Buy a stack of securities from the Union Bank of Switzerland (UBS) in Geneva and your purchase will be registered instantly by a computer program designed in the southern Indian city of Madras and delivered to UBS and other banks by satellite.
If you leave UBS and take the Monday afternoon SWISSAIR flight from Geneva to Jeddah, Saudi Arabia, chances are that your airline payment transactions and those of fellow travelers will be processed by a software system customized in Bombay, India's financial capital.
If you call home from Jeddah, you will be patched through newly installed AT& T telephone lines by a computer system that was designed in India by Roltas India, a diversified refrigerator manufacturer.
"German auto manufacturers operate factories in the United States, American toy makers rely on Chinese workers and most of the VCRs in our homes come from Japan. So why not develop our software in India?" asks Kurt Johnson, analyst at the International Data Corporation in Framingham, Massachusetts, author of a World Bank study, "Software Integration Services: The Risks and Rewards of Offshore Software Development."
"Body shopping"
Designing software - programs that instruct a computer how to perform tasks such as word processing, number crunching, communications and business transactions - requires three resources: highly trained personnel, computer equipment (or "hardware") and a means to deliver the product to clients. The equipment costs a few thousand dollars and can be set up in a matter of minutes anywhere in the world. A continuous power supply and a dependable telephone line to transmit data to clients are also critical software-production assets. These services can be hard to obtain in India, but have been made available recently to those willing to pay a premium price. Finally, trained personnel are abundant in India. Training institutes such as the National Institute for Information Technology (NIIT) are matriculating more than 100,000 computer programmers each year.
Indian programmers rarely create major cutting-edge commercial software packages. Their typical roles in the global economy include customizing commercially available programs to a particular customer's needs and updating or debugging smaller commercial packages. But while good software engineers can earn $100,000 a year in California, their best and brightest counterparts in India earn $10,000. Less-qualified programmers in India are put to work on the monotonous routine of keying in largely repetitive computer code. In some large programming projects, this code can run millions of lines long, coding that would take a single full-time programmer 100 years to enter.
The origins of India's entry into the information technology race date back to the early 1980s. At that time, a generation of computer professionals that had trained at India's world-class engineering universities traveled abroad in search of jobs because there were few computers, let alone jobs, for professionals with their talent in India. A prominent example was Sun Microsystems co-founder Vinod Khosla, who realized his dream of setting up an international computer company and retiring by age 30. Today, Sun, which he helped create in 1982, is a $5.5 billion company with 13,000 employees.
Around that time, the computer industry made its transition from huge, prohibitively expensive "mainframes" to more affordable computer workstations and personal computers. Meanwhile, the Indian government slashed tariffs on computer imports in 1984 to promote the industry. Khosla's would-be followers started to bring personal computers to India. They quickly realized that Khosla's success could not be duplicated easily but that there were other ways to make money in the computer industry. One of these is to take advantage of the low cost of Indian programmers both in India and by sending them to the United States on work permits, a practice Indian programmers call "body shopping."
Just as General Motors moved some of its automobile factories from Michigan to Mexico in recent years to reduce labor costs, companies like Hewlett-Packard, AT& T, Xerox and IBM are looking to India for cheap programmers. Just as the move to Mexico by Detroit's Big Three automobile manufacturers threw thousands of their U.S. employees out of work, U.S. software engineers are being forced off the information superhighway as it detours through India.
Today, some 275 Indian companies export software. The biggest software exporter in 1994 was the Bombay-based TCS group, which earned $67.3 million, followed by the joint venture Tata Unisys, another Bombay company, which grossed $25 million in 1994. According to Johnson's World Bank study, just 1 percent of the $32.3 billion worth of annual computer programming sales are made in India. But India's share of the industry's sales has been expanding by more than 50 percent a year for the last three years.
Silicon Valley goes to Bombay
Palo Alto, California-based Hewlett-Packard already owns a company in Naida, India, called HCL, the biggest computer company in the country. While it is primarily involved in selling computer hardware and peripherals, more than 11 percent of its $118 million in annual sales are derived from software exports to industrialized countries. HCL now runs a distant third among Indian software exporters, but may be looking to expand. Hewlett- Packard announced plans in December 1994 to invest $24 million to expand its Indian programming staff from 140 to 2,000 by the year 2000. The investment amounts to just 0.1 percent of the company's $25 billion global annual revenue.
"The skill levels and ability of Indian professionals to bring timely solutions was unique on a global basis," says Mike Leavell, the general manager of Hewlett-Packard's Solutions Integration Group, explaining the company's expansion in India.
Other companies, such as IBM, prefer to contract work out to Indian programmers rather than open their own plants on unfamiliar soil. Some of IBM's work is done by a company called Tata Consultancy Services (TCS) of Bombay, India's largest software exporter. Tata employed 4,500 people to churn out $67.3 million worth of software in 1994. About 350 of these employees work as contractors for U.S. clients.
The U.S. market accounts for 60 percent of all Indian software sales. Until two years ago, most of this exported software was produced on U.S. soil by employees of India-based companies or their foreign affiliates. Until recently, recurring problems in exporting software over Indian telephone lines prevented more work from being done in India.
Bringing Bombay to Silicon Valley
Employing Indian programmers in the United States has diminished recently, after the U.S. Department of Labor discovered that the Indian companies were exploiting immigrant programmers by paying them $15,000 a year plus housing and travel, a bargain compared to the $70,000 plus benefits that their average U.S. counterparts receive. The practice, however, violates U.S. laws. Companies seeking to hire foreign programmers in the United States must certify that the foreigner will perform a job that no U.S. citizen can do. They also are required to pay the foreigner the prevailing market-rate salary for a particular occupation. Many companies report the market-rate salary to the Labor Department but pay the foreign workers substantially less.
Take Rajesh Ahuja (not his real name), a computer programmer from Bombay, India, who was hired by HCL and sent to its offices in Palo Alto, California, on a B1/B2 visa in 1990. This visa is intended for foreign consultants to work in the United States for relatively short stints. Ahuja worked anywhere HCL sent him, at whatever company he was subcontracted to, and was required to work overtime without extra pay at HCL's behest. Ahuja says he did not like the body shopping exploitation, but that it afforded him a unique opportunity.
When asked why he endured the exploitation, Ahuja explains, "All my life I have dreamed about coming to the United States and being able to go to New York and Disneyland, and listen to bands like the Rolling Stones. I get to do this for two years and my flight is even paid for."
"I shared a two-bedroom apartment and a car with three other programmers, and got $40 a day for expenses. This is enough for me and plus I get my Indian salary of about $800 a month paid into my bank account in India, which is all savings," Ahuja told Multinational Monitor.
Ahuja spent most of his stay in the United States working for Mountain View, California-based Sun Microsystems. For Ahuja's services, Sun paid HCL $50 an hour, about half of which remained with HCL. Once Ahuja completed his assignment at Sun, he returned home for what he intended to be a brief visit. In India, however, Ahuja learned that HCL had not bothered to renew his visa, and he could not return to the United States.
"That's typical of them. When I lived in California, one person would be in charge of all the paperwork, transportation and living arrangement for 160 of us who lived in an apartment complex they rented for us," he said.
Recently, stories of more blatant abuse have emerged. Kala Sivasubramanian, for example, is an Indian programmer who was brought to San Francisco by TCS. When Sivasubramanian tried to leave TCS for another company, the company sued to enforce her contract, which called for her to pay more than $30,000 to the company if she quit.
D.S. Fastri, the lawyer who represents TCS, says it has sued 16 former employees successfully. "I cannot tell you whether we received any compensation because the courts have ordered us not to release any information about the cases," he said. "The judgment in the Sivasubramaniam case was in our favor but there are still matters that have to be settled."
The boom in visiting Indian programmers has served U.S. companies well. Maynard, Massachusetts-based Digital Equipment Corporation (DEC) has cut over 20,000 jobs in its U.S. offices since late 1991, during the same time that it sought permission to bring in thousands of Indian programmers.
Backlash
The Texas-based Software Professionals' Political Action Committee (Softpac) estimates that between 1990 and 1993, 50,000 temporary computer workers entered the United States and 100,000 computer professionals immigrated to the country. During the same period, the number of unemployed computer professionals doubled to 104,000.
"They compete unfairly with their low wages," Doug Pfenninger, a Los Angeles programmer with 27 years experience, told the Los Angeles Times after losing several jobs to immigrant workers.
Pfenninger, who has worked for such leading aerospace companies as Rockwell International, Northrop and Lockheed, lost a job with Hughes Aircraft during a wave of cutbacks in 1992. After losing his house, he took a contract job on a project for Hitachi America in Northern California. After three months, he lost that job to a lower-paid foreign programmer.
Also bitter was Lou Citarella of Livingston, New Jersey, after he lost his $52,000 job at the American International Group (AIG) to an immigrant who he had trained. AIG's immigrants were brought to the country by Syntel, a Bombay-based software company that specializes in bringing computer workers from India. Most of the company's contracts are signed through its U.S. office in Troy, Michigan. Its 300 employees work for such clients as AT& T, Xerox, Safeway and AIG. Syntel's 1994 revenues were $1.3 million, a 268 percent increase over the previous year.
The immigration of programmers set off a storm of protest in California from unemployed programmers as well as from anti-immigration groups like Californians for Population Stabilization, which sued HCL in 1993 for underpaying its programmers. As a result of the lawsuit, Hewlett-Packard agreed to cut some of its "body shopping" and requires its contractors to provide proof of pay.
The U.S. government imposed visa restrictions in 1994 on foreign programmers, causing the percentage of "on-site" programming sales conducted in U.S. offices to drop to 63 percent from 1993 to 1994. During this period, the number of programmers allowed into the United States dropped from 2,000 to 1,092.
The Department of Labor investigated alleged abuses of foreign workers and issued fines in eight cases in 1993. This year, the Labor Department fined Syntel, the company that helped put Citarella out of work, $117,000 for underpaying 40 Indian programmers. The company has been suspended from bringing in new programmers for a year. Syntel, which was bringing in programmers from its three-year-old Bombay subsidiary, was placed under observation when complaints were received about its "willful underpayment" of AIG contract workers.
In February 1995, the Department of Labor announced new rules under which employers will be required to certify that they pay their foreign employees the prevailing wage rate, that their plants have no strikes or lockouts and that they are not endangering U.S. jobs. The agency also pledged to investigate suspected abuses without awaiting formal complaints. But how effective these rules will be remains to be seen. Larry Richards, executive director of Softpac, says he filed an application last December to hire foreign programmers at $5 an hour, a rate far below the prevailing wage. His application was approved in just six days.
International outsourcing
Even as the Labor Department has taken some steps to clamp down on abuses of foreign programmers in the United States, the demand for such workers on U.S. soil appears to be diminishing as constraints on performing such work in India are overcome. The Indian government has authorized the installation of new high-speed telephone lines that allow programming to be done in India and sent to overseas customers. This infrastructure improvement - an 18-fold increase in the number of dedicated high-speed telephone lines since just three years ago - allows data to be transmitted to the United States at 64 kilobytes per second, the equivalent of 5 million words an hour.
The first "body shoppers" arrived in Silicon Valley in 1987 and soon business was booming. "In 1984, the government still believed in self-reliance, indigenisation and protection of the domestic [computer] industry," Murli Menon, editor of India's C& C magazine, wrote in his 1994 round-up of the industry. "Today, in 1994, self-reliance and indigenisation have given way to phrases such as ĉfree market' and ĉeconomic liberalisation' ... and India has made its first step towards becoming an international player in the infotech business."
Although India's gain is a loss for U.S. programmers and foreign workers still face hurdles in crossing international boundaries, programming work itself faces no such barriers if sub-contractors can provide clients and consumers with quality products at rock-bottom prices.