FEBRUARY 3, 2003 COVER STORY:- Business Week The New Global Job Shift The next round of globalization is sending upscale jobs offshore. They include basic research, chip design, engineering--even financial analysis. Can America lose these jobs and still prosper? Who wins? Who loses? The sense of resignation inside Bank of America (BAC ) is clear from the e-mail dispatch. "The handwriting is on the wall," writes a veteran information-technology specialist who says he has been warned not to talk to the press. Three years ago, the Charlotte (N.C.)-based bank needed IT talent so badly it had to outbid rivals. But last fall, his entire 15-engineer team was told their jobs "wouldn't last through September." In the past year, BofA has slashed 3,700 of its 25,000 tech and back-office jobs. An additional 1,000 will go by March. Corporate downsizings, of course, are part of the ebb and flow of business. These layoffs, though, aren't just happening because demand has dried up. Ex-BofA managers and contractors say one-third of those jobs are headed to India, where work that costs $100 an hour in the U.S. gets done for $20. Many former BofA workers are returning to college to learn new software skills. Some are getting real estate licenses. BofA acknowledges it will outsource up to 1,100 jobs to Indian companies this year, but it insists not all India-bound jobs are leading to layoffs. Cut to India. In dazzling new technology parks rising on the dusty outskirts of the major cities, no one's talking about job losses. Inside Infosys Technologies Ltd.'s (INFY ) impeccably landscaped 22-hectare campus in Bangalore, 250 engineers develop IT applications for BofA. Elsewhere, Infosys staffers process home loans for Greenpoint Mortgage of Novato, Calif. Near Bangalore's airport, at the offices of Wipro Ltd. (WIT ), five radiologists interpret 30 CT scans a day for Massachusetts General Hospital. Not far away, 26-year-old engineer Dharin Shah talks excitedly about his $10,000-a-year job designing third-generation mobile-phone chips, as sun pours through a skylight at the Texas Instrument Inc. (TXN ) research center. Five years ago, an engineer like Shah would have made a beeline for Silicon Valley. Now, he says, "the sky is the limit here." About 1,600 km north, on an old flour mill site outside New Delhi, all four floors of Wipro Spectramind Ltd.'s sandstone-and-glass building are buzzing at midnight with 2,500 young college-educated men and women. They are processing claims for a major U.S. insurance company and providing help-desk support for a big U.S. Internet service provider--all at a cost up to 60% lower than in the U.S. Seven Wipro Spectramind staff with PhDs in molecular biology sift through scientific research for Western pharmaceutical companies. Behind glass-framed doors, Wipro voice coaches drill staff on how to speak American English. U.S. customers like a familiar accent on the other end of the line. Cut again to Manila, Shanghai, Budapest, or San José, Costa Rica. These cities--and dozens more across the developing world--have become the new back offices for Corporate America, Japan Inc., and Europe GmbH. Never heard of Balazs Zimay? He's a Budapest architect--and just might help design your future dream house. The name SGV & Co. probably means nothing to you. But this Manila firm's accountants may crunch the numbers the next time Ernst & Young International audits your company. Even Bulgaria, Romania, and South Africa, which have a lot of educated people but remain economic backwaters, are tapping the global market for services. It's globalization's next wave--and one of the biggest trends reshaping the global economy. The first wave started two decades ago with the exodus of jobs making shoes, cheap electronics, and toys to developing countries. After that, simple service work, like processing credit-card receipts, and mind-numbing digital toil, like writing software code, began fleeing high-cost countries. Now, all kinds of knowledge work can be done almost anywhere. "You will see an explosion of work going overseas," says Forrester Research Inc. analyst John C. McCarthy. He goes so far as to predict at least 3.3 million white-collar jobs and $136 billion in wages will shift from the U.S. to low-cost countries by 2015. Europe is joining the trend, too. British banks like HSBC Securities Inc. (HBC ) have huge back offices in China and India; French companies are using call centers in Mauritius; and German multinationals from Siemens (SI ) to roller-bearings maker INA-Schaeffler are hiring in Russia, the Baltics, and Eastern Europe. The driving forces are digitization, the Internet, and high-speed data networks that girdle the globe. These days, tasks such as drawing up detailed architectural blueprints, slicing and dicing a company's financial disclosures, or designing a revolutionary microprocessor can easily be performed overseas. That's why Intel Inc. (INTC ) and Texas Instruments Inc. are furiously hiring Indian and Chinese engineers, many with graduate degrees, to design chip circuits. Dutch consumer-electronics giant Philips (PHG ) has shifted research and development on most televisions, cell phones, and audio products to Shanghai. In a recent PowerPoint presentation, Microsoft Corp. (MSFT ) Senior Vice-President Brian Valentine--the No. 2 exec in the company's Windows unit--urged managers to "pick something to move offshore today." In India, said the briefing, you can get "quality work at 50% to 60% of the cost. That's two heads for the price of one." Even Wall Street jobs paying $80,000 and up are getting easier to transfer. Brokerages like Lehman Brothers Inc. (LEH ) and Bear, Stearns & Co. (BSC ), for example, are starting to use Indian financial analysts for number-crunching work. "A basic business tenet is that things go to the areas where there is the best cost of production," says Ann Livermore, head of services at Hewlett-Packard Co. (HPQ ), which has 3,300 software engineers in India. "Now you're going to see the same trends in services that happened in manufacturing." The rise of a globally integrated knowledge economy is a blessing for developing nations. What it means for the U.S. skilled labor force is less clear. At the least, many white-collar workers may be headed for a tough readjustment. The unprecedented hiring binge in Asia, Eastern Europe, and Latin America comes at a time when companies from Wall Street to Silicon Valley are downsizing at home. In Silicon Valley, employment in the IT sector is down by 20% since early 2001, according to the nonprofit group Joint Venture Silicon Valley. Should the West panic? It's too early to tell. Obviously, the bursting of the tech bubble and Wall Street's woes are chiefly behind the layoffs. Also, any impact of offshore hiring is hard to measure, since so far a tiny portion of U.S. white-collar work has jumped overseas. For security and practical reasons, corporations are likely to keep crucial R&D and the bulk of back-office operations close to home. Many jobs can't go anywhere because they require face-to-face contact with customers. Americans will continue to deliver medical care, negotiate deals, audit local companies, and wage legal battles. Talented, innovative people will adjust as they always have. Indeed, a case can be made that the U.S. will see a net gain from this shift--as with previous globalization waves. In the 1990s, Corporate America had to import hundreds of thousands of immigrants to ease engineering shortages. Now, by sending routine service and engineering tasks to nations with a surplus of educated workers, the U.S. labor force and capital can be redeployed to higher-value industries and cutting-edge R&D. "Silicon Valley doesn't need to have all the tech development in the world," says Doug Henton, president of Collaborative Economics in Mountview, Calif. "We need very-good-paying jobs. Any R&D that is routine can probably go." Silicon Valley types already talk about the next wave of U.S. innovation coming from the fusion of software, nanotech, and life sciences. Globalization should also keep services prices in check, just as it did with clothes, appliances, and home tools when manufacturing went offshore. Companies will be able to keep shaving overhead costs and improving efficiency. "Our comparative advantage may shift to other fields," says City University of New York economist Robert E. Lipsey, a trade specialist. "And if productivity is high, then the U.S. will maintain a high standard of living." By spurring economic development in nations such as India, meanwhile, U.S. companies will have bigger foreign markets for their goods and services. For companies adept at managing a global workforce, the benefits can be huge. Sure, entrusting administration and R&D to far-flung foreigners sounds risky. But Corporate America already has become comfortable hiring outside companies to handle everything from product design and tech support to employee benefits. Letting such work cross national boundaries isn't a radical leap. Now, American Express ( ), Dell Computer (DELL ), Eastman Kodak (EK ), and other companies can offer round-the-clock customer care while keeping costs in check. What's more, immigrant Asian engineers in the U.S. labs of TI, IBM (IBM ), and Intel for decades have played a big, hidden role in American tech breakthroughs. The difference now is that Indian and Chinese engineers are managing R&D teams in their home countries. General Electric Co. for example, employs some 6,000 scientists and engineers in 10 foreign countries. GE Medical Services integrates magnet, flat-panel, and diagnostic imaging technologies from labs in China, Israel, Hungary, France, and India in everything from its new X-ray devices to $1 million CT scanners. "The real advantage is that we can tap the world's best talent," says GE Medical Global Supply Chain Vice-President Dee Miller.
