India's People Power Is Also Its Problem

BENGALURU, India — One of India's biggest challenges is managing its biggest strength: its deep well of young and talented people. Salaries are on the rise for a workforce on the move, making recruitment and training an ongoing issue for India's low-cost service companies. But the people problem is far from the only issue. At home, battles over inadequate infrastructure dog progress. Overseas, India faces pushback from countries such as the U.S. worried about the loss of domestic jobs to Asia. And India may face a looming crisis in intellectual property. India's R&D outsourcing firms risk being shut out of an intellectual property gold rush. At a time when patent portfolios are becoming key corporate assets, companies such as Tata Consultancy Services and Wipro develop technology they must turn over to their customers. Indian engineers' names appear on patents they help develop for their overseas clients, but the overseas customers own those patents. India companies typically file invention disclosures on behalf of their customers, but rarely own any IP based on their work. Wipro filed 72 such disclosures last year, up from 24 two years ago, said I. Vijayakumar, the company's chief innovation officer. However, Wipro has been able to garner a portfolio of about 100 patents of its own to date, he added. Increasingly the customers are competitors in their own right. Many big electronics companies have moved into Bangalore to tap the local low-cost talent pool, rather than outsource any R&D work to a third party such as Infosys, TCS or Wipro. Today about two thirds of Bangalore's silicon engineering talent now works in local offices for multinationals and a third in domestic service companies, said A. Vasudevan, who heads Wipro's chip design group. "I think that ratio will hold," he said. Some of the early entrants to Bangalore, such as Texas Instruments who arrived way back in 1985, limit outsourcing to low-end tasks such as chip verification. Even relative newcomers such as Intel have a significant local presence. Some anecdotal reports suggest young Indian engineers are taking advantage of the local boom to hop from job to job, pushing salaries up and creating recruitment nightmares. Local companies downplay the reports. "We see a lot of hype about India pricing itself out of the market," said Azim Premji, chairman of the overarching Wipro Ltd. group and son of the conglomerate's founder. Nevertheless, other Wipro execs say they have been struggling to keep up with rising local salaries which have been increasing as much as 15 percent a year, according to Pratik Kumar, an executive vice president for human resources at Wipro. "The days of such annual increases are over," said Kumar. "Such increases are mindless. No industry grows salaries at this rate. We are close to moderating salaries starting this year," he added. Indeed, H.R. Venkatesh, who manages Wipro's outsourcing business in Asia, said he already feels pressure when he tries to tap into markets such as Taiwan where many engineers make a fairly lean $2,000 a month. "That doesn't leave us any cost advantage," he said. To keep a lid on wages, Wipro is decreasing the number of engineering graduates it hires in favor of students with a general four-year science degree. Science graduates in India typically command salaries at a level about half of the US$750 per month of engineering grads, he said. "Most of the engineering students can perform as well as an engineer after one year of [on the job] training. They are the cream of the crop and highly motivated," said chairman Premji. "You don't need engineering graduates for every job. Science graduates are significantly lower cost and we are graduating a million of them a year," added Premji. "We have been hiring them systematically for six to nine months now," he said. As many as 3,000 of the new hires at Wipro this year—about 35 percent of its intake of college students-- could be science grads, said Kumar. "They are smart people but could not afford an engineering degree or wanted to graduate in less than four years," he added. "At half the costs of an engineer, this creates an extremely powerful model. Our customers often don't care if we bring in an engineer or non-engineer, as long as they are trained and smart," he said. On average, employees leave Wipro every 3.5 years, although 35 percent of the company's staff has been there only one year, said Kumar. Thanks to the turnover rate and the need to reach out to non-engineers, companies like Wipro are forced to handle a fair amount of training themselves. They also work proactively with often poor second- and third-tier schools from the primary level on up. Seven months ago, Wipro started what it calls "Mission 10x." The company aims to train 10,000 engineers. It brings professors"-as many as 3,650 of them--to regular classes on its Bangalore campus and rotates Wipro managers through colleges for up to four months at a time. Most--about 80 percent--of children in India can access primary school free. But for those who cannot Wipro has an outreach program at the primary level that pays in some cases as much as 75 percent of the costs of a child's education. "We are working in a thousand schools," said Premji. "We aim to make primary education more creative so students can push back. This helps create a good cadre of science and engineering students," he added. The boom times around towns like Bangalore are already helping to create such a cultural shift. "The younger generation is a lot different than my generation," said a 40-something quality manager at Wipro. "They have a firm grip on their destiny they are more confident and willing to take risks than we were," he said. "They are hungry to learn and we want to keep that appetite whetted. They want to be heard not just told what to doand they are hard to manage sometimes," he quipped. The success of India's outsourcing firms has generated a backlash in places like the U.S., jealous of jobs they feel India has taken away. Premji argues it's just the latest turn in globalization on both sides that has been going on for years. "Accenture has most of its people outside the U.S,--many in developing countries--and it is incorporated in Bermuda, so is it an American company?" he asks. "No, but it is positioned as one to win big public U.S. contracts," he said. India's firms are taking a page from the playbook of Toyota and Honda after encountering a backlash against Japanese cars. They moved more assembly to America and hired local workers. Wipro recently opened up design centers in Troy, Mich., and Atlanta, and plans to open two more in the next two years. The company already has design centers in Brazil, China, Germany, the Philippines, Romania and one coming soon to Poland. TCS made an even bigger splash recently, opening a 1,000-person office outside Cincinnati in America's job-hungry heartland. While it got big headlines around the world, the move is somewhat less stunning than it seems. The office in part will consolidate work in a number of existing 100-person offices around the U.S., acting as liaison with local customers and regulatory agencies. For Wipro, growth in international employees is slightly higher than for India hires (20 versus 17.7 percent a year). Meanwhile the number of foreign nationals working at Wipro has risen from 12 to 20 percent in recent years.