High-tech start-ups feel push to outsource
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According to the US Department of Commerce, American companies paid for $77.4 billion in outsourced services from foreign companies last year, including those that staff call centers and do data entry, up from $8 billion in 2002. Forrester Research in Cambridge predicts that 3.4 million US jobs, and $136 billion in wages, could be moved offshore by 2015.
Venture capitalists are increasingly part of that story. Silicon Valley Bank, which works with VCs and start-ups, just opened a Bangalore office. Oak Investment Partners, a Westport, Conn., venture firm, has a partner in India, part of whose job is to help portfolio companies set up shop there. And giant businesses are being built to provide workers for small and large companies that want to have a presence in India. Symphony Services Corp., a Waltham company in the TH Lee Putnam portfolio, has 100 employees in the United States and 1,300 in India. It plans to hire another 500 by the end of 2004. Symphony gave its employees 12 percent raises this year, chief executive Gordon Brooks said. Even if that continues for a decade, Brooks said, it will be less expensive to hire people in Bangalore than in the states.
Like it or not, Brooks said, there's no bucking the offshore economics. ''It's math," he said.
At Commendo Software Inc. in Fremont, Calif., chief executive Reynaldo Gil was en route to make a pitch to venture capitalists yesterday. He has a half-dozen employees at his start-up firm, and he pays several outside people, including a few in India, to help get his mobile-data product off the ground. He thinks his low-cost approach to developing the software will help attract the $3 million to $5 million first round of venture funds he's looking for.
''We've been using outsourcing almost from the outset," Gil said. ''Capital is very expensive, and investors want to minimize their risk. As an entrepreneur, you have to bring your product to the market in the cost-effective manner."
Eventually, Gil said, he'll be able to hire more people locally, by being careful with money now. As for the near term, he said, ''People focus too much on lost jobs."
Venture capitalists and other proponents of the offshore trend also downplay concerns about the loss of jobs, insisting that the work being sent to India -- and increasingly to China, Canada, Ireland, Eastern Europe, and the Philippines -- is low-level. Americans will get better jobs, they say, if companies are able to save money on the ''grunt work."
At IMlogic, Shah said, ''There is wall painting and then the artists. The wall painting might be outsourced to India."
Kenneth P. Morse, senior lecturer at the MIT's Sloan School of Management and managing director of the school's Entrepreneurship Center, said, ''I think this means less software drudgery and more really cool software jobs."
However, the so-called drudgery, such as writing code and testing software, were jobs that paid good money just a few years ago to college graduates and others launching high-tech careers.
Tom Cole, a general partner at Trinity Ventures in Menlo Park, Calif., said there's no question that good jobs will be lost. ''It's very wrong for Americans to assume that the best jobs are here, and all the grubby jobs can be done by the rest of the world," he said. ''There are a lot of highly educated people all over the world who can do these jobs. I think we have to be OK with that."
Beth Healy can be reached at firstname.lastname@example.org.
© Copyright 2004 Globe Newspaper Company.