U.S. workers whose jobs have moved overseas, take solace: At least the companies who do the actual outsourcing aren't making that much money. Outsourcing is purportedly a $1.2 trillion business, according to the International Association of Outsourcing Professionals. But it's a very low-margin business.
Witness Lionbridge, a U.S.-based leader in the outsourcing business, who works for the likes of Google, Microsoft and Motorola. The company posted record earnings in the last quarter, but that total was still paltry: Just $3 million on revenue of $110 million.
Still, that top-line number was $7 million above what Wall Street was expecting, so Lionbridge Chief Executive Rory Cowan was in a good mood this week when he talked about the company's prospects and the state of outsourcing in general.
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You recently signed a three-year contract with Microsoft. What outsourcing work are you doing for them? Is it outsourcing new products or services?
The contract with Microsoft is based on a combination of our language technology and offshoring capabilities. We're a country with operations in about 30 countries.
Some of what we're doing is new. When Microsoft wants to engineer a product in Japan or China, we reengineer user interfaces and transfer materials to make that happen. We handle everything from tech support sites to their dynamics product lines and accounting and ERP [enterprise resource planning] systems. We do Microsoft Office in several languages.
We utilize language technologies with several companies. For Porsche, we maintain service manuals in multiple languages on the Web. For Google, we do their paid advertisements, so if a Google customer buys an advertisement for paid placement, we translate text and make sure the coding works for whatever region of the world they're viewing it from.
What are the new trends in the outsourcing industry?
A number of things are happening. Clearly, competition in India for general programming skills is really heating up. Because we work in multiple languages, we attract a unique caliber of Indian employees and have a have a direct recruiting advantage there.
China is really beginning to 'work.' China has had a long startup phase because of language and skill issues. We're beginning to see great productivity there. Because China's domestic market is larger and growing faster than India's, it's important to our customers.
Industrywise, I think you're going to see a lot of contract research on compliance in pharmaceuticals that will rely increasingly on outsourcing since it's so labor intensive.
The challenge for outsourcing is that rather than working on wage arbitrage, how much of knowledge can you take to a new country? The new goal is not to find a new, inexpensive country, but to find a new, inexpensive technology.
What are the advantages of being an outsourcing firm based in the U.S.? What are the challenges you face?
As an outsourcer, we're clearly an American company. But the majority of our employees have been outside the U.S. since founding. In the operational and programming sense, we are quite diverse because of our employees in so many locations. And it's easy for us to help a client firm go global.
We understand the cultural needs of our clients. For instance, for a product in the German market, our sales people and marketing people are in Germany though the execution may be done in India.
But a few years ago, when we had very small outfits in places like India and China, I felt we were sub-scale. I believe a 1,000-1,200 person workforce is the smallest effective number you can have in India. Now that we're large in many countries and have the power of the Internet, we have a flexibility and nimbleness others don't.
Our job is to translate software products, medical devices and Web sites. We focus on language and technology rather than, say, banking and finance.
Companies in India, known for call centers, are now turning down contracts from foreign firms because these are no longer seen as lucrative. What are the new destinations for these jobs?
The call-center business is one that migrates around the world. In the past decade, India took most of those jobs. This is likely to continue on a global scale. India has such a skill concentration, deep knowledge and awareness of IT in the U.S. and U.K. That coupled with the fact that many tech employees in the U.S. and U.K. are of Indian background. Don't count India out yet.
But growth rates there may slow as some of the newer projects and sophisticated outsourcers take the risk of going to say Vietnam or the Philippines, or head to China. Though China's infrastructure is vastly superior to India, its human capital is not as developed.
[In 2000, call centers accounted for 85% of back-office businesses in India. That number is now 35%, according to Nasscom, India's trade body for the software services industry.]
In an increasingly unstable world climate, what are the advantages or disadvantages of sending a company's operations to foreign shores?
We're in about 30 countries. And we treat India, China, Singapore, all the same. In a dangerous world, what you want to be able to do is make sure the knowledge is hosted in an Internet cloud that is unaffected by physical problems. During the floods in Mumbai last year, we could have our employees in places like China finish the work when the power went off in Mumbai. The way to mitigate the risk is have a presence in multiple locations.
We're also finding that the Web is totally transforming the services business. We are a services company with an embedded services division. People have access to our technology from anywhere in the world via our Web site. And at one time, our employees in 20 countries can interact through the Web. The translation business that we have used to be fragmented country-by-country, but the Web has streamlined the process.