'Don't tell me how much I can save. Show me how we can grow by 40% without increasing our capacity in the U.S.,"' says Atul Vashistha, CEO of outsourcing consultant neoIT and co-author of the book The Offshore Nation.

Some observers even believe Big Business is on the cusp of a new burst of productivity growth, ignited in part by offshore outsourcing as a catalyst. "Once this transformation is done," predicts Arthur H. Harper, former CEO of General Electric Co.'s equipment management businesses, "I think we will end up with companies that deliver products faster at lower costs, and are better able to compete against anyone in the world." As executives shed more operations, they also are spurring new debate about how the future corporation will look. Some management pundits theorize about the "totally disaggregated corporation," wherein every function not regarded as crucial is stripped away.

PROCESSES, NOW ON SALE
In theory, it is becoming possible to buy, off the shelf, practically any function you need to run a company. Want to start a budget airline but don't want to invest in a huge back office? Accenture's Navitaire unit can manage reservations, plan routes, assign crew, and calculate optimal prices for each seat.

Have a cool new telecom or medical device but lack market researchers? For about $5,000, analytics outfits such as New Delhi-based Evalueserve Inc. will, within a day, assemble a team of Indian patent attorneys, engineers, and business analysts, start mining global databases, and call dozens of U.S. experts and wholesalers to provide an independent appraisal.

Want to market quickly a new mutual fund or insurance policy? IT services providers such as India's Tata Consultancy Services Ltd. are building software platforms that furnish every business process needed and secure all regulatory approvals. A sister company, Tata Technologies, boasts 2,000 Indian engineers and recently bought 700-employee Novi (Mich.) auto- and aerospace-engineering firm Incat International PLC. Tata Technologies can now handle everything from turning a conceptual design into detailed specs for interiors, chassis, and electrical systems to designing the tooling and factory-floor layout. "If you map out the entire vehicle-development process, we have the capability to supply every piece of it," says Chief Operating Officer Jeffrey D. Sage, an IBM and General Motors Corp. (GM ) veteran. Tata is designing all doors for a future truck, for example, and the power train for a U.S. sedan. The company is hiring 100 experienced U.S. engineers at salaries of $100,000 and up.

Few big companies have tried all these options yet. But some, like Procter & Gamble, are showing that the ideas are not far-fetched. Over the past three years the $57 billion consumer-products company has outsourced everything from IT infrastructure and human resources to management of its offices from Cincinnati to Moscow. CEO Alan G. Lafley also has announced he wants half of all new P&G products to come from outside by 2010, vs. 20% now. In the near future, some analysts predict, Detroit and European carmakers will go the way of the PC industry, relying on outsiders to develop new models bearing their brand names. BMW has done just that with a sport-utility vehicle. And Big Pharma will bring blockbuster drugs to market at a fraction of the current $1 billion average cost by allying with partners in India, China, and Russia in molecular research and clinical testing.

Of course, corporations have been outsourcing management of IT systems to the likes of Electronic Data Systems (EDS ), IBM (IBM ), and Accenture for more than a decade, while Detroit has long given engineering jobs to outside design firms. Futurists have envisioned "hollow" and "virtual" corporations since the 1980s.

It hasn't happened yet. Reengineering a company may make sense on paper, but it's extremely expensive and entails big risks if executed poorly. Corporations can't simply be snapped apart and reconfigured like LEGO sets, after all. They are complex, living organisms that can be thrown into convulsions if a transplant operation is botched. Valued employees send out their résumés, customers are outraged at deteriorating service, a brand name can be damaged. In consultant surveys, what's more, many U.S. managers complain about the quality of offshored work and unexpected costs.

But as companies work out such kinks, the rise of the offshore option is dramatically changing the economics of reengineering. With millions of low-cost engineers, financial analysts, consumer marketers, and architects now readily available via the Web, CEOs can see a quicker payoff. "It used to be that companies struggled for a few years to show a 5% or 10% increase in productivity from outsourcing," says Pramod Bhasin, CEO of Genpact, the 19,000-employee back-office-processing unit spun off by GE last year. "But by offshoring work, they can see savings of 30% to 40% in the first year" in labor costs. Then the efficiency gains kick in. A $10 billion company might initially only shave a few million dollars in wages after transferring back-office procurement or bill collection overseas. But better management of these processes could free up hundreds of millions in cash flow annually.

Those savings, in turn, help underwrite far broader corporate restructuring that can be truly transformational. DuPont has long wanted to fix its unwieldy system for administering records, payroll, and benefits for its 60,000 employees in 70 nations, with data scattered among different software platforms and global business units. By awarding a long-term contract to Cincinnati-based Convergys Corp., the world's biggest call-center operator, to redesign and administer its human resources programs, it expects to cut costs 20% in the first year and 30% a year afterward. To get corporate backing for the move, "it certainly helps a lot to have savings from the outset," says DuPont Senior Human Resources Vice-President James C. Borel.

Creative new companies can exploit the possibilities of offshoring even faster than established players. Crimson Consulting Group is a good example. The Los Altos (Calif.) firm, which performs global market research on everything from routers to software for clients including Cisco, HP, and Microsoft (MSFT ), has only 14 full-time employees. But it farms out research to India's Evalueserve and some 5,000 other independent experts from Silicon Valley to China, the Czech Republic, and South Africa. "This allows a small firm like us to compete with McKinsey and Bain on a very global basis with very low costs," says CEO Glenn Gow. Former GE exec Harper is on the same wavelength. Like Barry-Wehmiller, his new five-partner private-equity firm plans to buy struggling midsize manufacturers and use offshore outsourcing to help revitalize them. Harper's NexGen Capital Partners also plans to farm out most of its own office work. "The people who understand this will start from Day One and never build a back room," Harper says. "They will outsource everything they can."

Some aggressive outsourcers are using their low-cost, superefficient business models to challenge incumbents. Pasadena, (Calif.)-based IndyMac Bancorp Inc. (NDE ), founded in 1985, illustrates the new breed of financial services company. In three years, IndyMac has risen from 22nd-largest U.S. mortgage issuer to No. 9, while its 18% return on equity in 2004 outpaced most rivals. The thrift's initial edge was its technology to process, price, and approve loan applications in less than a minute.

But IndyMac also credits its aggressive offshore outsourcing strategy, which Consumer Banking CEO Ashwin Adarkar says has helped make it "more productive, cost-efficient, and flexible than our competitors, with better customer service." IndyMac is using 250 mostly Indian staff from New York-based Cognizant Technology Solutions Corp. (CTSH ) to help build a next-generation software platform and applications that, it expects, will boost efficiency at least 20% by 2008. IndyMac has also begun shifting tasks, ranging from bill collection to "welcome calls" that help U.S. borrowers make their first mortgage payments on time, to India's Exlservice Holdings Inc. and its 5,000-strong staff. In all, Exlservice and other Indian providers handle 33 back-office processes offshore. Yet rather than losing any American jobs, IndyMac has doubled its U.S. workforce to nearly 6,000 in four years -- and is still hiring.

SUPERIOR SERVICE
Smart use of offshoring can juice the performance of established players, too. Five years ago, Penske Truck Leasing, a joint venture between GE and Penske Corp., paid $768 million for trucker Rollins Truck Leasing Corp. -- just in time for the recession. Customer service, spread among four U.S. call centers, was inconsistent. "I realized our business needed a transformation," says CFO Frank Cocuzza. He began by shifting a few dozen data-processing jobs to GE's huge Mexican and Indian call centers, now called Genpact. He then hired Genpact to help restructure most of his back office. That relationship now spans 30 processes involved in leasing 216,000 trucks and providing logistical services for customers.

Now, if a Penske truck is held up at a weigh station because it lacks a certain permit, for example, the driver calls an 800 number. Genpact staff in India obtains the document over the Web. The weigh station is notified electronically, and the truck is back on the road within 30 minutes. Before, Penske thought it did well if it accomplished that in two hours. And when a driver finishes his job, his entire log, including records of mileage, tolls, and fuel purchases, is shipped to Mexico, punched into computers, and processed in Hyderabad. In all, 60% of the 1,000 workers handling Penske back-office process are in India or Mexico, and Penske is still ramping up. Under a new program, when a manufacturer asks Penske to arrange for a delivery to a buyer, Indian staff helps with the scheduling, billing, and invoices. The $15 million in direct labor-cost savings are small compared with the gains in efficiency and customer service, Cocuzza says.

Big Pharma is pursuing huge boosts in efficiency as well. Eli Lilly & Co.'s (LLY ) labs are more productive than most, having released eight major drugs in the past five years. But for each new drug, Lilly estimates it invests a hefty $1.1 billion. That could reach $1.5 billion in four years. "Those kinds of costs are fundamentally unsustainable," says Steven M. Paul, Lilly's science and tech executive vice-president. Outsourcing figures heavily in Lilly's strategy to lower that cost to $800 million. The drugmaker now does 20% of its chemistry work in China for one-quarter the U.S. cost and helped fund a startup lab, Shanghai's Chem-Explorer Co., with 230 chemists. Lilly now is trying to slash the costs of clinical trials on human patients, which range from $50 million to $300 million per drug, and is expanding such efforts in Brazil, Russia, China, and India.

Other manufacturers and tech companies are learning to capitalize on global talent pools to rush products to market sooner at lower costs. OnStor Inc., a Los Gatos (Calif.) developer of storage systems, says its tie-up with Bangalore engineering-services outfit HCL Technologies Ltd. enables it to get customized products to clients twice as fast as its major rivals. "If we want to recruit a great engineer in Silicon Valley, our lead time is three months," says CEO Bob Miller. "With HCL, we can pick up the phone and get somebody in two or three days."

Such strategies offer a glimpse into the productive uses of global outsourcing. But most experts remain cautious. The McKinsey Global Institute estimates $18.4 billion in global IT work and $11.4 billion in business-process services have been shifted abroad so far -- just one-tenth of the potential offshore market. One reason is that executives still have a lot to learn about using offshore talent to boost productivity. Professor Mohanbir Sawhney of Northwestern University's Kellogg School of Management, a self-proclaimed "big believer in total disaggregation," says: "One of our tasks in business schools is to train people to manage the virtual, globally distributed corporation. How do you manage employees you can't even see?"

The management challenges will grow more urgent as rising global salaries dissipate the easy cost gains from offshore outsourcing. The winning companies of the future will be those most adept at leveraging global talent to transform themselves and their industries, creating better jobs for everyone.

From Russia with Technology?

Is the country poised to become a global software leader? With a little government help, it just might be ready to join the big leagues

It has a technological tradition that put man into space and launched the first satellite. Its computer programmers are the envy of the world, and it produces 200,000 scientific and technology graduates each year -- as many as India, which has five times the population. So why, Russians ask themselves, can't their country be a global powerhouse of software development?

Perhaps it is on its way to becoming one. Although small, Russia's software outsourcing industry is growing fast. After China and India, Russia is now the third-largest software outsourcing destination in the world. In 2005, software exports reached an estimated $1 billion, up from just $120 million in 2000 and a 33% increase from 2004. Most of these revenues are earned by home-grown software development companies, exporting services to Western clients.

"Just three countries, India, China, and Russia, are big enough to become IT superpowers," says Dmitry A. Loschinin, CEO of Russia's largest software development company, Luxoft. "And in terms of geography Russia has a pretty big advantage. In the long term it will be a very good [outsourcing] destination for Europe."

"SERIOUS BREAKTHROUGH." Still, Russia's expanding software exports are a drop in the ocean compared with the tens of billions of dollars it earns each year from natural resources. Russians worry about their country's lack of value-added exports, and consequent dependence on unstable world commodity markets. They look with envy at India's success at building a thriving software export industry.

Literally so, in the case of Russia's President Vladimir Putin. On a state visit to India in December, 2004, Putin stopped off in Bangalore, the center of India's software development industry, to see for himself the secrets of India's success. He came away singing the praises of government-backed "technoparks" and other forms of state support for IT development.

A month after his trip to India, in a speech at a scientific township near Novosibirsk, Putin called for a program of technology parks to be developed in Russia, with backing from the state. "The country can achieve a serious breakthrough in the area of information technology. We simply mustn't waste this chance -- especially as other countries have achieved success without such a strong starting position," Putin said.

GOVERNMENT HELP. That's music to the ears of Russia's software developers. They argue that in India, government assistance has been crucial in fostering the industry. In contrast, Russia's state has typically been more of a hindrance than a help. Software exporters complained that it was next to impossible to reclaim VAT on exports, thanks to outdated legislation and obstructive bureaucracy. And until the creation of a new Ministry for IT and Communications in 2004, government policy toward the sector lacked central coordination.

Now, with prodding from President Putin, policy-makers seem to be waking up to the industry's importance. Russia plans at least four state-funded technoparks to be completed by 2010, located in Dubna (a scientific center near Moscow), St. Petersburg, Nizhny Novgorod, and Novosibirsk. The idea is to create economies of scale and encourage collaboration between businesses and scientific researchers.

Each park is due to receive state funding of $80 million to $100 million to create the necessary infrastructure. Companies setting up in the parks will also be entitled to receive tax and customs benefits. The government has also promised to promote the IT industry through additional tax breaks. A draft law, due to be approved this year, will provide simplified taxation procedures and cut social security tax from 26% to 14% of salaries.

DOWN TO BUSINESS. Industry representatives are positive about the new measures, which follow recommendations submitted by the industry. "The key issue is that the [development] concept was prepared by business, not by the government," says Valentin Makarov, president of Russoft, the Russian software developers association. But as usual in Russia, there are still concerns about the implementation.

US SMEs to push India's outsourcing business

With US companies likely to step up investments, the outlook remains buoyant for India's IT outsourcing and business process out-sourcing (BPO) industry this year. Analysts say the market would expand, engulfing mid-sized US companies.


A recently released survey titled 'Outsourcing trends to watch in 2006' by Forrester Research's Tom Pholmann and Katherine Brown confirms this view. The authors claim IT outsourcing from the US will soon become a $130 billion market while BPO should grow an additional $40 million to $50 billion.

The paper also highlights the growing aggressiveness of Indian software service providers who are now looking beyond applications out-sourcing to expand their service offerings.

This could lead to more action on the acquisition or partnership scene, as Indian software service companies seek a larger slice of the infrastructure and consulting deals. Both these require more feet on the street, which Indian vendors presently cannot offer while keeping costs down.

Hence, the report suggests focus on more acquisitions or partnerships by the top tier Indian firms, replicating TCS' example in 2005 for a BPO presence in the UK and Chile.

The paper expects growth to come from a widening market for out-sourced services, as mid-sized firms enter the scene. The providers, on the other hand, will emphasise their differentiators, based on deal governance and implementation skills.

As out-sourcing spreads, clients are getting savvier in their expectations from the vendor. Meanwhile, new customers in the form of smaller enterprises in the US are entering the field. These companies, which account for 43 percent of the US IT spend, have lagged in adoption of the out-sourcing model. But this is likely to be targeted by vendor companies.

Every service provider of the seven that Forrester interviewed noted that they would not only pursue these players but also chase the smaller, single-tower deals with large clients. The research notes that in this segment, the smaller of the large vendors would be more acceptable to the clients because of comparable sizes.

Also, expect out-sourcing contracts to get shorter and more flexible, says the research. Contracts will also get more adaptive to customer needs as these change during the course of the out-sourcing deal. The service provider will have to be a lot more nimble otherwise it could lose ground to the more flexible provider who re-uses technology and processes across clients.

Unsurprisingly, cost reduction will remain top of the agenda for those looking at out-sourcing work, the report notes. It also records a market learning of 2005: that the BPO market is a series of micro-markets, each of which requires customisation, resulting in higher costs. So, providers will need both, leverage and scale, to achieve their margins.

These will come best from running the infrastructure and applications on which the business processes run. Although clients may not seek bundled BPO/IT out-sourcing deals, providers with the process and domain expertise plus infrastructure will win on the basis of aggressive pricing and service levels.

As the out-sourcing market widens, users of the service are getting smarter. This is expected to lead to greater transparency on deals and the emergence of stronger vendor management groups who will govern multiple service providers.

This could lead to niche consulting emerging in the area of deal governance and recovery. This new advisory service will focus on the delivery part of the deal, allowing firms like Deloitte to bring out their change management and IT governance playbooks and apply them to post-contract out-sourcing advice.

Technologies which manage and measure service delivery will get more attention in the year, as clients want higher service quality at a lower price.

Hence, greater automation is expected to emerge from this as clients want the right level of service aligned with business needs. Service providers and tool vendors could make investments in this space and begin the convergence of service delivery and measurement by combining functionality like contract management, asset management and service catalogues.

Global experts favour outsourcing of jobs

Global experts favour outsourcing jobs from developed nations to countries such as India and China, even though 'anxieties' over job securities exist in US and other parts of the world.

Unconventional jobs such as healthcare and personal trainers are expected to be the most demanding non-managerial jobs in the coming years while being a plumbers or electrician may be an even more rewarding profession in developed nations than software p rogrammers.

Debating job related issues at the World Economic Forum's annual meeting, experts agreed that flexibility and mobility was the buzz of the hour in the job market.

"Stop being insecure about off-shoring. It created more jobs in the North America," Mr David Arkless of leading HR firm, Manpower said.

Mr Jagdish Bhagwati, professor, Columbia University also favoured outsourcing and said that western nations were at an advantage by outsourcing jobs to countries with a different time zone like India and China.

"However, there are anxieties due to flux. You have to be prepared for flexibility and augment your skills," he said.

Favouring outsourcing of high-end jobs, Tata Consultancy Services CEO, Mr S Ramadorai said, "It is a question of dynamics, flexibility and mobility. Value added services always stay but commodity-based services shift according to costs."

Outsourcing: Matter of Course for Small Biz

Lori Booker says her public relations firm's profits rose 25 percent after she hired a company to handle the business' human resources needs. The reason: She had been devoting so much of her time to employee issues before she turned elsewhere for help.

When small companies outsource parts of their operations, owners and top executives find they can focus more on what really matters _ building the business and serving clients and customers better. And with a growing number of companies available to do virtually any kind of work for another business, an owner can outsource as much as he or she can afford.


Booker handled her HR issues herself for the first decade that her Maitland, Fla.-based company, Carlman Booker Reis PR, was in existence. But about 10 years ago, after spending an entire day interviewing workers' compensation insurance providers, Booker said she'd had enough. She signed up with a professional employer organization that is now her HR operation.

Besides saving her time and energy, Booker said of the PEO, "they keep me from making mistakes that could hurt the agency," by keeping track of changes in employment-related laws and regulations.

PEOs and other HR providers are a popular resource for small businesses. Accounting and billing, marketing and sales are other company operations that business owners cheerfully offload onto someone else who's an expert.

Outsourcing of course is not a new concept, having been around for decades _ manufacturers, for example, may have turned out their own products, but most bought components and packaging from other companies. But outsourcing continues to expand as a necessary part of doing business for a growing number of small businesses.

Not everyone automatically embraces outsourcing _ many new entrepreneurs tend to be a little resistant to the idea. First, many believe they should do everything themselves. Second, it does cost money to have someone else do your work for you, and in the early years of a business, cash flow is a particular concern.

But small businesses that do outsource say the expense is well worth it. Garvey's Office Products in Niles, Ill., outsources its prospecting for new customers because it's more cost-effective than having its own salespeople make cold calls.

"It's a time consuming job to do. You need to be able to make 50 calls an hour to sometimes get one or two appointments," marketing director Sheila Gartland said. "We'd much rather have our sales reps focusing on the accounts they have and making sure they get taken care of."

Gartland said the company doesn't outsource any other operations. "We do like having someone in-house for anything to do with human resources or our employees and anything to do with our customers," she said.

While support functions such as HR and accounting are the areas that tend to be outsourced the most, some companies find it makes sense to outsource even some of their core operations. Writing is a major part of the job description for executives at Booker's firm, but sometimes writing projects will be outsourced to people who have a particular skill or talent. Many advertising firms outsource some of their graphic arts projects, although they have their own artists on staff.

What to outsource is a very individual decision for many firms. It depends not just on where a firm's strengths lie, but also the philosophy of its owners.

PrescribedSolutions, a New York-based company that makes customized skin care products sold at doctor's offices, outsources testing and manufacturing, but it won't ask another company to handle its marketing.

"Where we can add more value and make us most unique, that's what we keep in-house," chief operating officer Aurelian Lis said.

It also won't outsource sales, because that cuts down on contact with the doctors who are the company's customers. "We found that customer relationships are too valuable. ... If we outsource that, we lose that feedback," Lis said.

The increasing sophistication of accounting software, which now includes inventory controls, has also made it easier and more sensible for the company to keep its own books rather than outsource, Lis said.

A word of caution: If you decide to outsource part of your operation to an individual, be sure the person you hire is clearly an independent contractor, and not an employee. If you are able to exercise too much control over him or her _ for example, controlling work hours or having the work done on your premises _ you could run afoul of tax authorities who decide this is really your employee, not your contractor.

Changing face of outsourcing

Times are changing, and rapidly so. Outsourcing may have started off on the basis of a labour arbitrage benefit in non-core jobs, but it is now rapidly redefining business models. Changing macro-economic factors supplemented by technological advances have led to the evolution of the outsourcing industry. There is a growing movement up the value chain towards Knowledge Process Outsourcing (KPO), as higher end skilled processes are executed efficiently and speedily through experts.

Growth engine

KPO, simply put, is BPO but at a higher level in the intellectual value chain. The crux of KPO is to provide value to the client primarily in business critical and strategic decision making processes.

KPO is expected to be one of the major segments of the outsourcing business, not only in terms of the revenue stream it would generate, but also the profitability it implies, and the creation of new jobs. As per recent projections by NASSCOM, KPO revenues will be approximately US$ 17 billion by 2010, implying a growth rate of 45 per cent. Improved productivity would be a key driver for the KPO Industry — 240 per cent higher for the KPO than the BPO industry. The US is the largest consumer of outsourced services, followed by Europe.

The constantly higher need for flexibility, drastic reduction in time required to ‘go to the market’, increased competition in the global arena, and of course, cost pressures, have all been the driving forces of KPO. Traditional sectors which have seen KPOs bloom are healthcare, pharmaceuticals, bio-technology and intellectual property rights (IPR). However, recent ‘hot areas’ are financial and legal services, and even communication and media services.

Each of these sectors has been the genesis of ‘pure play’ niche/boutique type KPO firms. Of course, it is only logical that the KPO space has also seen the entrance of BPO companies attempting to rapidly acquire capabilities for providing multiple solutions to a single client, as a one-stop shop alternative. In addition, large firms are moving their research and analytics divisions to offshore locations, making up the third kind of KPO players.

For example, Intel and Texas instruments have off-shored a part of their R&D to India, while Goldman Sachs does equity research and portfolio management of US securities from India and is able to provide 24x7 service to its internal and external customers.

Advantage India

Like in the BPO space, India is positioned at the fore front of the KPO revolution too. As it is, thanks to the time zone difference, India can easily help enable 24x7 capabilities for organisations across the globe. India, today, has an additional edge in ‘knowledge’ based services basically because of its large, cost efficient talent pool. India churns out around 75,000 MBA graduates and more than 2,50,000 graduates annually with excellent proficiency in English speaking and writing skills.

The additional ‘secret recipe’ that India seems to possess is made up of rigorous processes, high productivity, confidentiality, sound HR policies and good risk management skills — all in the right quantities. Processes like high level customer interactions, integrated with customer relationship management (CRM) skills, on-time delivery processes, quality checks while ensuring compliance and yet confidentiality to the clients are now very much an ingrained part of our corporate culture.

HR processes have also refined to ensure that the ‘right’ talent is recruited, that performance management procedures are in place to boost employees’ performance levels and that attrition is reduced through a mix of learning, skill enhancement, as well as fat paychecks.

Evolving paradigm

Even as the world is getting excited about KPOs, off-shoring has already moved one step ahead. This can be seen in the quality of services — which have shifted to high-end decision making analytics. These services in fact require greater levels of client interaction and co-working than plain vanilla BPO or KPO offerings. This means that the rationale for outsourcing is shifting from cost saving to value addition; and the working relationship is shifting from one of buyer-supplier to one of partners and collaborators.

Some niche organisations have spotted this opportunity early on and are now focused on providing specialised and customised services to clients. One such company is Empower Research LLC, working in the emerging field of Business Research and Information Consulting (BRIC). Empower provides value-driven, customised research and analytics to clients across industries, thus supporting strategic decision making.

In future KPO will get increasingly rarefied at the top with offerings like BRIC, will margins here start getting squeezed.

Major Players in Outsourcing

More and more multinational companies are turning to offshore outsourcing to help them cut costs and free talent to come up with new products and services. In recent years, Procter & Gamble, DuPont, Cisco, Unilever, ABN Amro, and Marriott have all signed megadeals with global outsourcing companies to overhaul internal operations such as accounting or human resources or to upgrade their technology.

This table represents research and consulting company Gartner Inc.'s analysis of the hot players in the global outsourcing business. Gartner's 10,000 global clients most frequently inquire about these companies as potential offshore partners. Gartner's hot list includes companies that offer software development, computer network support, R&D and engineering services, call centers, and business services from accounting to procurement. They have offshore staff stretching from Argentina to India to Tunisia. The companies represented here include boutique outfits that do under $100 million in offshore business a year and giants that take in billions through global outsourcing. The ranking is based on the frequency of queries from Gartner's 10,000 clients.

Major Players in Outsourcing

Company and Headquarters	Specialty	Low-Cost Locations	Offshore Revenue Range
Accenture (US)	Software Development, Network Support, Finance & Accounting (F&A) Human Resources (HR) Procurement, Insurance Operations, General Banking	India, Philippines, Spain, China, Czech Republic, Slovakia, Brazil, Australia	Over $5 billion
ACS (US)	F&A, HR, Payroll, Procurement. Telecom, Transportation, Healthcare Operations; General Banking, Mortgage Processing	India, China, Dominican Republic, Ghana, Guatemala, Jamaica, Malaysia, Mexico, Spain	$1 billion-$5 billion
Capgemini (France)	Software Development	Canada, Mexico, Spain, Poland, India, Australia	$1 billion-$5 billion
ClientLogic (US)	Call Centers	India, Philippines, Poland	$100 million-$500 million
Cognizant Technology Solutions (US)	Software Development, Network Support	India, China, and Canada	$500 million-$999 million
Convergys (US)	Call Centers	"India, China, Indonesia, Malaysia, Philippines, Sri Lanka, Taiwan, Thailand, Argentina, Brazil, Colombia, Mexico, Australia, Canada	Over $1 billion
CSC (US)	Software Development, Insurance Operations, Demand Management	Canada, Bulgaria, Ireland, India, Mexico, Malaysia, South Africa, Spain	Over $5 billion
EDS (US)	Software Development, Network Support; F&A, HR, Payroll, Demand Management, Procurement, Insurance, General Banking, Telecom, Transportation, Health Care Operations	Canada, Mexico, Brazil, Argentina, India, Australia, South Africa, Spain, Hungary	Over $5 billion
eTelecare International, Inc. (US)	Customer Service	Philippines	Below $100 million
ExlService Holdings, Inc. (India)	Insurance, Transportation Operations	India	Below $100 million
HCL Technologies (India)	Software Development, Network Support, R&D/Engineering, Financial Services	India	$500 million-$999 million
Hewitt Associates (US)	HR, Payroll, Procurement	India, China, Philippines, Thailand, Malaysia, Czech Republic, Poland, Hungary, Brazil, Mexico, Argentina, Chile	Over $5 billion
Hewlett-Packard (US)	F&A, Payroll, Procurement	India	Over $5 billion
IBM (US)	Software Development, Network Support, F&A, HR, Payroll, Procurement, Insurance Operations	India, Brazil, China, Mexico, Belarus, Philippines, South Africa, Romania, and Argentina	Over $5 billion
ICICI OneSource (India)	Call centers	India	Below $100 million
ICT Group (US)	Call centers	Philippines	$100 million-$500 million
Infosys Technologies (India)	Software Development, Network Support, Banking, Mortgage Processing	India, Czech Republic, China, Australia	$1 billion-$5 billion
Mphasis Corp. (India)	Financial Services	India, China, Australia	Under $100 million
OfficeTiger (US)	F&A, Financial Services, Transaction Processing	India, Sri Lanka	Under $100 million
Patni Computer Systems (India)	Software Development,Network Support, R&D/Engineering	India	$500 million-$999 million
Sapient (US)	Software Development	India	$100 million-$500 million
Satyam (India)	Software Development, Network Support, R&D/Engineering	India, China, Hungary, Brazil, Australia	$500 million-$999 million
SITEL (US)	Call Centers	India, Phillipines, Brazil, Spain, Mexico, Panama	$500 million-$999 million
Softtek (Mexico)	Software Development	Mexico, Spain, and Brazil.	$100 million-$500 million
SR.Teleperformance (France)	Call Centers	Philippines, Indonesia, Mexico, Brazil, Argentina, Spain	Over $1 billion
Stream (US)	Call Centers	India, Tunisia, Dominican Republic, Poland	$100 million-$500 million
Sykes Enterprises (US)	Call Centers	India, Philippines, China	$100 million-$500 million
Syntel (US)	Software Development	India	$100 million-$500 million
Tata Consultancy Services (India)	Software Development, R&D/Engineering, F&A, Telecom, Transportation, Hospitality Operations	India, Hungary, Brazil, Uruguay, Chile, China	$1 billion-$5 billion
TeleTech (US)	Call Centers	India, Philippines, Malaysia, China, Northern Ireland; Spain, Mexico, Argentina, Brazil	Over $1 billion
vCustomer Corp. (US)	Call Centers	India	Below $100 million
West Corp. (US)	Call Centers	India, Philippines, Mexico, Canada, Jamaica	$500 million-$999 million
Wipro (India)	Software Development, R&D/Engineering, Demand Management, Mortgage Processing, Transportation Operations, Healthcare Operations, Banking, Mortgage Processing	India, Canada	$1 billion-$5 billion
WNS Global Services (India)	Transportation Operations, Healthcare Operations, Banking, Mortgage Processing	India, Sri Lanka	Below $100 million
24/7 Customer (India)	Customer Service	India, Philippines	Below $100 million
Data: Gartner, Company

Growing Indian Animation

One could easily slip and go sprawling on all fours, like a character in a cartoon show, on the polished granite floor at DQ Entertainment’s office in Hyderabad, India. This newly minted building houses 700-odd tightly packed animators churning out the stuff that kids love: cartoons, television shows, and full-length animated features for deep-pocketed but cost-conscious Western clients like NBC Universal, Walt Disney, and Mattel.

A rapid sequence of images creates the movement of characters within an animation. Just a few seconds of movement requires hundreds of drawings, and the animators at DQ spend hours perfecting that motion. Contrary to common perception, animated movies and television series are still very much the literal handiwork of artists. A two-hour animated movie takes thousands of man-hours to complete, and hundreds of people work simultaneously to produce it.

Because of high labor costs in the United States and Europe, even the largest production houses now outsource production work to Asian countries where jobs can be completed at one-fourth the price, says Jacques Muller, a Frenchman who until recently worked for Walt Disney. Due to a shortage of animation talent in India, DQ CEO Tapaas Chakravarti recruited Mr. Muller to teach his employees in a four-month-long session on “classic” cartooning.

Despite that scarcity, India’s animation sector has quickly gone from almost nonexistent to bagging large orders from the most elite members of the club: Walt Disney, Pixar, Mattel, Sony Animation, Universal Studios, the Cartoon Network, and Imageworks. DQ, founded three years ago, now has more than 100 Indian competitors and counting: Paprikaas (see Work of Art), Toonz Animation, Crest Communications, Maya Entertainment, Silvertoon Studio, Pentamedia Graphics, and JadooWorks, among them.

Slave and Master

India’s animation industry clocked revenues of $285 million in 2005, and trade group Nasscom predicts numbers could reach as high as $950 million by 2009. (See India Animation to Reach $950M).

So far, the relationship between Indian animation firms and their customers has clearly been that of slave and master—the master sends the storyline, the drawings of the central characters, even the angles from which the viewer should perceive each frame, and “Indian artists just follow the reference sheets,” says Rajat Sharma, an analyst with Frost & Sullivan. Meanwhile, management works to elevate the workers’ status from mere outsourcing drones to more autonomous designers.

Forty-five-year-old Mr. Chakravarti has learned that smaller animation production companies are the key to gaining more value. Brand names like Sony and Walt Disney will only outsource work, while smaller firms are willing to co-produce a title. Under these terms, DQ would become an investment partner in the new film or series, retaining a portion of the intellectual property and sharing the rewards when the production hits the screen.

DQ’s investors also want their rewards. The company has received $9 million in private equity and venture capital funding from five companies: International Finance Corporation (IFC), an arm of the World Bank, TDA Capital (an associate of U.S.-based Templeton Group), Gary Wendt Capital, iLabs Funds, and India’s IL&FS Investment Managers.

For now, DQ mainly does work-for-hire, but Mr. Chakravarti still beams as he recounts his recent wins. There’s a big Disney project in the works, but he won’t reveal the title. DQ artists are collaborating closely with 70 customers in 14 countries: They’ve done all the production and compositing work for Mattel’s new Barbie movie, and are now working on a comedy show called Ron White that’s being spun off into a TV series. DQ and a South Korean firm are jointly working on The Boondocks, a TV series from the Sony Animation stable based on the edgy newspaper comic strip by Aaron Magruder. The firm is also collaborating with companies in South Korea, China, and the U.S. for a Nickelodeon project called Tak. Altogether, DQ is working on 28 new projects in various stages of progress. More are expected.

The Slog for Survival

Mr. Chakravarti rattles off these names casually, as if it required no effort to get the business. But the truth is that Indian animation firms have worked extremely hard to get the big orders, charging rates that only ensure survival, slaving for quality, and slowly earning the trust of customers.

All while dealing with a shortage of trained animators. To overcome this, DQ has spread its centers across eight locations in India, and added two in China and one in the Philippines. DQ employs more experienced Filipino animators at dollar salaries, more than double what Indian animators draw, say industry observers.

“Productivity improves hugely with experience in this industry,” says Mr. Chakravarti.

Competitors Toonz Animation and Paprikaas also have international talent from across the globe at senior levels in their creative teams. There is no clear count, but about 100 Indian animation companies outsource labor to studios. And many of them are working toward generating original content, not only for the local market but for exports.

Mr. Chakravarti is determined to take DQ to the next level. “We need to now reap the rewards, balance work and profit,” he says. To that end, DQ has set up a production company called Power Kidz in Mumbai to look after the distribution rights of titles in south Asia. “When we license a series, it becomes a long-term business model, not a one-off outsourcing deal,” says Mr. Chakravarti.

DQ has won the rights to distribute several of its co-productions in the Indian market, and is mainly selling the content to local television channels. Among these are Choose your own Adventure, co-produced with Mike Yong Productions of the U.S., and Petpals, And Yet it Moves, Ratman, and Little Leonardo, all with Italy’s Rai Fiction.

With more series co-produced, revenues are expected to shoot up. Mr. Chakravarti expects revenues to touch the $100 million mark by 2008, a big chunk of it coming from the content distribution strategy. The privately held company won’t reveal current revenue figures.

Living Forever

PlayStation and Xbox are not distributed in India by their creators because the local market is not yet big enough, but DQ is on the road to produce games for these 3D consoles. DQ has already started work on the Skyland series, an action adventure sci-fi TV serial featuring a heroic young brother and sister team searching for their parents in a new world order, for the PlayStation and Xbox. Mr. Chakravarti expects this business to yield $30 million to $40 million in revenue in the next three years.

But before that, he says he plans to take the company public, though he won’t reveal any details. Going public may be necessary to gain access to more funds. “To make original content, one requires not only universally appealing storylines and characters, but also large investments,” says Deepak Kapoor, PricewaterhouseCoopers’ Indian entertainment & media practice leader.

To realize returns from such a large investment in original content, one must ensure that the product is aimed at larger audiences—hence the requirement for universally appealing content. Indian service providers have thus far come up with primarily Indian mythological characters, which have limited universal appeal. “Thus Indian animation producers demonstrate limited credentials, which in turn restricts their ability to garner larger investments,” says Mr. Kapoor. Though the industry has evolved from pure vanilla outsourcing to co-productions, for making a full-fledged original production, the growth is likely to be gradual, he feels.

For DQ, despite striving for original content, the outsourcing deals will not cease. Nor does Mr. Chakravarti see anything negative about them. In fact, he relates with quiet pride that one of his favorite book series as a child—Curious George—is being made into an animated series for the first time for NBC Universal by the folks at DQ.

The final dream: to create a character in India that will live forever, and fetch royalties forever. The challenge DQ and other Indian companies face is to find that character before Disney or Sony do.

Architectural outsourcing - drawing a new design

ASK an architect fresher what he or she is earning, and he or she will mumble something about `growth prospects' and `initial period', because the field, they say, is a slow starter in terms of salaries. However, today freshers have the option of making close to five figures if they choose to go into offshoring companies.

Architects say that while medium-sized architecture firms pay a starting salary of Rs 5,000-6,000 for fresh architecture graduates and Rs 3,500 for fresh draughtsmen, architecture-outsourcing companies start with a salary of Rs 10,000-12,000 and about Rs 6,000 respectively.

Architectural outsourcing could mean anything from designing an entire building that is going to be erected thousands of miles away with the help of satellite pictures, to receiving a few rough sketches from faraway clients and filling in the details.

Mr Umesh Pujara, ASE Design Soft, an engineering design and draughting services company, said the company's clients provide it with a few rough sketches, and the company then takes over the entire back office work, from detailing to elevations. "The complete job is done here," he said.

The driving force, of course, is the cost, about one-tenth of what it would cost in the US, according to Ms Sujitha Arvind, Lead Architect, Exceed International, India, a company that specialises in commercial development. "Also, the number of professionals in the US and Europe have decreased in the last few years," she added.

Ms Arvind explained that detailing of projects from the US is simple because all the details are standardised. She said that a fresher could be trained in the details over a period of six months. In fact, Exceed prefers to recruit freshers. "We have very few senior people," she added.

And as an industry it seems to be picking up. ASE Design Soft has seen the number of projects that come in double over the last three years since its inception in 2003, according to Mr Pujara.

The real estate division of Exceed's Chennai branch started two years ago with four employees, and now has about a hundred draughtsmen, architects, engineers and project managers. "And we can expect to grow to around 1,000 in two years," said Ms Arvind.

As a result, mainstream architectural companies are being deprived of their share of an already decreasing pool of talent. Mr Pramod Balakrishnan, Senior Architect, Edifice, an architecture and interior design company, said, "Growth in terms of number of employees is not as much as we would like. The volume of work is growing, but there is a real paucity in available talent." Architects said that the top students passing out of architecture schools opt to study abroad, while it is the bottom half that stays back, which might account for that paucity.

Ms Arvind said that not only is the pay much higher, but also BPOs provide a better work environment. "The facilities at a BPO are at the same standard as a multinational corporation, both in terms of work environment and also software," she added.

And the smaller companies have been hit the hardest. Mr Yogesh Sharma, Architect/Partner, Design Works, said the attrition rate at his firm is high. "Freshers work for one or two years, and then go either to a bigger firm or to an outsourcing company. We have become like a training centre."

He said that despite the salary factor, the growth opportunities are not as strong in an architectural BPO, because you cannot build up a significant portfolio working there. ry.

Here comes the 3rd generation outsourcing

There is more action on the outsourcing deal street. Just last week, while Genpact bagged the German technology group Linde’s finance and accounts processes contract, HCL Technologies signed a co-sourcing deal with Europe’s leading electrical retailer DSG.

While deals are nothing new, what we are seeing now is actually the third generation of outsourcing, or call it outsourcing Version 3.0. With this current wave of outsourcing, the mega-deals era is all but over. And that goes for not just new deals, but deals coming up for renewal and being renegotiated mid-way.

Companies renegotiating deals want to change what they signed on the dotted line. Now they want to offshore services to multiple vendors around the world and not with just one vendor taking home the whole cake.

TPI, the global sourcing advisor, is helping renegotiate $15-bn worth of deals at present. Asked about this trend, TPI partner Siddharth A Pai told ET: “This is the third generation of outsourcing.

In the first generation, one big vendor took home a mammoth deal. For instance, EDS bagged the $10bn Xerox contract or IBM-Kodak signed an $8bn IT outsourcing deal. In the second wave, that is, in the 1990s and till recently, the deal size was still big but smaller than the first generation. Like the $4-bn IBM deal with Cable & Wireless.”

The third generation deal is typified by the rise of offshore companies (like TCS, Wipro, Infosys). Deals are getting smaller and being split among multiple vendors. Like the $2.2bn ABN Amro outsourcing deal. That one involved IBM, Accenture, TCS, Infosys and Patni Computer Systems.

While deals are being split, there is also a move among companies to pitch jointly. For instance, a global vendor may pitch alongside a strong local player to get a bite into a bigger deal. Like EDS is pitching for the General Motors contract along with Wipro Technologies. Back in the 1980s EDS alone had bagged the $16bn GM outsourcing contract.

When asked about the new kind of deals, this is what HCL Technologies president Vineet Nayar had to say. “About 30-40% of outsourcing earlier was that of assets. Now companies are retaining strategy and assets and outsourcing specialised tasks like infrastructure management, applications development. Also, there are more co-sourcing arrangements, like we have signed with DSG. The company retains the strategy while we do the rest.”

On the third generation of offshoring, Nasscom vice president Sunil Mehta said: “In the earlier eras, outsourcing was actually transfer of credit risk, with the vendor taking over the people and assets of the company. Now among other things, the credit rating of global vendors has come down and so large mega deals are not very attractive.”

However, in the new deals managing multiple relationships may be a challenge. To overcome this Mr Pai feels that companies will have one deal guardian, possibly the vendor that bags the biggest chunk, like IBM in case of the ABN Amro deal.

“The company outsourcing work will have operating level agreements with all vendors”, he said. It’s therefore time the Indian vendors got their act together to bag a bigger slice of the deals and become the guardian angels.

Outsourcing companies may send work across street

After seven years in business, Message Broadcast in Newport Beach, Calif., grew to need more legal assistance than its outside law firm had time for. But the marketing firm still didn't have so much legal work that it needed to hire a full-time general counsel.

Instead, the company decided to outsource the work — not to China, but to Orange County, Calif.

Enter The General Counsel, an Orange County firm that goes to clients' sites to fill the gap between companies that need only occasional legal advice and those that must hire a staff attorney.

Message Broadcast gets experienced, cost-effective legal help, and The General Counsel gets to include Message Broadcast in a broad base of customers that provide it with consistent work.

Outsourcing is often equated with sending work to other countries. But studies about outsourcing — such as a report from consulting firm PriceWaterhouseCoopers that 73 percent of U.S. executives outsource at least some business processes — typically don't distinguish between work sent halfway around the world and what's sent across the street.

While the motivation to send work to foreign countries usually is saving money, domestic outsourcing often enables small or growing companies to tap greater expertise than they could afford to hire as employees. It also gives them greater flexibility when their workload spikes temporarily.

Marketing and human resources are among the functions that businesses most frequently handle through domestic outsourcing.

In contrast to companies that outsource abroad, flexibility rather than cheap labor is the greater motivation for companies' outsourcing to local third-party providers.

Filenet, a Costa Mesa, Calif., software company, has 100 marketing employees worldwide, but hires The PowerMark Group, a San Juan Capistrano, Calif., technology marketing firm, for special projects such as planning its recent user conference in Las Vegas.

"I expect outsourcing to smooth out the peaks and valleys, so I don't hire people for the whole year to do three months' work," said chief marketing officer Martin Christian.

Domestic firms that handle outsourced tasks tend to have experienced people in specialized areas, said Denise Chavez, chief executive of Conduit International, a Long Beach, Calif., marketing company.

As outsourcing evolves, so does a city in India

Before he supervised teams, wooed U.S. clients over dinner or sat in a Northern Virginia boardroom alongside U.S. executives, Constancio Fernandes wrote computer code for a living.

That's how it started in the late 1990s — U.S. businesses ordered up software applications, and Indian programmers such as Fernandes dutifully delivered. But somewhere along the way, Fernandes became more confident and outspoken. He began questioning the Americans and suggesting cheaper, faster ways to run their businesses. They listened.

"Most of the companies in the U.S. used to see Indian companies as sweatshops," said Fernandes, 33, who began as a programmer but is now the director of engineering at Reston, Va.-based Approva's offices here, supervising product-development teams, tracking projects and improving engineering techniques. "The changes have been phenomenal."

Fernandes represents a generation of Indian workers that is redefining outsourcing from call-center and back-office work into higher-level management and strategy jobs — areas that U.S. workers have often regarded as safe from overseas competition.

As they climb higher in the corporate food chain in transnational firms, Indian workers and executives are pushing their U.S. counterparts to take them seriously, taking on greater responsibilities and subtly changing the corporate culture of both countries.

In Pune (pronounced POO-neh or POO-nah), a city on India's west coast, where several Northern Virginia technology firms have established offshore operations over the past decade, the shift has been welcome.

The unlikely relationship between these two regions, about 8,000 miles apart, underscores how outsourcing has evolved in unexpected ways.

In the past, U.S. companies gave the marching orders to workers in India. Now, young Indian developers such as Fernandes and expatriate Indian business leaders are helping India gain a more equal footing.

At least five companies from Northern Virginia — all run by Indian émigrés settled in the Washington, D.C., area — have opened offices in Pune, helping turn this once-sleepy holiday getaway into a thriving information-technology hub. Billboards implore residents to buy luxury flats; office space is rented before completion; and lines trail outside restaurants and nightclubs, even on weeknights.

Flocking to city

In the 1940s, Pune housed key members of India's independence movement, who shunned imports and preached self-sufficiency. Now, U.S. businesses flock to this globalizing city, citing cheaper rents and lower salaries compared to India's other urban centers, such as the tech industry's informal headquarters in Bangalore — where costs are an estimated 15 percent higher.

The city also boasts the University of Pune, which churns out qualified, English-speaking engineering graduates ready to work.

"Nobody wants arts or history anymore," said Gautam Sidharth Singh, 19, a first-year student majoring in electronic engineering. "All of my friends want IT."

Despite the controversy outsourcing has generated in the United States, the practice has boosted business in Northern Virginia, executives said.

"I don't think Approva would exist without this model," said Tom Garrity, who is Fernandes' U.S. counterpart as the company's director of engineering in Reston. "We've created 100 jobs in America because of outsourcing."

The staff in Reston works mostly in sales, marketing and management. Meanwhile, Approva employs 120 people in India in a gamut of jobs ranging from software engineers and consultants to managers and technical writers.

The company, founded by Indian-born Prashanth V. Boccasam, produces software that helps U.S. companies comply with the 2002 Sarbanes-Oxley Act, aimed at preventing accounting fraud and improving business governance. In this way, the recent spate of corporate scandals in the United States has provided a boost for Indian businesses.

In India, Boccasam found a large pool of employees who could understand both accounting and computer programming — and for a fraction of the cost in the United States. Top-level software developers can be hired here for about $30,000 annually, a whopping income in India yet just a third of the salary their U.S. colleagues would command.

Beyond the cost advantage, Boccasam values a certain skepticism he finds inherent to Indians.

"It doesn't matter if you are buying vegetables or dining at a five-star hotel — you will always count your change," said Boccasam, who attended the University of Pune and immigrated to the United States in 1988. "That's an auditing function. The guys in India know every scam there is out there."

Clued into scams

Even Approva's office decor highlights this quality. A picture on the wall displayed an elderly businessman flanked by two scantily clad women in a casino. "Noticed the 'consulting' invoices Pete's been approving?" it asks. "We will."

Approva marks Boccasam's second U.S. company with an office in Pune. In 1995, he and a college friend, Amir Hudda, founded Arlington, Va.-based Entevo Corp. and opened a development center in Pune, relying on contacts made in their university days.

The company was eventually sold off. Hudda's latest venture, Herndon, Va.-based Apptix Inc., opened its Pune office in September — just two floors down from another Reston-based company, IMC Inc., which opened an office here in 1995.

Some residents fear that Pune's boom is undermining the city's charm and tourist appeal. Like so much of an India in transition, Pune is feeling the push and pull between tradition and modernity.

The struggle is familiar to business leaders who divide their time — and identity — in different places. The immigrants running these Northern Virginia tech firms serve a unique role as they straddle two lands and two cultures.

Prakash Gupta, president of IMC Global Services Ltd., the Indian subsidiary, travels frequently between Reston and Pune. On a recent morning, as he entered the area at the Pune facility where dozens of developers code and execute projects for U.S. customers, several employees tried to stand as a sign of respect — as Indians reflexively do in the presence of bosses, teachers or the elderly.

Gupta waved them down, reminding them to call him "Prakash," not "sir," as their British-inspired education might have taught.

IMC employees, mostly in their 20s, tend to socialize together outside work. The mix of university students and a young work force — and the malls, nightclubs and restaurants catering to them — gives Pune the feel of Boston or Austin, cities also transformed by technology companies.

Not long ago, U.S. companies hesitated to allow their Indian computer programmers to deal directly with American customers, citing the need to retain control.

Eventually, however, Indian workers convinced their bosses that it saved time and money if they worked directly with clients.

Such interactions have changed the Americans, too. Some U.S. executives say it took time to adjust to Indian accents and made-up Indian-English words such as "updation" (the noun form of "update").

And while in the past, Indians often worked overnight to accommodate the U.S. workday — and that is still the norm in the burgeoning call-center industry — several U.S. Approva executives now reach their Reston offices by 7 a.m. so they can catch the Indian employees at the end of their workday.

"Five years ago, I would have told you we're the head and they're the factory," said Silas Matteson, Approva's vice president for products in Reston. "That's changed."

Council seeks outsourcing partnership

Swindon Borough Council wants to outsource its IT services in a deal valued at £20m a year.

The council says it has recently improved services, but wants an outsourcing partner to help it make further changes through a major programme of business process re-engineering.

The local authority says the contract could extend for 25 years, giving a potential value of £500m.

‘Swindon Borough Council has invested heavily in all aspects of its client side to the point where it feels it has become a strong business partner and it does not propose to transfer strategy or policy development to the partner,’ the council said in a document advertising the contract.

‘To that end, the council has determined that it wishes to enter into a long-term incremental service partnership with the private sector to help it deliver and accelerate its ambitious agenda.’

The selected outsourcer will cover the development of customer contact centres and drive business transformation in areas such as property management, administration, human resources, IT, finance and procurement.

No start date has yet been set, but Swindon says it wants any successful bidder to be able to start work on the programme as quickly as possible.

Outsourcing: What a Wonderful World

As trends and fads come and go, it seems cynicism has stuck with us for quite some time. For some reason it makes us feel in control, unaffected by all that goes on around us, no matter how big, or how great. It’s a comfortable and powerful feeling to sit back with arms crossed and say, “give me all you’ve got, present me with all your greatest efforts, do all you can to impress me, and I will dismiss you with a word.”

Let me give a case in point. I recently saw a tidbit in a popular magazine telling of McDonald’s Restaurant’s plans to outsource order taking to improve speed and efficiency. The last line read something like, “because two minutes is too long for Americans to wait for their food.”

I could be reading into this, but the feeling I got from that line was, "yeah, it’s just another money hungry corporation exploiting lazy, impatient Americans. Nothing new here. The world is so predictably trite."

Or is it? Who would’ve ever thought that you could go to a restaurant in Georgia and talk to a person in New Mexico, or Denmark, and a minute later pay a person back in Georgia for some hot food? Who’d have known this idea may save everyone time and money, and allow this business to stay successful, and people to better enjoy the act of eating? Who’s the creative mastermind that thought to test such a crazy hypothesis? Humanity is so unpredictable! It’s amazing what the mind can come up with from a little incentive!

You're probably thinking it's just another move motivated by money.

Why do people want more money anyway? The same reason this idea may catch on - because saving money and time gives people more freedom to do what they want. Because mankind is not satisfied filling up his day with hunting, gathering, and preparing food just so he can have energy to wake up the next day and do it again. Because I just might eat at the place I know will get me my food quickly, so I can spend a few more moments at home. Maybe there's something here beyond mere greed?

The tendency is to dismiss new ideas (particularly when they seek to make a profit) and continue wondering why the world is so corrupt. I don't believe that this idea is corrupt, or sad. It’s a testament to the amazing creative power of the human mind! It’s a tiny picture of all the brilliance in the universe, and how untapped it all is! We think of the unthinkable, the ridiculous, just so we can have ten more minutes home with the kids, doing something we really want to do.

All of us would like to think that we are a little wild, a little risky, open minded, unique. Yet if we get our kicks from idly agreeing with the cynics that what’s happening in the world is all just lame, boring, crooked, and more of the same; we are creating the lowest risk environment possible for ourselves. Truth is, we often don’t want surprises, we don’t want new fresh things. They scare us. If we're impressed, we're impressionable. If impressionable, we’re somebody’s fool. We want to be unimpressed by everything, except our own clever ability to describe how unimpressive things are. I hope I’m not sounding too cynical.

Don't get me wrong, this is not to say that there's no place for criticisms or unfavorable opinions. It's just to say that maybe we should look closer before succumbing to our often cynical gut reactions. Maybe we should first seek the beauty; at least try to see the image of a marvelous God, in the things we encounter before dismissing them. Try it, and you may find that much of this world, and many of man's ideas, including high tech burger-ordering, can be more awe-inspiring that a song or a sunset.

The next time I order a Big Mac I’ll approvingly think to myself, what a wonderful world.

World yet to take up India's legal process outsourcing case

Although the offshoring of IT and low-end ITES/Business Process Outsourcing (BPO) services to India has been continuing in a big way for the last 15 years, the opportunity on offshoring of Legal Process Outsourcing (LPO) to India will not be as expected and the same will become more hype than reality!, says Evalueserve, global research and analytics service provider.

According to its latest report, only 1.2% of the legal and paralegal jobs would be offshored from the US to India by 2015 and this would constitute only 0.2% of the total revenue to be generated by the legal services industry in the US.

The revenues to be generated by the Indian companies providing such legal services will be approximately $56 million during July 2005-June 2006, $300 million during July 2010-June 2011, and $960 million during July 2015-June 2016 as compared to that of the legal industry in the US, which is likely to generate $270 billion in 2005 to $360 billion by 2010 and to $480 billion by 2015, the report pointed out.

According to report, as of December 2005 about 1,300 professionals in India are providing legal services to the US and this is expected to grow to 5,200 by 2010 and to 16,000 by 2015. However, during the same period, the legal services industry in the US is likely to expand from 9,75,000 legal and paralegal professionals in 2005 to 1.125 million professionals in 2010 and 1.3 million in 2015, the report said.

According to Alok Aggarwal, chairman and co-founder of Evalueserve, "Unlike many areas, such as IT, banking, finance and insurance services, whereas much as 10% to 12% of the services may be offshored to India by 2015, the corresponding number in legal services is only 1%. Because legal services may not be offshored to India in large amounts, it is quite likely that some of the Indian LPO providers may not survive beyond the next 2 to 3 years."

According to him, the main impediments for the offshoring of legal services to India include:

* The legal services industry is inherently averse to risk. This is particularly true about the corporate legal industry, where stakes are often very high, and hence, US lawyers feel more comfortable in outsourcing work to local law-firms

* Since the cost of client acquisition in the legal services is rather large, many law firms try to maximise the number of billing hours from each client;

* Sending work offshore also raises the risk of losing of confidentiality;

* Conflict of interest issues are very important for most law-firms and most legal services providers in the US are bound by ethics and guidelines that incorporate such issues;

* Currently, Indian law does not allow foreign law-firms to practice in India.

UK framing document on outsourcing

The British government is preparing a document on outsourcing, which would facilitate innovation by British companies and help them become globally competitive, British minister for trade Ian Pearson said here on Tuesday.

However, he did not elaborate on the content of the document, which is to be ready in two months.

It appears that the document would enable the British companies to tap Indian expertise in software development and business process outsourcing in a much bigger way. Mr Pearson, who is in India, accompanied by a 20-member business delegation met Union commerce minister Kamal Nath and British exhibitors at the auto expo in New Delhi on Monday.

On Tuesday, the team met Tamil Nadu government officials and later at a press conference, the minister said, “Tamil Nadu is good for doing business. It has a great deal of manufacturing expertise and cutting edge technologies in software development.”

Outsourcing brings threat right in

Outsourcing brought in convenience and flexibility for the IT industry. But now, it could open doors for terrorists to carry out their diabolical designs.

The Andhra Pradesh police see outsourcing of various services such as catering, transportation and housekeeping by the IT companies as the most vulnerable point in their security system.

The police have become more vigilant after the Bangalore Indian Institute of Science incident in which a Delhi professor was gunned down recently.

While tightening the security in and around the Hitec City, the hub of IT operations in the state capital in the aftermath of the Bangalore incident, the police are now advising the representatives of IT companies on the steps they need to take from inside to avert any possible threat in view of outsourcing of non-core and peripheral requirements of day-to-day nature.

According to a senior police official, the outsourcing model adopted by these companies has become worrisome as they could provide easy access to miscreants to their offices and campuses through catering, housekeeping, transportation services, etc. T

The police are urging the companies to verify the antecedents of the companies providing support services and also of the personnel deputed for doing different work, including those of drivers of taxicabs before engaging them.

“They simply go by the ISO certification of a transport firm and engage it for daily transportation of their employees. They are not bothered about the background of the operator or the driver engaged by the firm. This exposes them to a great risk,” the police officer contended.

Without the internal safeguards, the outside security cover provided by the police may prove ineffective due to the sheer size of employees working in several IT firms and odd working hours, the police feel.

At present, the police have set up checkposts on all the access roads to the Hitec City, which houses who’s who of the global IT companies including Microsoft, Infosys, Wipro and TCS.

However, companies, which have offices in other places in the city, may not get the same level of security cover as the Hitec City.

Outsourcing of call centers perturbs some

Pearl Haimowitz would like to boycott companies that outsource their customer service to India.

The Great Neck, N.Y., resident said the representatives are difficult to understand, don’t have the leeway to solve problems, and speak over poor telephone connections.

But Haimowitz, who has dealt with Indian customer service representatives working for Dell, AOL and American Express, said she thinks a boycott would be fruitless if not impossible because so many companies have sent their work abroad, where labor is cheap.

“A couple of years ago, if you talked to an American customer representative, you would find that American Express was always good at taking care of whatever it was you had a problem with,” Haimowitz said. But, she said, Indian customer service representatives “don’t have the latitude, and there is a language barrier, and they’re probably working in the middle of the night.”

While much of the criticism of outsourcing has focused on the loss of jobs in the United States, more people are complaining about poor customer service. A 2004 study of more than 600 customers by Managing Offshore-Call Center magazines found more than 60 percent had trouble understanding accents of service reps abroad, more than 40 percent said the reps couldn’t understand them, either, and half said their problem wasn’t resolved.

But some consumers say it’s possible to communicate, with a little patience. “You just have to keep asking them to repeat themselves as slowly as possible,” said Mark M. Ulrich, 21, a regional service representative at banks who deals with a call center in India to resolve problems with ATM machines. “I always end up getting it. It may take awhile. You just have to say, ‘What? Can you say that slowly?’ and have them spell it out.”

In fact, most customer service representatives abroad speak well enough to handle calls, said Chip Gliedman, who studies customer service as a vice president of Forrester Research in Cambridge, Mass. But some have strong accents that make communication difficult for customers, he said. “It’s a numbers game,” he said. “Just by the sheer number of calls that some of these companies get, there are going to be people that have bad experiences. And just by the sheer number of people who have bad experiences, there are going to be people who have multiple bad experiences.”

Molly Faust, a spokeswoman for American Express, said, “We have operations in dozens of countries and serve millions of customers worldwide. In addition, our customer service representatives have to meet our high customer service standards regardless of where they are located.”

According to an analysis by Giga Research, a subsidiary of Forrester Research, a foreign accent might be a problem in some cases during normal conversations and can become even worse as customers become angry.

Giga’s research also shows that Indian customer service representatives follow help-desk scripts to a fault. U.S. agents are trained to avoid repeating a customer’s questions because the practice annoys Americans, but repeating questions is natural for Indians, the Giga report says.

Gliedman said customer service abroad works well when merely conducting transactions, such as providing information to the consumer. But it doesn’t work well for building relationships.

So Dell returned its call centers for commercial business to the United States in 2003 to ensure it maintained important business relationships, Gliedman said. But the company still maintains call centers abroad, he said.

“There’s less at stake for Dell in the consumer space,” Gliedman said. “Between the buying decision, support and the next buying decision, I don’t think where a call center is located is high on the list of issues.”

Senator calls outsourcing a fact of life

Sen. Max Baucus, the top Democrat on the U.S. Senate Finance Committee, said last week that outsourcing white-collar jobs to low-wage countries such as India has become a global fact of life -- and that the United States must learn to live with it.

The senator from Montana also called on India to further open its once-tightly closed economy, especially in the agricultural and retail industries, to competition from U.S. companies.

Baucus said a majority of fellow Senate Democrats agreed with him, despite the party's longtime opposition to American companies moving jobs overseas.

``Everybody is concerned about job losses and so am I,'' he told the Associated Press in an interview Friday in Bangalore, his first stop on a five-day tour of India.

``But the world is flat and we must work harder to better retrain our people,'' rather than resist outsourcing, he said. ``Offshoring is a fact of globalization. Opportunities for U.S. companies come from everywhere -- including India.''

In a written statement released later Friday, Baucus said the intent of his trip was to ``try to get at the problem of outsourcing'' and find ways to keep more of the jobs in the United States.

``Any job lost to outsourcing is too many,'' he said. ``But we can't kid ourselves or stick our heads in the sand. . . . Our challenge is to learn why these jobs are moving overseas and work to keep them at home by boosting America's competitiveness through such things as training, education and tax incentives.''

US outsourcing to touch $17 bn

nformation technology outsourcing by the US government will increase at an annual growth rate of nearly eight per cent and touch $17.6 billion by fiscal 2010, according to a market research firm.

This increase in federal IT outsourcing, from the $12.2 billion spent in fiscal 2005, will be registered with the help of specific drivers like the Office Of Management (OMB) and budget's "Lines Of Business" (LOB) initiatives for HR and finance management, Federal Health Architecture, IT security and other processes, says research firm, Input.

For agencies that are deemed unable to handle these process overhauls, there will be opportunities for shared services providers to step in and takeover certain duties, the Reston-based Input states.

"A number of factors have combined to make outsourcing one of the fastest growing federal market segments over the past several years," said Chris Campbell, an Input analyst.

"In a time of war, a deficit, and tightening federal budgets, Input expects the federal IT outsourcing to remain one of the healthiest federal markets.

The LOBs, which include HR management, financial management, grants management, case management, federal health architecture, and IT security, will require agencies to continue spending on outsourcing.

For each LOB, government agencies will submit their business cases to the centers of excellence - those agencies deemed specifically qualified to perform lob services.

"As a result, agencies will focus on transitioning major programmes out of their agency to a shared service provider," Campbell says

Kerry says his views on outsourcing misinterpreted

Visiting US senator and Democratic candidate for the 2005 American Presidential elections, John Kerry, today said that his views on outsourcing were misinterpreted.

Stating that every company has a right to chose its own course, the senator, however, faulted those American companies that made decisions in favour of business process outsourcing purely on non-economic considerations.

“We had problem with some people who made their choices purely for the purpose of taking advantage of tax benefits,” Kerry told mediapersons here after his meeting with chief minister Y S Rajasekhara Reddy. He said that he had no problem with outsourcing based on economic considerations.

Referring to his campaign on the issue of outsourcing during the presidential elections, he said that it was an issue of loss of jobs, loss of healthcare, loss of pension benefits and about not providing alternatives to those who lost their jobs. Kerry said that he only wanted the companies to be better corporate citizens of his country.

Replying to a question on the significance of his visit to Hyderabad, he said the city was going through an economic transformation in terms of business, and outsourcing among other things.

“I thought it important to visit the place to know firsthand and understand what is happening and what the challenges are,” he said. He also said that both US and India came together to work for the mutual advantage and to the comfort of all of our workers.

The issues relating to transport, infrastructure, AIDS awareness, environment, and the outside challenges from China among others came up for discussion during his meeting with the chief minister, he said.

He complimented India for its contribution to globalisation on several fronts. Later, he also met the leader of the opposition and former chief minister N Chandrababu Naidu.

Report: 2005 A Record Year For Outsourcing

Workers loathe it, politicians rail against it, and one TV newsman vilifies it almost nightly. Despite it all, companies are outsourcing work at record levels, according to new data released Wednesday.

The number of outsourcing contracts--through which businesses hand off routine IT and back-office work to a third party, often operating from a low-wage foreign country--increased 9% in 2005 to 293. It's the most deals seen in a single year, according to consulting firm Technology Partners International, which published the data.

But while the number of deals is up, businesses are actually spending less on outsourcing. That's because an increasing amount of the work is performed in India or other places where labor is cheap. Indian service providers grabbed 6% of all outsourcing contracts worth more than $50 million in 2005, compared with 2% the previous year, TPI reports.

Meanwhile, big U.S. outsourcers like IBM and EDS are opening their own facilities offshore to stay competitive. Also driving down contract values is the growing tendency among businesses to parcel out work in smaller chunks and for a shorter duration. The total value of contracts let in 2005 dropped 5% to $75 billion, says TPI.

Outsourcing is controversial because critics say American workers pay the price for businesses' desire to use labor in countries with questionable employment practices. Democratic presidential challenger John Kerry famously called executives who outsource "Benedict Arnold CEOs." CNN anchor Lou Dobbs often devotes entire programs to the issue under the banner "Exporting America." To date, however, most legislative efforts aimed at curtailing offshore outsourcing have failed to pass Congress or state legislatures.

Not all work that's outsourced is bound for foreign shores. The vast majority is still performed domestically, despite popular perceptions. In fact, outsourcers are beefing up their workforces in the United States. According to the Labor Department, payrolls among IT services firms grew by nearly 32,000 workers in 2005, a 2.7% gain for the year.

India's New Faces of Outsourcing

Before he supervised teams, wooed American clients over dinner or sat in a Northern Virginia boardroom alongside U.S. executives, Constancio Fernandes wrote computer code for a living.

That's how it started in the late 1990s -- American businesses ordered up software applications, and Indian programmers such as Fernandes dutifully delivered. But somewhere along the way, Fernandes became more confident and outspoken. He began questioning the Americans and suggesting cheaper, faster ways to run their businesses. They listened.

"Most of the companies in the U.S. used to see Indian companies as sweatshops," said Fernandes, 33, who began as a programmer but is now the director of engineering at Reston-based Approva Corp.'s offices here, supervising product-development teams, tracking projects and improving engineering techniques. "The changes have been phenomenal."

Fernandes represents a generation of Indian workers that is redefining outsourcing from call-center and back-office work into higher-level management and strategy jobs -- areas that Americans workers have often regarded as safe from overseas competition. As they climb higher in the corporate food chain in transnational firms, Indian workers and executives are pushing their U.S. counterparts to take them seriously, taking on greater responsibilities and subtly changing the corporate culture of both countries.

In Pune (pronounced POO-neh or POO-nah), a city on India's west coast, where several Northern Virginia technology firms have established offshore operations over the past decade, the shift has been a welcome one. The unlikely relationship between these two regions, about 8,000 miles apart, underscores how outsourcing has evolved in unexpected ways. In the past, U.S. companies gave the marching orders to workers in India. Now, young Indian developers such as Fernandes and expatriate Indian business leaders are helping India gain a more equal footing.

At least five companies from Northern Virginia -- all run by Indian emigres settled in the Washington area -- have opened offices in Pune, helping turn this once-sleepy holiday getaway into a thriving information-technology hub. Billboards implore residents to buy luxury flats; office space is rented before completion; and lines trail outside restaurants and nightclubs, even on weeknights.

Ironically, during the 1940s, Pune housed key members of India's independence movement, who shunned imports and preached self-sufficiency. Now, U.S. businesses flock to this globalizing city, citing cheaper rents and lower salaries compared with India's other urban centers, such as the tech industry's informal headquarters in Bangalore -- where costs are an estimated 15 percent higher. The city also boasts the University of Pune, which churns out qualified, English-speaking engineering graduates ready to work.

"Nobody wants arts or history anymore," said Gautam Sidharth Singh, 19, a first-year student majoring in electronic engineering. "All of my friends want IT."

Despite the controversy outsourcing has generated in the United States, the practice has boosted business in Northern Virginia, executives said. "I don't think Approva would exist without this model," said Tom Garrity, who is Fernandes's U.S. counterpart as the company's director of engineering in Reston. "We've created 100 jobs in America because of outsourcing."

The staff in Reston works mostly in sales, marketing and management. Meanwhile, Approva employs 120 people in India, a gamut of jobs ranging from software engineers and consultants to managers and technical writers. The company, founded by Indian-born Prashanth V. Boccasam, produces software that helps U.S. companies comply with the 2002 Sarbanes-Oxley Act, aimed at preventing accounting fraud and improving business governance. In this way, the recent spate of corporate scandals in the United States has provided a boost for Indian businesses.

In India, Boccasam found a large pool of employees who could understand both accounting and computer programming -- and for a fraction of the cost in the United States. Top-level software developers can be hired here for about $30,000 annually, a whopping income in India yet just a third of the salary their U.S. colleagues would command.

Beyond the cost advantage, Boccasam values a certain skepticism he finds inherent to Indians.

"It doesn't matter if you are buying vegetables or dining at a five-star hotel -- you will always count your change," said Boccasam, who attended the University of Pune and immigrated to the United States in 1988. "That's an auditing function. The guys in India know every scam there is out there."

Even Approva's office decor highlights this quality. A picture on the wall displayed an elderly businessman flanked by two scantily clad women in a casino. "Noticed the 'consulting' invoices Pete's been approving?" it asks. "We will."

Approva marks Boccasam's second U.S. company with an office in Pune. In 1995, he and a college friend, Amir Hudda, founded Arlington-based Entevo Corp. and opened a development center in Pune, relying on contacts made in their university days. The company was eventually sold off. Hudda's latest venture, Herndon-based Apptix Inc., opened its Pune office in September -- just two floors down from another Reston-based company, IMC Inc., which opened an office here in 1995.

Some residents fear that Pune's boom is undermining the city's charm and tourist appeal. They say traffic has worsened, prices are rising and infrastructure cannot keep pace with growth. Like so much of an India in transition, Pune is feeling the push and pull between tradition and modernity.

The struggle is familiar to business leaders who divide their time -- and identity -- in different places. The immigrants running these Northern Virginia tech firms serve a unique role as they straddle two lands and two cultures.

Prakash Gupta, president of IMC Global Services Ltd., the Indian subsidiary, travels frequently between Reston and Pune. On a recent morning, as he entered the area at the Pune facility where dozens of developers code and execute projects for U.S. customers, several employees tried to stand as a sign of respect -- as Indians reflexively do in the presence of bosses, teachers or the elderly. Gupta waved them down, reminding them to call him "Prakash," not "sir," as their British-inspired education might have taught.

IMC employees, mostly in their 20s, tend to socialize together outside work. The mix of university students and a young workforce -- and the malls, nightclubs and restaurants catering to them -- gives Pune the feel of Boston or Austin, cities also transformed by technology companies.

Tech firms here have created office parks that would not look out of place in Tysons Corner or Reston, but even in office decor, they strive to bridge the gap between the two cultures. Gupta recalls how the original color scheme for IMC's new offices in Pune was so loud -- even more than so than in the Silicon Valley dot-com boom of the late 1990s -- that he intervened to tone it down. "In the U.S., most of our offices are conservative: white walls, blue carpets," he said. "In India, offices have oranges and pinks and yellows. I was trying to balance the two cultures." Even with Gupta's modifications, IMC still bursts into bright blues and yellows and oranges, from ceiling to floor.

Not long ago, U.S. companies hesitated to allow their Indian computer programmers to deal directly with American customers, citing the need to retain control. Eventually, however, Indian workers convinced their bosses that it saved time and money if they worked directly with clients. IMC, for example, now relies on employees such as 32-year-old Manjiri Joshi to discuss projects with customers. She has traveled to the United Kingdom and United States several times and continues to deal with customers from her office in Pune.

And in years past, Approva's Boccasam noted, Indian workers used to be shy about requesting their holidays off, even while rushing to meet special deadlines for American supervisors before Christmas or Memorial Day. Now, he said, Indian developers are becoming more assertive, at times demanding that their U.S. colleagues meet their deadlines so the Indians can make it back home for Diwali, the Hindu festival of lights, or Eid, marking the end of Muslims' fast during Ramadan.

"I feel like the guys and gals out there have a new spring in their feet. They are very confident in their own skin and in how they deal with cross-cultural issues," Boccasam observed.

Such interactions have changed the Americans, too. Some U.S. executives say it took time to adjust to Indian accents and made-up Indian-English words such as "updation" (the noun form of "update").

And while in the past, Indians often worked overnight to accommodate the U.S. workday -- and that is still the norm in the burgeoning call-center industry -- several U.S. Approva executives now reach their Reston offices by 7 a.m. so they can catch the Indian employees at the end of their workday.

"Five years ago, I would have told you we're the head and they're the factory," said Silas Matteson, Approva's vice president for products in Reston. "That's changed."

Much of his day is spent fielding technical queries from clients and senior managers. And the technology experts are in India; not a single software developer works in Reston.

"You need to be able to manage teams in India or Chicago now," said Approva's Garrity. A foreign adapter rests on his shelf in Reston, needed to charge his laptop when he travels to India.

To be sure, this business model business poses challenges. "We're not together, obviously," Garrity said. "Sometimes, you just want to walk down the hall and talk to someone."

A team of Approva's Reston-based executives is in Pune now to implement the goals outlined recently at a brainstorming retreat at the Sheraton Reston Hotel. While the Reston meeting marked the first time Approva flew in Indian staff to Northern Virginia for the end-of-year retreat, the current gathering is the first time a planning session is being held in India.

"The center of gravity doesn't have to be the U.S.," Boccasam said.