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At the center of a culture shift

A pioneer says outsourcing will ultimately benefit US, India. Others are less sanguine.

CAMBRIDGE -- It doesn't look much different from the other three-family, gambrel-roofed homes lining the blocks behind Central Square. But for students of the Indian outsourcing movement, the olive gray house at 10 St. Paul St. could qualify as a historic landmark.

It was here, in the fall of 1972, where one of the earliest ''offshore" business models was conceived and tested by Indian-born MIT graduate Narendra K. Patni and his bride, Poonam. Their experiment has mushroomed into a business empire, and a global phenomenon that is fueling productivity -- along with controversy.

The newlyweds launched a pilot project in their third-floor apartment, designating the living room as the ''United States" and the bedroom as ''India."

In one room, they wrote instructions for the conversion of data from paper documents to computers. In the other room, a small team of MIT students typed the data into a Flexowriter machine that spat out paper tape -- the first and most labor-intensive task in what then was a multiple-step, data-conversion process.

A key ground rule was that there would be no oral communication -- only written notes -- between people in the two rooms. That was because phone connections between the United States and India were still spotty in the 1970s. Written instructions would have to suffice.

''That was the first major attempt to outsource services," said Narendra Patni, 62, who shuttles between his US office in Kendall Square and his headquarters in Bombay as chief executive of Patni Computer Systems Ltd., a $250 million-a-year technology services firm that recently went public in India. ''I felt from the beginning there was economic significance to it."

His wife has a different, less grandiose memory. ''It wasn't easy hauling the Flexowriter up all those stairs," she recalled.

Poonan Patni flew to India in June 1973 and set up shop in the city of Pune, outside Bombay. There about 20 employees typed copies of US court documents for the LexisNexis information service, movie summaries for the American Film Institute, and catalogs for the American Mathematical Society. Each week, boxes of paper tape were flown back for processing through readers and conversion into the magnetic tape that was fed into computers.

Patni, who came to the United States in 1964 on an MIT fellowship, at the time was president of Forrester Consulting Group, which advised companies and government agencies on technology issues. Soon after, he left Forrester and, with Poonan, set up Data Conversion Inc.

That later merged into what is today Patni Computer, a company with 7,000 employees worldwide, major holdings by Patni's family in India, and a public listing on the Bombay Stock Exchange.

While he is well known in his native India as a founding father of offshore technology services, Patni has kept a low profile in the United States and avoided talking to the press for decades. After his company began trading its stock publicly in February, however, he decided to tell his story in this country as well.

The company runs a ''location agnostic" operation that helps global companies in the insurance, financial services, manufacturing, and other sectors manage their technology functions from bases around the world.

''The technical work can be done anywhere: in the United States, in Nova Scotia, or in India," Patni said. And the implications of such global sourcing extend beyond information technology. In the future, ''wherever I live," said Patni, ''my doctor might be in Boston, my secretary in Bangalore, my accountant might be in Bermuda."

While he recognizes that international outsourcing has rankled critics here, Patni, who attended Woodstock in 1969, raised his family in the Boston area, and became a US citizen in 1980, believes the trend will ultimately benefit both the US and Indian economies.

Forrester Research of Cambridge released a report last week projecting the number of US business service and software jobs migrating to India and other countries would increase to 588,000 this year, from 315,000 in 2003. The number of outsourced jobs is expected to increase again next year, to 830,000.

Outsourcing advocates, such as Patni, point out that the lost work represents a small fraction of US gross domestic product. And they contend the overseas flow of low-wage jobs, in fields such as customer call centers, brings savings to the US economy and enables it to invest in higher-value activities, such as biomedical research.

''What the United States has to offer is unusually deep and unusually strong," Patni said, citing the openness, innovation, and creativity of his adopted nation. ''I've stayed in the United States. I've spent more of my time in the United States than I have in India."

Even among Patni's admirers, not everyone is so sanguine about the impact of outsourcing, especially as the practice spreads to higher-wage job categories such as software programming.

Jay Forrester, a retired professor at MIT's Sloan School of Management and a pioneer in the field of systems dynamics, hired Patni to help him run his consulting and publishing company (no relation to Forrester Research) in the late 1960s. ''He was a very high-caliber person," Forrester said, ''and he's been very successful."

When Patni told him a few years later that he was shipping documents to India for data conversion, Forrester said, ''I was surprised because this was entirely new to me."

Today, more than 30 years later, the 85-year-old Forrester casts a skeptical eye on the burgeoning outsourcing movement.

''I think it's going to produce a tremendous political backlash, and will be significantly curtailed in a few years," he warned. ''I think it will drive the standard of living of the United States down to the level of the countries that we're outsourcing to."

Patni, for his part, believes the genie is out of the bottle.

While cost savings were a motivation behind the original outsourcing experiment, he said a larger factor in the early 1970s was ''time to market." That was an era where large volumes of typewritten documents and manuscripts were being transferred to computer databases, and it was difficult to find enough workers in the United States to complete a job quickly enough, Patni said. Subsequent technology advances, especially the Internet and high-speed bandwidth connections, have greatly accelerated the process over the past decade, he said.

''We have gone into the synchronous phase of the outsourcing of services," where employees work in one location while their associates sleep in another, Patni said. ''Once you eliminated time and distance, you created the discontinuity that we have to learn to live with . . . There is nothing you can do. Water must find the lowest level."

Patni Computer, which has financial backing from the Greenwich, Conn., venture capital firm General Atlantic Partners, is India's sixth-largest information technology services company. It is one of a handful of global outsourcing companies -- including Tata Consultancy Services and Datamatics Ltd. -- led by MIT-educated Indians. But these companies are now facing competition from upstarts in lower-wage markets such as China and Southeast Asia, as well as from US outsourcing giants like Accenture Ltd. and IBM Corp.

John S. Parkinson, chief technology officer for the Paris-based Capgemini Group, one of the largest global outsourcing companies, said he views Patni as a second-tier competitor that holds many of the advantages and disadvantages of the Indian companies.

''If you're Indian-based, you're probably better integrated into the supply side -- the talent pool," Parkinson said. ''If you're Western-based, you're better integrated into the demand side -- what customers need, what they buy, what they're comfortable with."

But as Western companies set up operations in India, and Indian-based companies, like Patni, mount global operations organized along industry lines, those distinctions are blurring.

''The Indian firms are moving up the value chain, and into applications where they don't just compete on a man-hour basis. . . " said Shikhar Ghosh, a Brookline entrepreneur working on outsourcing and other businesses. ''The other thing most of these Indian firms offer is round-the-clock service."

Patni's company employs about 100 workers in the Boston area, including 44 who came aboard last year through the acquisition of Reference Inc., a financial services firm in downtown Boston. When he is in Cambridge, Patni arrives at his office about 6 a.m. and spends the first five hours of his day communicating with his development offices in India, England, Germany, and 11 locations across America. It is clear he has learned to live with the synchronous phase of outsourcing.

In many ways, Patni's background is ideal for bridging the cultural gap that continues to color the outsourcing business. Back in 1969, when Patni made the drive to the Woodstock rock festival, ''It was a conscious decision to become part of American history," said his friend Ravi Meattle, a fellow Indian-born MIT student who accompanied Patni. ''I think we were the only two Indians in the audience. We were singing with Jefferson Airplane at 5 in the morning."

Thirty-five years later, Patni again finds himself at the center of a cultural shift -- one that may be in its early stages. ''The outsourcing trend has not even matured yet," he predicted. ''We are just starting."

Robert Weisman can be reached at weisman@globe.com.

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