Wednesday, August 22, 2007

Are Offshore Outsourcers Invading the USA?

One company’s strategic initiative does not equate to an invasion.

Now that Wipro is expanding aggressively into the United States, the conventional wisdom is that India’s other big outsourcers will also pile in. But No. 2 Indian outsourcer Infosys doesn’t appear to be so bullish on U.S. expansion. At least that’s the impression given by CEO Kris Gopalakrishnan, who sat down with me yesterday over lunch in New York.

While Infosys has several U.S. offices, employing 1,200 to 1,300 people, those professionals are mostly in client-facing sales, marketing, and support roles, and most of them are foreign nationals working in the States under H-1B visas. (Infosys received more H-1Bs last year than any other company, foreign or domestic.)

Unlike Wipro, which is acquiring five U.S. data centers as part of its $600 million deal to buy New Jersey-based infrastructure management vendor Infocrossing, Infosys has no immediate plans to own data centers in the States, Gopalakrishnan says. Nor does Infosys intend to build software development centers in the States. In contrast, Wipro, the No. 3 Indian outsourcer, plans to build four such centers in the U.S., the first one in Atlanta, and hire 1,000 or more people in the process.

Infosys won’t be hiring tons of locals in the States. Gopalakrishnan gives two reasons. First, most of the back-end work Infosys does for U.S. clients is still sent to India, so the company wants mostly Indian nationals to maintain “project ownership” from start to finish in order to ensure “continuity,” he says. Second, Infosys’ “brand equity” among U.S. tech pros “is not where it should be,” Gopalakrishnan says, meaning the company still has trouble recruiting the best local people -- though it’s making more headway on such campuses as MIT, Stanford, and the University of Pennsylvania.

As for Infosys making acquisitions in the States, Gopalakrishnan says “they’re something we need to look at,” particularly in consulting. But he’s less than enthusiastic. “They’re risky,” he adds, noting that most acquisitions don’t deliver adequate returns to shareholders.

Infosys is more bullish about setting up “nearshore facilities,” operations that are relatively close to the company’s biggest clients and still offer access to cheap, plentiful talent. For example, Infosys announced today that it’s creating such a facility in Monterrey, Mexico, that will employ 1,000 people within three years and serve clients not just in Latin America but also in North America and Europe. Infosys now has such a facility in Brno, Czech Republic, serving mostly European customers. For the Asian market, India and increasingly China are Infosys’ bases of operation.

The United States, where Infosys generates 62% of its revenue, could “one day” represent 5% to 10% of the company’s global workforce, Gopalakrishnan says, up from less than 2% today. Oh really? How soon—five, 10 years? Gopalakrishnan isn’t saying: “No timeframes.”