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The White Collar Migration - Part 2

by Chris Gaither Thursday, Nov. 06, 2003 at 3:56 PM

US Workers See Hard Times High-Tech Firms Say Outsourcing Crucial To Survival

RAMINGHAM -- Andre Brassard keeps sending out resumes but has largely given up on the profession that employed him for a decade: writing software.

In his old department at Mindspeed Technologies Inc., most of the software engineers are gone. The work Brassard and his colleagues did is now largely done in Ukraine for one-quarter to one-third the cost.

"What has happened to me is irreversible," Brassard said. "It's not like the downturn of 10 years ago. Then it was just bad times."

In the next generation of high-tech companies, entrepreneurs and venture capitalists are making the outsourcing of jobs overseas part of their business plans from the start. Ruthlessly, perhaps, they see outsourcing as the latest innovation in an industry built on innovation.

"Right when you think about Employee 11, you should think about India," said Ravi Chiruvolu, a general partner with Charter Venture Capital, a Palo Alto, Calif., firm that invests in fledgling technology companies. "My view is you should not start a company from scratch in the United States ever again."

Outsourcing is dramatically changing the way companies of all sizes distribute their workers, hitting hard places like Boston, the second biggest tech center behind Silicon Valley. People and companies are forced to adjust, often with great pain, to a fundamental restructuring of America's role in the global technology industry, one creating a sharp division between the people who invent and sell software and those who actually write and maintain those computer programs.

To the surprise of white-collar programmers who thought themselves immune, many of their jobs have turned into "grunt labor" positions exported to India, China, Russia, and other countries and filled with skilled but less expensive workers. IBM Corp., Oracle Corp., Microsoft Corp., EMC Corp., and other high-tech leaders have set up software design and maintenance centers in India, and scores of other large companies have farmed programming work to Indian consultancies.

The Boston economy has gone through enormous transformations before. There was the 1980s defense industry crash, the 20th-century exodus of textile jobs, and the country's western expansion that made the region's farms uncompetitive by the late 1800s.

Each time, Boston survived, innovated, and ultimately thrived. Economists disagree on what will happen this time and when. Locally and nationally, it's clear right now that the economy is growing rapidly but job growth is not.

Proponents of outsourcing say the brilliant ideas that fuel new companies will continue to emerge and win venture capital in the United States. Start-ups will still incorporate in the United States with hopes of winning American customers and going public on the Nasdaq stock exchange. But after the first few employees create a technology and a plan for selling it, the costs of readying that technology for the marketplace will force young companies to think globally.

A prime example of the new tech model: Lumenare Networks, a Sunnyvale, Calif., company that creates programs for testing complex software, network equipment, and data storage systems. Lumenare was on the verge of shutting down under heavy debt in early 2001. When the board hired new executives to rescue the company, one of their first moves was to fire 12 contractors writing software code for 0 an hour and replace them with a team of Indian programmers earning to an hour in Noida, a suburb of New Delhi.

Within a few months Lumenare was saving so much money that Phillip Cavallo, the chief executive, moved all software development and maintenance to India, despite resistance from some of his upper-level managers. He laid off 30 American programmers in Sunnyvale and hired replacements in Noida.

"Software engineers - India produces about a million of them a year - are a commodity," Cavallo said in a phone interview from India, where he was visiting employees and trying to sell software to Indian outsourcing firms.

Today 35 coders work in Lumenare's office in India, writing new software and testing it. In the Sunnyvale headquarters, which once employed 45 people, only 15 Lumenare employees remain: Cavallo and other executives, some accountants, the sales and marketing team, program managers who install the software for US clients, and engineers.

"I don't think the company would be here if we hadn't made these moves," Cavallo said.

The high-tech industry is legendary for booms and busts that produce millionaires and then pink slips. But losing jobs overseas was once a problem reserved mostly for blue-collar workers. The Internet boom, which at first sparked an employment surge in the United States, also created the means for a white-collar variety of offshore outsourcing. Information became increasingly digital. Faster and more pervasive Internet connections enabled anyone sitting at a computer, anywhere in the world, to do much of the same work as an American.

"I thought I was safe," said Janice Johnson Kuhl, a software engineer in Mill Valley, Calif., who until the work dried up two years ago, designed computer systems for two decades as a consultant for Visa International, Providian Financial Corp., and the California State Automobile Association.

Since then, Kuhl found only one monthlong contract, and that was for investigating why a million programming job outsourced to a major Indian consulting firm was million and 18 months overbudget, she said.

"War on Nerds" is how Keith Scruggs, a 38-year-old unemployed developer, described it on a picket sign he carried at a Concord, Calif., antioutsourcing Labor Day rally. About 30 software coders, dressed in Silicon Valley's rumpled uniform of jeans, T-shirts, and Hawaiian prints, sipped bottled water and exchanged pleasantries under the Northern California sun. Then the techies picked up their picket signs and began shouting for three hours outside Bank of America headquarters, decrying the company's use of foreign programmers to do work Americans once did.

Gartner Inc., a Stamford, Conn., research and consulting firm, estimates that 10 percent of all the jobs at US information-technology vendors and service providers and 5 percent of all tech jobs in more general companies will shift offshore by the end of next year. Fewer than 40 percent of American workers who lose their jobs to outsourcing will find work within the same company, Gartner forecasts.

Brassard has been trying to latch onto any tech company since Mindspeed, a California maker of networking chips with local offices in Westborough, let him go from his job writing testing software on Jan. 19, 2002.

"I can't even get replies on applications, let alone interviews," he said. "It's that tough."

Because of his wide knowledge of computer languages, Brassard once thought he was indispensable. He has since become certified as a tennis instructor and enrolled in a real estate appraiser training program.

Mindspeed hired ArrAy Inc., an outsourcing company based in Westborough, which shipped most of the work to the Ukraine. ArrAy now employs 40 programmers in Westborough and 60 total in the Ukraine and Russia. The company is exploring an expansion into China and Bangladesh.

"In order to stay competitive in the business we've built at ArrAy, we have to have offshore capabilities," said Charlie Palmer, ArrAy's CEO. "That's troublesome to me as an American citizen."

Still, there are many benefits to outsourcing. A recent report by management consultant McKinsey & Co. said outsourcing helps US companies become more profitable and cut prices to consumers, as well as boost the export of equipment and software to the developing countries doing the outsourcing work. "Unless we pander to protectionism, there is no good reason to believe that our dynamic job-creating economy cannot absorb the level of change" posed by outsourcing, the report said.

Just not immediately. Marc D. Lewis, president of Morgan Howard North America, a job placement firm, said software coders used to making ,000 or more a year will have to learn newer programming languages to stay employed.

"The new jobs creation in this country will stem from intellectual property gains and creativity and better uses of human and machine intelligence," he said.

The invention of new applications, installation, and customization of new systems, and sales and marketing will stay in the country, said former Labor secretary Robert B. Reich.

"These are the jobs that cannot be done by specialists on other sides of the world," said Reich, a 2002 gubernatorial candidate in Massachusetts. "When we get out of this jobs recession, there will be a large and growing number of technological specialties available to Americans."

- Chris Gaither can be reached at gaither@globe.com

© 2003 The New York Times Company


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