India's outsourcing firms look to hire overseas

S Padmanabhan jokes that of all the roles he has played at Tata Consultancy Services Ltd., including taking India's largest computer services company public, his current job is the most challenging.

As the global human resources manager, Padmanabhan — "Paddy" as he likes to be called — is responsible for juggling the breakneck growth of the workforce, which reached 78,028 in September.

"You're dealing with over 78,000 moving parts," he said. "Last quarter we added 100 people a day."

Further complicating the picture is that today at least 8 of every 100 are foreigners working abroad, a number he expects to rise to 15 in about three years.

India's biggest information technology outsourcing companies are beginning to increase their workforces in other parts of the world. The trend is not being driven by shortages of talent in India but rather by factors such as the need for skills in languages other than English and the wish of clients to have staff to deal with in their own time zones.

For most Indian outsourcing companies, the U.S. is by far the biggest market, followed by Europe.

"As we globalize, we have to become more truly global in every aspect including in the people who work for us. That's what a truly global and multicultural firm is," said Nandan Nilekani, chief executive of Infosys Technologies Ltd., India's second-largest computer services company.

The increase in overseas hiring by Indian firms is in its infancy, with non-Indians making up about 2% to 3% of the industry's workforce, said Sunil Mehta, vice president of the National Assn. of Software and Service Companies, a trade group.

But among market leaders, the number is rising. Tata Consultancy began focusing on diversification in 2002 when U.S. companies were grappling with a downturn at home and began shifting more of their operations to other regions.

Tata began setting up development centers in time zones close to its major markets, with Latin America serving the U.S. and the local market; Eastern Europe serving Western Europe; and China serving its local market, Japan and South Korea.

"In Latin America, we have people with Spanish or Portuguese language skills. When we do work for Western Europe, it's important we have German or French speakers," Padmanabhan said.

S Gopalakrishnan, chief operating officer at Infosys, said one factor driving the trend, dubbed "near-sourcing," was the need to "de-risk": If outsourcing companies concentrate all of their operations in India, there is a risk that services could be disrupted by a crisis there.

Until recently, the outsourcing companies made heavy use of Indian staff members overseas. But as Indian talent becomes more expensive and the cost of visas rises, it is becoming cost-effective to employ local engineers in some regions.

Acquisitions are another driver behind the increased use of foreign nationals. Wipro Technologies, for instance, added 300 international staff members when it acquired Enabler, a European information technology company. HCL Technologies Ltd., a software company, bought a call center in Belfast, Northern Ireland, from Britain's BT Group and now has 2,000 workers there.

But the same factor that stops Indian information technology companies from making giant acquisitions overseas will also stop them from having a large portion of their workforce offshore — margins.

The market judges the companies on their ability to continue to deliver high margins. To do this, their current business model of using plentiful and highly skilled low-cost Indian workers to deliver global services remains unassailable.

Although the industry faces a shortage of engineers domestically, India still produces some 450,000 annually.

"In terms of the actual number of people employed," said Gopalakrishnan of Infosys, "India will continue to be the best and the largest."

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