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Outsourcing at home – while some companies are outsourcing jobs overseas, others are expanding at home.

While some jobs lost to offshoring, others coming in, officials say

On Missoula’s Palmer Street, within sight of the box stores on Reserve Street, two modest buildings tell a quiet tale of the effect of global outsourcing on Montana.

By ROBERT STRUCKMAN of the Missoulian

http://missoulian.com/articles/2004/10/18/business/bus01.txt

Amid signs for familiar insurance companies is one for TCS America. The long form of the name is Tata Consulting Services America. It has been sending jobs to India through its Missoula offices for years, said John Riley, who heads the local branch of the New York-based subsidiary of the Indian multinational company.

Riley is quick to add, and many economists agree, that global outsourcing is not a significant factor in job losses in the United States. Over the past decade, though, the issue has gained political prominence as manufacturing centers and, increasingly, white-collar and business-service jobs have moved operations to cheaper labor markets in other nations.

In the past two years, U.S. companies have exported 851,800 office jobs to, among other places, India, China and Canada, according to Daniel Kah, an economist with Austin-based Angelou Economics. Kah recently wrote a report, "The Future of White Collar Offshoring," using data from the U.S. Bureau of Labor Statistics.

The trend is accelerating; American firms increasingly send work offshore for a broad array of services, Kah wrote in the report. Another 832,000 will go overseas in 2005, 963,500 in 2006, and on and on.

It hurts when those jobs leave, Kah said. But what about the silence of heralded jobs that never arrived?

There’s no telling how many of those white-collar service jobs Missoula might have won, had economic trends developed differently, western Montana experts say.

"It’s a lost opportunity," said Rosalie Cates, of the Montana Community Development Corp. Many others, including Dick King of the Missoula Area Economic Development Corp., said the same thing.

"Montana, specifically Missoula, was poised to get a share of those jobs," Cates said.

In the latter 1990s, with an educated work force, low regional wages and a national trend toward increased domestic outsourcing, Missoula stood ready to roll up its shirt sleeves and push paper.

But that’s when offshoring spread from the manufacturing sector to the office buildings. And while Missoula and Montana have gained some jobs from domestic outsourcing – mostly from small firms that work within the medical, insurance and financial fields – the predicted influx of those jobs never occurred.

Cates also said that while it is easy to be upset over the offshoring of jobs, it is neither fair nor appropriate to blame the companies involved.

"If Missoula wants to be successful, in the global markets, in the tech sector, outsourcing has to be present," she said.

Not that outsourcing was unknown in Missoula or Montana in the mid-1990s. Years before his association with TCS America, Riley headed a small company called Apollo Innovative Systems. Apollo was part of another firm, Combined Benefits Insurance Co., which in turn grew out of Blue Cross Blue Shield of Montana.

Apollo and Combined Benefits were part of the explosion of domestic outsourcing. Both began as departments within parent companies. As their share of the work – a few steps in the processing of insurance claims, for example – grew more specialized, they split off from the parent and began offering those same services at low cost to other insurance companies.

Apollo was adept at both winning contracts and finding low-cost work solutions, in part because Riley discovered India’s cheap labor markets in 1997, he said.

That’s why Riley was a natural choice for TCS America when it wanted to expand its North American operations in 2002, said Victor Chayet, a Denver-based spokesman for the company.

White-collar offshoring had already begun by that point. In fact, the way had been paved in large part by Tata Group, the parent company of TCS America. Tata officials had laid the groundwork in India decades ago: endowing colleges and technology schools there and investing in the necessary infrastructure.

TCS America is only one small branch of the diverse Tata Group. The century-old company is to India what Carnegie, Rockefeller and Ford during their heyday were to the United States.

As the U.S. economy rode the technology boom in the 1990s, TCS America and other offshoring companies were perfectly situated to offer high-quality white-collar labor at a low cost, Chayet said.

But U.S. companies quickly realized that it was cheaper still for them to spin off their own subsidiaries in the Indian city of Bangalore and other offshore technology hot spots, Kah said.

"Businesses like IBM and others learned to compete with Tata on price and developed U.S.-based outsourcing with the full spectrum of services here and abroad and American salespeople who could (relate) face-to-face with clients," Kah said.

That’s when foreign-owned subsidiaries such as TCS America broadened their presence in North America. That was commonly done through the purchase of small outsourcing companies such as Apollo. TCS America has grown to more than 50 offices in North America over the past few years, Chayet said.

In March 2003, when the company opened offices in Buffalo, N.Y., Democratic U.S. Sen. Hillary Rodham Clinton was on hand to offer congratulations. The office collaborates with the University of Buffalo on research and development for TCS America, the second fastest growing IT consultancy in America.

"To be sure, the bulk of our employees are outside the country – Brazil, Uruguay, Hungary, China – but our presence in North America is growing," Chayet said. Most of the company’s contracts required a combination of on-site and near-site work, along with the off-shoring.

Riley and Apollo offered TCS America access to the property, life and casualty insurance markets. The purchase of Apollo has "paid off in spades," Chayet said.

For his part, Riley has corralled a significant amount of work, most of which has gone to TCS’ sister company in Bangalore, said Chayet and Riley. TCS employs 21 people in its Missoula offices.

TCS America’s total payroll has grown from 18,000 employees in 2002 to 35,000 employees this year. About 8,000 of its employees are in the United States. Its revenues have also grown, from $1 billion two years ago to $1.6 billion this year.

In a charged election-year environment when economic worries are running high, this can seem like pretty inflammatory stuff.

Chayet said it is the "second largest national issue, next to Iraq."

"It’s an intense environment in which we deliver our services. An Indian company doing IT in America. Š What’s your first thought? There is small whiff of xenophobia in there," he said.

Still, Chayet agreed that there is some truth to Missoula’s "lost opportunity" argument.

"But is all lost? Certainly not," he said.

He cited Missoula’s stable and educated work force and a "pay scale that creates savings" – those familiar, commonly touted factors that are supposed to make Missoula tempting. The onus is on Missoula and Montana to win some of that business, he said. He would like to see it happen; it would be good for TCS.

"TCS (in Missoula) should be like a magnet. It is to our benefit to have a technology community in which to work," he said.

To that end, TCS America may grow its Missoula operations.

"We’re fortifying our already-deep roots in the United States," Chayet said.

Riley, for one, has been predicting TCS America growth in America for years and the time may be right for expansion. He explained that TCS recently went through an initial public offering of stock in India. The process leading up to its public offering took an arduous three years, Riley said. During that time, some of the company’s plans were on hold.

Kah suggested that the political heat about offshoring makes American-based outsourcing more appealing to U.S. corporations. Chayet agreed, but he noted that other factors, including price are important to client companies.

"In every consideration, it’s about serving customers better. We know that the technology we deliver is of great value," Chayet said.

For financial-service companies in particular, the cost savings of overseas operations have been unimpressive, Kah said, especially given security concerns and the higher cost of quality control. Fidelity Investments recently opened a major support center in Kentucky after looking overseas, Kah said. Idaho has had a lot of success recently, too, he added.

Increasingly, TCS America’s portion of the contract work is being done on-site (in the offices of the client company) or nearby, rather than farther afield in India or Hungary, where the company also has offices.

"In some cases, we may demand to be on-site. For instance, it’s too inflammatory to do government work off-site or offshore," he said.

One example of work done by TCS America’s Missoula office involves its contracts with the state of Montana’s Information Technology Division. One of the contracts totals about $100,000 for the fiscal year that ended in June. One TCS America employee, based in Missoula, actually does the labor – mostly programming and support for the Montana Department of Transportation’s Motor Fuels Customs Tracking System.

The employee, who brings TCS America $45 per hour, performs the work on-site in Helena, according to Jeff Brandt of the state’s Information Technology Services Division in Helena, whose department oversees the IT contracts.

Montana has no laws against the state offshoring or outsourcing its contracts. Not that TCS America – it has a Montana address and is part of a company based in New York – would necessarily be excluded by any such law.

And by all accounts, TCS America does wonderful work and meets terrific standards.

As the company continues to grow, some of that work – maybe as many as 200 jobs – might come to Missoula. Chayet thinks so. Riley said, "It might happen any day."

"That’s one of my challenges. We’re looking at how we can give back to the Missoula community," he said. He also said the Missoula offices of TCS has ended its relationship with its sister company in Bangalore.

Still, Riley has not started looking at real estate. But with a company the size of TCS America, expansion certainly is possible.

"When it happens – if it happens – it will happen fast," Riley said.

Reporter Robert Struckman can be reached at 523-5262 or [email protected].

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