U.S. firms outsourcing to India to cut costs

Tuesday, 25 February 2003, 08:00 Hrs
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WASHINGTON: With the U.S. economy still showing signs of sluggishness, a host of companies are moving to cut spending by outsourcing jobs to countries like India that has made low cost its competitive advantage.

And the latest to join the list is Pratt & Whitney and its sister divisions at jet-engine manufacturers United Technologies Corporation (UTC).

The companies are slowly passing on engineering and production work to India-based InfoTech Enterprises Ltd., a company that has grown rapidly by courting European and American businesses eager to cut costs.

Over the last two years, the two companies had sent thousands of manufacturing and computer jobs overseas and now they are pushing white-collar jobs as well. InfoTech Enterprises is already doing the work of about 200 engineers for Pratt.

Another firm considering outsourcing is global financial services giant Citigroup Inc., which recently said it was likely to expand its customer call centre operations in India.

UTC chairman George David says sending more engineering work overseas would help the company keep its pricing competitive.

David likened the outsourcing of engineering work to UTC's "very successful" efforts to move IT services to outside contractors. The number of IT workers employed directly by UTC has halved since 1996, a decline of 1,200 positions.

Most of the work sent overseas by UTC, for example, was done by U.S. subcontractors.

UTC is not alone. White-collar work in fields ranging from accounting to architecture is fast moving to low-wage countries in Eastern Europe and India.

Consulting firm Forrester Research predicts that 3.3 million service jobs - along with $136 billion in wages - will leave the U.S. over the next 15 years.

UTC spokesman Paul Jackson, however, says engineers are critical to designing new products, figuring out how to manufacture them and planning their maintenance.

Their work can't be outsourced to the extent that IT services have been, Jackson told Hartford Courant, the oldest newspaper published from Connecticut.

He said UTC has to balance its need for technical expertise with the need to attain that expertise at a competitive price.

Achieving that balance may result in the outsourcing of engineering work that has "low strategic" importance, but "most of the key strategic work occurs in Connecticut, where it will remain".

Traditionally, a job as an engineer at Pratt and UTC has always meant job security with a decent salary, good benefits and a promising future.

Today many engineers fear they could one day be competing with engineers overseas who are paid a fraction of U.S. wages. Even if the U.S. engineers don't lose their jobs as a result, competition is likely to affect salaries.

Engineers say U.S. wages have stayed high because there is a shortage of people. Sending work overseas would ease the shortage in the short term, potentially driving pay scales down. That could aggravate the shortage over the long term.

Edward Crow, retired vice president of engineering at Pratt, feels that the firm must draw a line on what will and won't be sent overseas.

So far, Crow said, the work sent to India is tedious, low-level engineering that his staff hated to do anyway. The scope of the work will grow, Crow said. Pratt needs to keep costs in line and it needs to find engineers to get its work done.

Pratt also hopes that sending work to India, with a rising number of air travellers, will help it win engine contracts when airlines there buy jets.

Others suggest the loss of work to places like India and Russia will be painful, but could push U.S. engineers to specialise and focus on higher-level work.

Source: IANS
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