Human Capital & Careers

How to Tap India’s Cheap IT Labor

Three things you need to know before you travel this route.
Craig SchneiderOctober 17, 2000

If Columbus found the elusive spice route to India today, he’d still discover a little piece of America.

This is because U.S. companies are increasingly colonizing in southern cities such as Bangalore and Hyderabad, seeking salvation from a tight IT labor market and developing the next Silicon Valley in the process. It’s certainly no secret that India is teeming with highly skilled, cheap labor for IT development. The trouble is getting your hands on it.

And as CFO.com reported last week, President Clinton is expected to sign an H-1B visa bill into law by Tuesday, which is expected to help ease the IT labor shortage in the U.S. by raising the limit on foreign professionals. And nearly half of the visas go to workers from India.

But how do you gain access? Some companies go the direct route of setting up an offshore subsidiary, while others opt for an outsourcing strategy. Either way, India is worth exploring. It’s the Indian labor costs — about one-fifth of those in the U.S. — that really have CFOs salivating.

“An equivalent $100,000 a year person here (in the U.S.) is maybe making $18,000 to $20,000 a year over there,” says Nicholas Visio, CFO of Intelligroup Inc., an Edison, N.J. global vertical application service provider. “When you look at the incredible cost leverage you get out of it, it’s essentially a no- brainer.”

“There’s nothing that comes close to India,” adds Gordon Coburn, CFO at Cognizant Technology Solutions, a Teaneck, N.J.-based IT consulting firm that does about 70% of its work from its Indian facility. “They speak English, the university system is superb with 80,000 tech graduates produced each year versus 25,000 in the U.S., and the cost of communication has declined significantly.”

Offshore IT facilities also allow for a virtual 24/7 work environment, in which programmers email you projects before the sun rises on the East Coast. However, as enticing as having the home court advantage sounds, doing business in India is no curry walk.

Here are three lessons you should learn quickly before you even consider making the plunge to hire Indian-based IT help.

Lesson 1: Don’t go it alone.

For many U.S. companies without the advantage of having a founder native to India, launching the offshore subsidiary is a slow, arduous task that often begins with local vendor partnerships.

“You need to have local management and local ownership,” says Andrew Efstathiou, program manager at The Yankee Group, a Boston-based market research firm. “You can’t go in and impose U.S. business structure. You have to be sensitive to the local culture and methods of local business.”

And that sensitivity can often take years to build. Cisco Systems, for example, said in August that it would invest $150 million to expand its technology development center in India over the next two years, double the $75 million it has spent in India since 1996. It already has partnerships with Indian software services firms Infosys Technologies, Wipro Ltd., HCL Technologies Ltd., and some technical education institutions.

Cisco now plans to increase its workforce to 1,500 tech professionals from the current 500 with its new Bangalore facility — a much more daunting and costly task if done from within the States or if it were just starting in India alone. Little-known companies without a reputation in the marketplace may have an even harder time recruiting and retaining abroad.

Partnerships offer insight into not only the local culture, but also the business process itself and the pitfalls of doing business offshore. After years of building local relationships and that comfort, then companies can start worrying about getting government approvals or hiring people for a 100% owned subsidiary.

“It’s not an overnight thing,” adds Intelligroup’s CEO Arjun Valluri, a native of Hyderabad, India. “Setting up the infrastructure can become a nightmare unless you are native to the country.”

Lesson 2: Use intracompany transferee visas (L-1).

Getting India’s IT workers into the U.S. has been even more of a nightmare with the shortage of H-1B visas. And while new legislation to raise the cap will help mitigate the problem, companies have other immigration options.

If your company has the wherewithal to set up a subsidiary in India, L-1 visas are an easier bet. And there is no quota.

“Once a foreign employed worker has been with the related company for a year, you have the option to bring them over on intracompany visas (L- 1) that have no cap. You can use them for up to five years,” says Laura Foote Reiff, the Washington D.C.-based attorney in charge of business immigration law for national firm Greenberg Traurig.

But certainly not all IT problems warrant setting up your own offshore subsidiary to recruit in India.

As a result, outsourcing has become the answer to many companies that don’t want the business risk and set- up requirements.

Lesson 3: Outsource through B2B Web marketplaces.

Getting the right consultant for the job at the best price can be an exhausting search, but B2B Web marketplaces including those of Hotdispatch Inc. and Vivant Inc. are speeding the process. IT managers can post specific questions/projects for free and get answers from a global pool of IT contractors.

The sites are particularly useful for finding solutions to complex IT problems that could, for example, involve Java coding, Bluestone servers and an Oracle database. “Some companies in that situation may go hire an Oracle or Java consultant. That’s pretty inefficient,” says Hotdispatch CEO Mike Kaul. “(With the site) you really are leveraging the market to find someone who’s been there, done that several times before.”

Also, it’s often possible for IT managers to test software solutions to their dilemma before committing to payment.

Coburn, whose company typically focuses on Fortune 1000 companies, believes the largest companies aren’t necessarily focused on finding a vendor through the marketplaces as much as locating one through reputation, word-of-mouth, and brand awareness. “I believe it would be more the mid-market using those types of services,” he says.

Whichever route you take, remember: Timeliness is key. Waste time recruiting an IT staff and you risk losing your product lead to a competitor; burn out your limited IT staff with too many menial projects and risk turnover, an even more expensive risk.