The Foreign Hand


We work quietly so we do not get noticed but walk around in Bangalore city alone and you would know how a committed and involved workforce keeps IBM, Accenture, GE, Intel and countless other American bellwether companies ahead of their global competition.

Since the Ohio state governor Ted Strickland declared a ban on the outsourcing of government projects in order to keep jobs in Ohio, there has been a tremendous amount of discussion on the implication of both the action and the pronouncement. US President Barack Obama followed this up with a move to equalize tax on earnings of US companies between income from domestic and overseas operations. That in itself might even be the right thing to do, but the attendant rhetoric on outsourcing and job loss has left the media agog with speculation on what it all means to the Indian IT industry.

The quantum of government contracts that comes to Indian IT companies is a fraction of the nearly $57 billion of export business we do all over the world. So, whether Ohio or some other US state bans outsourcing, there would be miniscule impact on Indian companies. But, on the other hand, the rhetoric could mislead the American people and create a “whipping boy” mentality that blames the Indian IT industry that has become synonymous with the term “outsourcing.” In addition to making outsourcing feel “unpatriotic,” it could create fear in the in the minds of the American private sector. What is extremely disconcerting is the fact that any opinion coming from the US President becomes the overall sentiment, the official line on any subject. That alone is bound to affect the US law enforcement and border agencies. We are beginning to see isolated, though serious acts of unfriendliness. Unchecked, such posturing can hurt the complex supply chain process in which bits and bytes that travel by ether need a substantial free-flow of human beings between the two countries. So far, the industry has acted with restraint in the face of US utterances but continued silence could signal servility. Hence, a few key issues need to be raised by us ahead of the US President’s proposed visit to India later this year.

First of all, the perceived and the real job loss in the US have nothing to do with outsourcing. They stem from a generation of economic neglect. Jobs get created, not by large companies and governments, but as the result of grassroots level entrepreneurial activity.The American people have somewhat lost their legendary enterprise building capability. While no significant new enterprises have emerged in the last couple of decades, many American big businesses have grown by swallowing smaller ones. The idea behind such acquisitions has invariably been to downsize to the bone instead of creating greater value with newer products and services. Newer, viable businesses have simply not come up.

Is it not interesting that in the last couple of decades no new, memorable American company other than Google has come up? At the same time, bloated, ill-managed companies like Lehman Brothers and dozens of others have collapsed. On the one hand, Citibank is tottering; on the other hand, Mohammad Yunus’s Grameen Bank is deploying the equivalent of $8 billion in micro-credit. If American companies do not nurture, grow from within, innovate, globalise, do not give up non-sustainable cost structures, do not create newer products and services and newer business models for a world of tomorrow, how on earth can they create jobs?

There are other very deep-rooted problems with the US economy. It is a credit-driven economy. How can you endlessly borrow to consume? With an extremely poor savings rate, how does a country produce real surplus that can go into investing into newly formed businesses? How does one create and back new entrepreneurs? If there are no new entrepreneurs, how can there be new jobs?

Additionally, most large businesses are saddled with declining power of innovation. They are usually bloated and do not come up with newer products and services. But then again, even if they did, to whom would they sell these? Every economy has a finite ability to consume newer products and services. The American people are clearly saturated as a consumptive economy. Only in the developing economies of the world can more products and services be consumed.Many American companies simply lack the global outlook needed to step out of their own comfort zones and engage with the emerging economies. As a result, they keep harvesting a depleting source of domestic demand.

We need to understand that the essence of a global economy is free flow of trade and services. The US has been the vanguard of free economy and now it is the same US that is in essence speaking the language of protectionism. A global, free economy means jobs must go to more efficient, more competitive points of origin. This is evident when you open a brand new Apple iPad from its packaging; you see inscribed on it, the words, “Designed in California” and nothing else. But if you look at the complex supply chain behind the iPad, you will see dozens of international locations where everything has been produced and assembled, from the packaging to the printed circuit board, from chips to cables.

The world of services is no different today. A software product may be conceptualised in the Silicon Valley, architected and coded in India and then distributed, monitored, tested, updated and supported from locations in Melbourne and Madrid and Minnesota. In the manufacturing world, Nike may own the brand but not the factories; the same is true of many software and hardware companies around the world.

There is another interesting angle to the entire controversy.The protagonists of American job loss have overlooked a critical NASSCOM-McKinsey study that most Americans have no knowledge of. The study cites a rapidly changing demographic profile of the world by the year 2020. The report indicates that the US economy will actually be short of 17 million people by the year 2020. The declining population trend over decades means that America will need people that it simply will not have.

In addition to that fact, today’s average American kid is not pursuing mathematics and science and engineering. There is progressive decline in intake of students in these disciplines in the USA and it is a well known fact. The truth is that companies like IBM, Accenture, Microsoft and Intel do not have the hands they need to meet the global demand (read, not just American demand) and to remain competitive, they must engage with and acquire qualified talent wherever they may be. With no amount of retraining can high-tech jobs absorb mill- and farmhands, or the laid-off workers of bloated financial corporations of New York City.

Had it not been for the Indian high-tech industry, the US economy would have lost its shine a little earlier. We work quietly so we do not get noticed but walk around in Bangalore city alone and you would know how a committed and involved workforce keeps IBM, Accenture, GE, Intel and countless other American bellwether companies ahead of their global competition.

In the 1990s, when the Indian economy was just opening up for the world, GE Chairman Jack Welch was one of the early entrants. He had his eye on India, thinking to sell everything from MRI machines to aircraft engines. But he also had a more far-reaching thought. He asked his executives to engage with Indian talent before others did because he saw that talent would become the new competitive advantage in the 21st century, and he used the term “talent lock-in” as a matter of corporate priority. In the new world, he said, GE must lock-in talent ahead of its competition wherever they may be. Jack got it right two decades ago. Many politicians refuse to learn their Economics 101 even today.

In the malls of Gurgaon and Bangalore, the Indian kid is queuing up to buy burgers from Mac Donald’s, we buy aircrafts from Boeing, cars from Ford and insurance from AIG. Guess what is weaning buyers away from the traditional Himachal apples? It is the branded Washington apple imported from halfway across the world. And then we have Kellogg, (from Ohio, incidentally), HP and IBM products or Accenture services. The US cites domestic unemployment to create barriers. But what about a developing country whose unemployment, is in reality and in net terms, a much bigger problem because neither alternative livelihood nor social security exists? How is it that we are expected to open our boundaries from agriculture to healthcare, manufacturing to entertainment, media to financial services? What would happen if local politicians in India were to repeat the Ohio rhetoric and whip up a frenzy against American products and services? The viral effect of Ohio will not be only on other American states; it would, like any virus, cross international boundaries. That is why politicians must understand that rhetoric is not a substitute for resolving fundamental problems on the ground. By using this rhetoric, they create a lose-lose situation.

I understand that the American politicians have a huge problem. They have an electorate to answer to. But then, Peter Drucker, the Austrian-born American management guru, once said, we should shift from solving problems to courting opportunities. Problems love attention. The more you give them your attention, the more they demand. Meanwhile, the opportunities simply go someplace else. That is happening in Ohio. The Governor is trying to solve a problem that will soon engulf him. The reality is that the jobs that have gone away will never come back. What Ohio needs is new jobs that do not yet exist. Jobs are like people: they must die if they are born. You cannot couple a living man with a dead job. You need a paradigmatic shift to create jobs for the future, jobs that will have a life for the foreseeable future. America did that admirably forty or fifty years back and has reaped its benefits since. But today, it is at a loss because new economic models, new enterprise, and newer ways to bridge the distance between lab and land have been neglected as successive American presidents have been distracted from the task of nation-building to policing the world.

Now let us turn to the subject of Indo-US relationship. The US administration must realise that we are not only the largest democracy in the world; that, after Germany, we are the only one still standing on a bedrock of diversity and tolerance. The US administration says we are critical to the values of freedom and the fight against terror. But in the very next moment, even the US President does not mind pitching Bangalore against Buffalo in his crusade against outsourcing, as if Bangalore is growing at Buffalo’s expense! It is a sad deflection meant to buy time from an electorate that is expecting a miracle in a mature economy that has the answers within but it is not willing to change. After that rather sensational utterance, the US President now must skilfully avoid visiting Bangalore because it would be politically sensitive back home. He is thereby missing a great opportunity to emotionally lock-in Bangalore’s burgeoning talent, which Jack Welch considered a globally competitive weapon.

Back in the 1970s, when Indira Gandhi was India’s Prime Minister, she blamed “the foreign hand” for every problem India had. As I grew up, I realised that the so-called foreign hand was a ghost. Then we entered the ’80s and India started opening her economy. Today, no one talks about the foreign hand. We have grown up. We do not blame others for our structural problems; we have learnt to take responsibility for our own failings and limitations. We have exorcised ourselves, and I am amazed that politicians of the world’s most powerful country are going back in time and allowing themselves to be possessed by a ghost that does not exist.

Finally, the real issue is not American job loss. The real issue is American job creation. And American politicians need to stop skirting the real issues behind the declining American economy; they need to stop blaming the foreign hand for a problem that is largely internal to their own country. Working with India and other emerging economies can help strengthen the US economy; indeed, in the next ten years, they will need human capital from other nations to supplement their own diminishing workforce. Rather than bandy about appealing but damaging rhetoric for the sake of a few votes, American leadership will do well to focus on leveraging the immense pool of talent that India has to offer.

©Subroto Bagchi

Comments
Praveen Vaidya Says
Tuesday September 28th 2010

As Indians we have to understand, we have huge potential of youth working in all industries. The youth population that we have, we should convert them into human resources. We should very urgently take sincere steps to reform education sector. US is apprehensive about our children taking interest in Maths and Science. Our government should really work hard to bring in flexibility in education sector that US has. US economy developed basically on innovations in early 20th century. We should learn lesson from US and try to inculcate innovation in Indian education. Oh boy!! US has tough times ahead!!

As usual brilliant argument put forward by Mr. Bagchi.

Tuesday September 28th 2010

An insightful article. I came to know about different perspectives that I was unaware about. Dear Sir, I would like to invite you on XLRI campus for session.

Regards
Sumit

PVLN RAO Says
Tuesday September 28th 2010

we have search for new words to write on this great vision.
A good expression of the Indian IT feelings.

P V L N RAO

Tuesday September 28th 2010

Sir, I TOTALLY agree with the foreign hand. And being in Toronto for a while now, I see that we Indians, have to STOP playing small. Many new developments in our country have a really fresh perspective that is NECESSARY for the 21st economics but people in India who have not ventured out the country cannot really appreciate this. I believe this will change.. :-)

VenuT Says
Wednesday September 29th 2010

Dear Subroto,

As usual you pulled out a great article…nothing comes so close to this one in recent time..

Venu

Sudarshan Says
Wednesday September 29th 2010

Dear Mr Bagchi,
I am a native of Bangalore, live in Sydney and am an avid reader of your books and articles.

In my opinion (and of many others), American economy is a ‘war economy’. They will have new jobs only when some other country suffers with the after effects of a ‘created’ war. They get contracts to supply new ammunition and later only American companies get contracts to rebuild what they have deliberately destroyed!
In the last decade there has been no such use of ammunition and later the use of building materials. Perhaps that explains why jobs are gone.

Could you please analyse this aspect and enlighten all of us.

We are proud of you!

Regards

Sudarshan

Daud Watkins Says
Wednesday September 29th 2010

Mr Bagchi,

Your article was forwarded to me by a talented group of professionals I work with in India called http://www.knowledgefaber.com

As an American Expat that has worked in numerous countries around the world, while I am most certainly not an expert on Indian affairs, since I am in the process of starting a business in India with another business professional, I found your article most stimulating.

In short, while I found your article most informative and well researched, and realizing it is impossible to include all relevant details in a short article, I believe a couple of crucial details could have been included, at the least, you might consider these comments for a future article on your part.

In regards to the sections “Deep-rooted problems” I believe your insight, to use a California expression, was “right on.” Having worked along numerous highly skilled Indians in the past, with companies such as QUALCOMM and Verizon Wireless, as always, our government has wrongly perceived the problem and implemented job losing procedures such as our historically failed government “Protectionist” remedies.

However, consider the fact that our Unions in this country, such as the SEIU, Auto workers, etc… were actually responsible for writing our most recent “Healthcare” bill while exempting them from the draconian tax increases due to be implemented on mostly small business owners and middleclass individuals starting January 1st, 2011. I could talk about this specific issue in depth but I will save this for another time.

Also, concerning our Indo-US Relationship, I believe our current administration does understand that India is the “largest democracy in the world” but alas, that is not the direction our current administration is taking this county; I am sure you are also fully aware of this issue?

In summary, I believe the “Ohio rhetoric” is just the tip of the ice-berg and our administration has no intent of slowing down this ‘protectionist wave.’ Hence it will take the general public, and small business owners such as you and me to make the public aware that India should not become our ‘whipping boy’ but instead we should embrace them as our partners and friends if America plans on competing with the rest of the world’s economies; India is our future, not someone we should fear!!!

Respectfully
David Watkins

Ez (Ezhil Natarajan) Says
Wednesday September 29th 2010

Dear Subroto, you have strongly hit the nail on its head with one statement:

“Finally, the real issue is not American job loss. The real issue is American job creation.”

Wish this blog reaches right people for changes to come through!

Admin728 Says
Thursday September 30th 2010

With all due respect to your words sir, I think your company is more clerical than creative. And you highlight that point more in your words itself. It is more about giving what customers want rather than creating something, same is the case with infosys.

While American companies like Microsoft, Google, Yahoo etc.. are releasing products that use new technology and make new things for the people, all I see Indian companies do is implement the technologies that have been developed by others. Making a software in VB is not great but making VB is (and Microsoft has shown its greatness here).

This does not mean that it is the end of the road, there is always room for development if thought is put into it. I hope sir, that the powerful people in the IT sector take note of the fact that creating new things is equally important and that they invest in development of it. One day we might just get to see an Operating System which is as popular as Windows or Linux which has come out from an Indian company.

    Ram Says
    Friday November 19th 2010

    I think the question Mr Bagchi is asking “Why” is that despite Microsoft, google and yahoo doing great stuff, the american economy is going through a recession. The unemployment is around 10%. Microsoft, Google and Yahoo cannot get enough H1Bs in their staff. They are opening development and R&D centers in India. IBM and Accenture have some of their largest workforces outside of US in India. Every company in America is talking about emerging markets.

    Ohio’s governor’s answer to the above trends is not to outsource to India. Americans are buying this rhetoric and voting for the tea-party.

Kumar Pandruvada Says
Thursday September 30th 2010

No successive governments in AMERICA takes steps to address the issue of reduce the cost of education either it may be graduation or masters in US Universities. Hence they have to bring “folks in” who have that qualification/ability to do or outsource to those who can do it. Every one knows that India has immense pool of talent hence any Business men outsource their business to save their pocket but not do a favor to others especially in business. Today, America may find out that outsource may create or aggravate unemployment, but issue needs to be addressed properly rather divert the attention of people.

Vardhan Koshal Says
Friday October 1st 2010

Sir,

As ever you talked sense…but as I put it, “Being all logical and sensible in a dealing is like having the best phone in posession, it doesn’t work until others have one too.” I understand, and as you acknowledged, that American politicians may have the phones, but they cannot converse, as the public doen not have one of those. I guess now its their time to go through the lower end of development cycle.

Friday October 1st 2010

Thank you Subroto for articulating and responding to this action from the US.

Both sides of the shore some things are common
1. governments are not making it conducive for businesses to start/run and create value for customers (in the process creating jobs, to helping people live, spend money on better things, to bettering life itself etc)
2. governments are not making efficient use of the money taken from corporations that is really creating the money
3. governments fail to understand the complex nature of global business and the drivers (we can go on and on with ‘how we cannot anymore create a car that is fully made in US’ type examples)
4. Dennis Meadows puts it in perspective saying “hard problem is…, to solve it in the long term, you need to do something that makes things worse in the short term”, if the term is only from election to election, there is no hope for solving those lingering and progressively complicating long term problems

I have been an Indian IT professional serving US customers for more than 10 years now. I work for an enterprise that is in turn working for another enterprise and I am committed to creating value for both (through better talent, better solutions, more efficienct use of resources) from within.

Only vote and hope that the next government / policy change would make it a little better,and again, and again wait for another 5 years.

PADMALOCHAN MOHAPATRA Says
Sunday October 3rd 2010

A Sincere and Thought Provoking Article

gautam dasgupta Says
Tuesday October 5th 2010

In this article Mr Subroto Bagchi has thoroughly analysed the real cause for trouble of USA’s economy.I hope that USA would heed to his advice instead of beating about the bush.A nation can not survive with its doors and windows shut.One of the reason for the collapse of Russia’s economy was the close window policy followed by the communist govt.

Vani Says
Friday October 15th 2010

Dear Sir,

Thank you for your wonderful messages.

I represent Positive Revolution which is a research, publishing and training unit. I would like to discuss about a summit we have and want you to be the guest speaker at the event as we would be addressing a group of CEOs. Please help me with your contact details or put me across to the right party who is handling the same for you, so that I could discuss the same and take this forward.

You can also reach me at+91-9902815613.

Regards,

Vani

Somu Chockalingam Says
Monday October 18th 2010

Very good article – nice quote from Peter Drucker. I think we don’t have to do Tit for Tat for Ohio Govt banning but I think we our politicians / media should talk about it so that public in the US are aware of this. Most of the Americans think the world is just US – so unless we say that yes if we stop banning Coke / Pepsi / buying Boeing aircrafts then they have a big issue

Piyush Says
Thursday October 21st 2010

Very well said and apt!!!

Sidhartha Sinha Says
Thursday October 21st 2010

A normal life in US looks like a lifestyle in India. To maintain a lifestyle you have to be different, more innovative, creative, learned. You need to be more knowledgeable to have that lifestyle in a knowledge economy. US had been leading in these but now under pressure as knowledge spreads faster. People everywhere are getting more competitive and gearing up to reach even better lifestyles. The politicians elected by the people cannot blame the people for not trying better. They have to blame foreigners for competing harder and building pressures. It is difficult to create innovative jobs every time in saturated economies. But the people can think smarter and shift where they can find jobs matching their capabilities. !ncredible !ndia is not a bad option.

CML Narayanan Says
Thursday October 21st 2010

I fully endorse your views and appreciate the thought clarity that has gone into this article. Taken in the right perspective it should lead to fruitful discussions in the days to follow, and thus help ‘cutting the guardian’s knot’.

Shakya Bagchi Says
Saturday October 23rd 2010

The understanding of the fundamental economic woes plaguing the USA is simply laudable,I wish some one from the government reads this and better sense prevails.It is very true that job loss is not an issue but job creation is.Loosing the edge in reinventing itself,it’s ways and practices as per the demand of changing times is what pulls a person,a society and a country back.There can always be witch hunts,rhetorics and seeking of scapegoats,but that only buy time(if at all) and aggravate the issue.The real issue is a deep complacency that has set in the 1st world nations caused by ages of economic dominance ,which is causing them to loose sight of a fast changing global economic scenario and it’s demands.
Somehow I feel that this shift is but inevitable and only a part of the greater evolution of the global society which is like a cycle,or a wheel of shifting economic balance.

Tuesday October 26th 2010

A very meaningful insight. Hope Obama reads this.

Janani Says
Friday November 5th 2010

Extremely well written and very true!

Ram Says
Friday November 19th 2010

Mr Bagchi,

Your points are well taken on “What US should be doing?”, “What the real problem is?”. This needs to be articulated. However, what should India’s or Indian Companies’ response be to this?

We live in the real world where politics and politicians have real power and can do real damage. The politics in the US is getting more and more irrational. The economy is not doing well. Nobel prize winning economists are saying that US is going to hit a prolonged period of stagnation with very little growth.

In light of all of these what are you suggestions on how do Indian companies respond to this?

Radha Govind Says
Friday April 22nd 2011

Mr. Bagchi,
A very insightful article. In India, some of the states need to learn from this article.This will take India’s economy to a greater height.
Regards
Radha Govind

Srinivasan Says
Wednesday June 22nd 2011

A fresh perspective on the State of the Affairs in US!

Thursday September 15th 2011

Dear Mr. Bagchi,

Just read your book- High Performance entrepreneur which echoes most of my sentiments as a budding entrepreneur and motivates me. Have started my company last year and am looking at producing and marketing films internationally with a different angle. Following is an article on me: http://yourstory.in/2011/09/magus-entertainment-marketing-distribution-of-indian-feature-films-globally/

http://economictimes.indiatimes.com/news/news-by-industry/media/entertainment-/entertainment/art-of-making-good-documentaries/articleshow/9930289.cms

Would love to discuss the same with you at any convenient time.

Thank you,
Yogesh Karikurve
+91-9820810034

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