Sending work to India -- the pros and cons
Ralph Imholte of Minneapolis-based Bepex International has been crunching some numbers, and he's not thrilled by what he's seeing, even though the numbers could give him reason to cheer.
Bepex designs and sells equipment for the food, chemical, and polymer industries. The company makes heavy machinery in the Upper Midwest. Lately, Imholte has been getting bids from countries in Asia, including India, to manufacture the equipment at a cost savings of 30-40 percent. Imholte says this puts him in bind.
"We do not want to outsource internationally, but feel that with the changes in the competitive arena, we're forced to at least consider it," Imholte said.
Imholte spoke before heading to India as one of the delegates on Gov. Pawlenty's trade mission. During the mission this week, he'll be scouting for businesses in India to which he can outsource manufacturing work.
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while Imholte contends he would rather not send decent paying jobs like welding and machining overseas, he feels the potential savings are propelling him in that direction.
Many big Minnesota companies are offshoring work. Northwest Airlines, Best Buy, and even the state's Department of Natural Resources send IT work overseas. The Star Tribune newspaper of Minneapolis recently sent 20 jobs related to production of display ads to an Indian prepress agency.
Several years ago, Forrester Research estimated about 3.3 million U.S. jobs will have migrated offshore by 2015.
"Sometimes there are just no more openings. And then good American workers are left without jobs," says Tim Lovaasen, head of the Minnesota chapter of the Communications Workers of America.
The union represents call center workers whose jobs are especially prone to offshore outsourcing.
Lovaasen says it's not so easy for American workers left in the wake of offshoring to find other jobs. He'd like to see the trade mission to India produce more jobs in Minnesota, but he's not sure it will.
"These trade trips -- you sometimes wonder if we're going to get out of it something that helps the working people of Minnesota," Lovaasen says.
Two of the major Indian outsourcing firms have invested in Minnesota and currently employ about 1,500 people.
"We do not want to outsource internationally, but feel that with the changes in the competitive arena, we're forced to at least consider it."
But for Twin Cities outsourcing consultant Praba Manivasager of Analysts International, offshore outsourcing to places like India seems inevitable.
"Clients no longer ask us whether they should outsource offshore," he explains. "Now it's a question of what they should outsource, and how much they should outsource."
Manivasager says companies want a host of needs fulfilled through offshoring -- there's savings, of course, but then there's also flexibility and efficiency.
Those aspects play a big role in the offshoring strategy of Minneapolis-based Target Corp., which has a facility in Bangalore called Target India. Christopher Perrigo is chairman and vice president of Target India. He says it's been a boon to divvy up projects between American and Indian workers operating in different time zones.
"Before Target India, it might take us two or three days to turn around, for instance a report, to give our managers insight into what's happening in our business. Today we can turn that around overnight," Perrigo explains.
The Minneapolis-based retailer does not operate any stores in India. But it has been relying on suppliers there since the 1970s, and has made use of Indian IT workers for several years.
Target's Bangalore facility employs 1,000 workers and two more offices are in the works. Perrigo says competition for talented workers in India is increasing -- especially in big cities.
"Bangalore today is a lot like Silicon Valley in the late '90s, where you have a high demand for high-quality talent, and you have new companies always coming into Bangalore," Perrigo says. "So, we're in Bangalore, and we're dealing with that competitive market as well."
That competition is driving Indian wages up about 15 percent a year. Target would not discuss salaries of its Indian workforce. But some observers say even as Indian wages rise, American companies are still getting a good bargain. Companies can still pay engineers in India about $20,000 -- one-fifth what their American counterparts might earn.
Still, some companies don't want the hassle of sending work halfway around the globe to a place like India, which suffers from poor infrastructure and frequent power outages.
As Ralph Imholte of Minneapolis-based Bepex considers outsourcing to India, he's weighing concerns about transporting his company's heavy manufacturing equipment across India's unreliable roads.
"Someone told us once, 'If you built this down in southern India, and you want to ship it up to Mumbai, it's going to take you six weeks. Whereas that same distance in the United States would take you about a week,'" he says with a laugh.
As Imholte thinks aloud about how he might deal with that issue, his voice trails off...and he says, well, it's a problem.
The governor's trade mission concludes at the end of the week.
