Why is Local Hiring in Offshore Services so Sparse?

For some parts of the book that I feel the need to reach out to my blog readers. Your feedback will make a better product.

One of the chapters in the book is on Local Hiring – why Indian services companies haven’t hired in greater numbers and why it might become more important to do so in the future.

The percentage of employees in Indian IT Services companies who are Indian (born and brought up in India) is definitely over 95%. If you leave out the employees acquired through acquisitions, local hires (Americans in the US, Germans in Germany) are a rounding off error. Why is this so low?

Over 95% of the revenues of Indian services companies comes from outside India. 20 to 30% of billable employees are onsite. Shouldn’t you expect a higher proportion of employees to be hired locally? After all, IT Services is a high-touch business. If you are onsite, you are constantly working with client personnel. Cultural proximity, common backgrounds, networks from college and prior jobs must be of great value. Yet, local hiring is still very slim.

There are some good reasons why this might be so.

One, Offshore services is a very unstructured business. Every project is different – client needs, business processes, size of project – can all differ greatly from one project to another. The use of templates is limited to a few project processes only. Most of the project requires “new work” every time which in turn requires a fair bit of collaboration among the project team members – both offshore and onsite. This need for intense collaboration makes it much easier if the onsite team members are actually offshore team members who have moved onsite temporarily.

Then there are cost reasons as well. Not so much compensation which for most companies is within range of what it would cost them to hire locally. But there are other reasons why the costs are higher to hire locally. Like the fact that a local employee would likely need travel and living since the project can’t always be in the metro area in which she lives. Also, for local hires, bench costs are at onsite wages.

Outside of Delivery – in Sales and Consulting – the cost reasons above don’t apply. At one time, there was a salary difference. But now, Enterprise IT Sales and Consulting are both in decline and Indian Services companies have upped compensation substantially. So that isn’t a reason either.

But even here, I feel that companies feel torn between the need to hire folks who could be more effective in forming relationships with clients and the need for them to work effectively with offshore teams. Anyone who has worked in the industry knows that a salesperson’s effectiveness can often depend upon how good his access is to expertise and resources in the company.

The only place where there really are no barriers to hire are in senior positions in Sales and Consulting. Where you get the value of their experience in a certain industry and their networks but on the ground the proposals and staffing of projects is handled by other people. But here too there is a mismatch in expectations.

While Indian companies haven’t shown much urgency in hiring locally, it’s not as if potential employees are trying to break down the door either. Perceptions in the marketplace about Indian services companies are that you are generally “thrown into the pool to sink or swim” with very little support. Also, that policies aren’t as employee friendly as their current employers. You don’t have a life any more and work takes up every waking hour. Although, I think this is the nature of the offshore business, and if they are still working regular hours, it will change soon.

Going forward, local hiring will become more important. Winning business is now less about technical expertise, which is assumed. It is about domain expertise – do you understand my business process well enough? It is going to be pretty tough to build domain expertise organically – through the work the company does for clients. Hiring industry expertise into the company either from industry or from other consulting companies will become necessary to compete.

Also, there is the issue of optics. Can you do X billion dollars of business in a country, with tens of thousands of employees in the country and hire just a handful from the local market? The law may allow it, but you have to do much more in the court of public opinion.

Take Toyota for example. When they started putting up manufacturing plants in the US in the 80s, it was probably much easier to just expand in Japan. But they knew that if they were going to be a significant player in the huge US market, they had to do some local manufacturing. Today, Toyota has manufacturing facilities in many states in the US. When they ran into trouble earlier this year because of their quality problems, their American employees and politicians from the states that have the factories, supported them.

In a few years US or Europe based competitors who are rapidly adopting the offshore model will have a truly global workforce with a (largely) India delivery model. If nothing changes, Indian companies will be almost entirely Indian. The lack of diversity will lead to a lack of diversity of thinking. And exposed to political games.

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19 Responses to Why is Local Hiring in Offshore Services so Sparse?

  1. Amit says:

    I have 10-year old perspective, the present situation may be very different.

    – cultural disconnect (main issue) – the usual thing – sports, music, religion, TV, food, interests, etc, etc. Indians were just more comfortable with their own kind. There was a distinct lack of wanting to know / explore / engage with a different culture.

    – slave driving not so easy – the unsaid stuff was that you could make a FOB Indian slog through late nights and weekends but would find it difficult to get the same from locals.

    – pay scale – You could simply get technically better Indians rather than locals at the pay scales on offer.

    – mobility – much more easier to get Indians to pack up and move across US cities or even back to India. Cannot expect the same from a local. The nature of the business (project based) required flexibility in moving people around.

    – commitment – linked to mobility above – a local hire means a long term commitment to that person in the US. Cannot be easily shipped back.

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  2. Siddharth says:

    Basab, Is there a typo in the first sentence of the 3rd paragragph ?

    In the World Cup of "Quality, Productivity, Predictability, and Scale" the winning country is quite clear. No competition yet. The gap is so wide that most client managers themselves prefer non-local support. One may find better local talent individually but can't find and add teams at the same rate. The incentives for both customers and IT service companies favor non-local talent that is process oriented, predictable, and can be moulded, as long as you can keep away from the politics of hiring. My own experience is that lasting relationships are made when skills and attitudes are complimentary. So, I really dont believe that local talent = more networking = more business. In the IT Services business, the deal getter is not the Sales guy cruising on the freeway but one on the other end of the wire who is probably jammed in traffic. The biggest risk to this successful business model is "High end" consulting which are usually bought/sold only when packaged with "Low end" work. So, lets celebrate what works.

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  3. Maneesh says:

    My 2 c.

    a. $$$ – Those who are brought on work visa are willing to work for less. Period.

    b. Retention – Clients don't like frequent changes in their on site support staff. So retaining talent is important for IT vendors. It is much easier to retain desi talent with the carrot of Green card.

    c. Effectiveness – A locally hired non-desi manager may not be effective in collaborating with offshore delivery team.

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  4. Swapnil Pundle says:

    The fundamental question here is “What drives any company to hire or produce stuff locally?” I think there are 3 factors that force companies to produce or hire locally.
    1. Cost advantage
    2. Restrictive laws or regulations that cannot be circumvented
    3. High volumes in the local market which cannot be met without local production / hiring

    The cost advantage factor is ruled out for offshoring companies. Restrictive laws could be a mild driver. Visa restrictions might force IT companies to look for local talent in a limited way.
    The 3rd driver is the most crucial. Toyota must have setup plants in the US when it became impossible to meet the demand by importing cars from Japan. Nokia has setup a plant in India to meet the huge local demand of mobile phones .
    Local hiring will continue to be non-existent until Indian IT services companies can run operations by sending Indian employees onsite.
    I tried to apply these factors to the question of Why Udupi restaurants in Mumbai hire most of their staff from the villages in Karnataka rather than hiring locals. The 3 factors above seem to be perfectly applicable. It will be long while before we get to see a Marathi waiter at an Udupi restaurant!

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    • Swapnil – isn't the "volume" of onsite employees high enough already? It must be in the hundreds of thousands just in the US. Your Udipi restaurant example is a pretty apt one. Though I suspect there is an additional driver there. A significant percent of the clientele of the restaurant might prefer the staff to be from Karnataka.

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  5. Sankesh says:

    Few reasons I have heard from disgruntled local hires into offshore services company. It is not that offshore service firms are not willing to hire, they just don't get people to join them. The word on the street is killing them

    1. Mismatch in expectations – A typical "Consultant" works onsite Mon – Thu and expenses are reimbursed by client. Offshore service companies do not have this policy (Charge no expense and you could be cheaper by at least 10 to 12% of local firm even if 100% of work is done onsite) to a large extent and local talent gets disoriented with "You have to relocate because we can not charge expenses to client"
    2. A thankless job – You get squeezed from both directions – Yelling client and poorly performing yet overly shouting offshore
    3. lack of discipline in operations.
    4. Compensation depending on high you are in the org chart as opposed to your contribution to project/s (A 15 years experienced person wanting to work as a developer gets paid entry level salaries)

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  6. Ranga says:

    Basab Babu,
    Oopar likhi sari baatein sahi hain par humein ek baat bataiye ki IT outsourcing ka sabse bada sher and visionary kaun hai ??any guesses ?

    I think its Sir/Lord/Mr Som Mittal from Nascom that poor guy and a number wizard had the vision since 1970s and always gave numbers that boosted the morale of infy/tcs/wipro to hire more and more and send plane load of guys to america .

    However the current trend of hiring 30K per year by each of the 5 biggies is leading to exponential employment , highest in a decade . Dont you wonder where has the magic growth numbers come from ?? Is it Sir Som Mittal again ? If it works I salute him if its a bubble I will not trust numbers and data anymore .

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  7. Basab,

    I have witnessed a distinct cultural discomfort in local hires for the short time that I worked in the services sector for the North America region. It is the thing of not having shared cultural traits and values even with the local Indian diaspora – majority of ones colleagues essentially. While this becomes a supply side choke, the demand side issues have been well documented by previous commentators. Someone in his early thirties will be more than willing to relocate to run offshore and they give the firm (a) a sense of comfort with a known person, and (b) retention of the network the person has built in the company for him to be more effective with remote-virtual teams.

    I do however think that companies that are serious of winning high end business will form frontline teams that are mostly local. That is, hire a senior person – a local with experience and networks – and let him pick his team. While some sort of diversity targets can be mandated, I suspect that bulk of this team will be local hires. This will not take out completely but somewhat alleviate (perhaps pushing it to a third degree of separation) the problem of cultural incongruity.

    Incidentally, Outlook Business has an interesting article on CTS around this exact subject of cultural diversity in IT companies http://business.outlookindia.com/article.aspx?265….

    Thanks
    Subrata

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    • Thanks Subrata. I read the article on Outlook. We did the same interviews in the press when Infosys launched Infosys Consulting. For them, as it was for us, it is all in the execution.

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  8. Ranga says:

    In your book I would like to see a chapter on :-
    IT industry Myths vs Hard Realities like

    1.Eternal war of techie vs manager(infy/tcs style clerk) , who should be paid more ?
    US market decided a rate like 80-120$ for a good techie/architect/desginer . Infy/TCS
    rationalises this and says all techies are alike and all should get a low common wage .
    The PM(project manipulator) should get more salary since he is more aged .

    2.The real idea generators vs the manipulator phoneys who like Anu Malik make the world
    feel that all the great ideas are theirs and dont let the real guys come in front .Isnt it
    time that we rectify this age old indian culture if we want the best and brightest to really innovate ??

    Like

  9. Thanks everyone, great comments. Please keep them coming.

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  10. Vasanth says:

    I agree with some of the earlier comments about lack of trust in the local market about Indian companies. I have noticed this first hand when some resources were offered jobs with Infosys when we took over from EDS. Most of them rejected the offer stating they will not enjoy the same freedom with Infosys.

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  11. Vishwa Vedula says:

    Captive offshore development centers set up by many multinationals on their own havent been that succesful compared to the phenomenal growth and success seen by Indian IT giants in the last 2 decades.

    Does that add a point to this debate especially about need for kind of onsite personnel needed for coordination with the offshore centers to make it work ?

    Like

  12. Krishna says:

    Quality output comes of course from (a) talent coupled with (b) commitment, but try adding an element of (c) insecurity and lifestyle comfort, it morphs into a guarantee. You can never get that (c) from a local hire.

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  13. Dip says:

    Many commenters have highlighted the cultural aspect. I would like to add..
    Any westerner would expect to be respected as individual or as a professional irrespective of his/her role and designation. We normally don't do that. We have a very low sense of respect for human being and work (whether frying chips or selling software every job is worth basic respect). We tend to show more respect on money, grade or position of an individual than the individual.
    If you feel IT is not like that, ask any senior executive in Bangalore if he/she has ever acknowledged the existence of X who is perhaps sitting next to his cabin for 3 years, he/she may know everything about X through subordinate but may not say hello if they come face to face. After all X is 4 grades below.

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  14. Pingback: 6 AM Pacific » Blog Archive » The Quest for Higher Bill Rates

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