Rural India's Chance at the Jobs Boom

Similar how jobs are migrating from coastal (eastern) China into the landlocked (cheaper) west, we are beginning to see the first trends of this happening in India as well.

At some point in the future western China and rural India wages will be too high and I suppose these jobs will move to Vietnam or Indonesia. Then those people will earn too much and the jobs will move to... well, I am not quite sure. Africa would be a logical choice if there was more stability. Just know that the race to the bottom continues -- there are only so many jobs on Earth and an increasing amount of its people now will be available to do them.

In the summer of 2008 we wrote how as jobs were disappearing in New York City, they were increasing in India [Aug 15, 2008: NYT - Cost Cutting in New York City, but a Boom in India] Americans mostly think it's back office, call center and the like, but that was the focus a decade ago. Now it has moved up the food chain. Ironically many of those jobs that were moved a decade ago (back office / call center) are now beginning to reach a point where wage growth has been so extreme in India for a number of years that many of the cost advantages are starting to disappear. Hence, I was reading reports last year that these type of jobs were beginning to migrate to the Philippines... and round and round we go, until we find the cheapest labor to do the work. It truly is amazing to watch capital scurry from country to country, and then within a country from one region to the next, all in an effort to find the next cheapest human.

From that New York Times piece last year:

India - On the top floor of a seven-story building in this dusty aspiring metropolis, Copal Partners churns out equity, fixed income and trading research for big name analysts and banks. It is a long way from the well-cooled corridors of Wall Street, and quarters are tight; business is up about 40% this year alone.

Wall Street’s losses are fast becoming India’s gain. After outsourcing much of their back-office work to India, banks are now exporting data-intensive jobs from higher up the food chain to cities that cost less than New York, London and Hong Kong, either at their own offices or to third parties.

Bank executives call this shift “knowledge process outsourcing,” “off-shoring” or “high-value outsourcing.” It is affecting just about everyone, including Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan (JPM), Credit Suisse (CS) and Citibank (C) — to name a few.

The jobs most affected so far are those with grueling hours, traditionally done by fresh-faced business school graduates — research associates and junior bankers on deal-making teams — paid in the low to mid six figures.

In 2003, JPMorgan and Morgan Stanley said they planned to move a few dozen research jobs to Mumbai, Lehman Brothers was working on a pilot program to create research presentations in India and both Merrill Lynch and Goldman Sachs said they had not moved any research to the country. Five years later, the trickle is a flood. Third-party firms say they are seeing a 20% to 40% upswing in business this year alone.

I love these labels... "knowledge process outsourcing"!

Via New York Times on Friday:

• Under harsh fluorescent lights, dozens of heads bend over keyboards, the clattering unison of earnest typing filling the room. Monitors flicker with insurance forms, time sheets and customer service e-mail messages, tasks from far away, sent to this corner of India to be processed on the cheap.
• This scene unfolds in cities across India, especially in the high-tech hubs of Bangalore and Gurgaon, places synonymous with the information technology revolution that has transformed India’s economy and pushed the country toward double-digit economic growth.
• But these workers are young people from villages clustered around this small town deep in rural Karnataka State in India’s southwest. They are part of an experiment by a handful of entrepreneurs to bring the jobs outsourcing has created to distant corners of India that have been largely cut off from its extraordinary economic rise.
• Only about a million workers are employed in the buzzing call centers and pristine tech company campuses that have come to symbolize India’s boom — a drop in the bucket, given the country’s more than 1 billion people.
• Almost all of those jobs are in cities. But 70% of Indians live in rural areas. India largely skipped — or never arrived at — the industrial phase of development that might have pulled the rural masses to cities. Over the decades a Gandhian fondness for — some say idealization of — rural life has also kept people in villages, where the bonds of caste and custom remain strong.
• India has struggled unsuccessfully with the question of how to lift this vast underclass out of poverty. Some economists argue that India still needs rapid urbanization if it is ever to become a major economic power and provide jobs to its vast legions of unemployed. But the founders of Rural Shores, a company that is setting up outsourcing offices in rural areas, say it makes more sense to take the jobs where the people are.
• Rural India was once seen as a dead weight on the Indian economy, a bastion of backwardness embodied by the frequent suicides of farmers eking out livings from arid fields, dependent upon fickle monsoons. But Indian and foreign companies have come to see India’s backwaters differently, as an untapped market for relatively inexpensive goods like low-tech cellphones, kitchen gadgets and cheap motorcycles. [Oct 21, 2009: WSJ - Indian Firms Shift Focus to the Poor]
• Now some businesses have begun looking to rural India for an untapped pool of eager and motivated office workers. Rural Shores has hired about 100 young people, most of them high school graduates who have completed some college, all of them from rural areas around this small town. The company has three centers now, but it aims to open 500 centers across India in the next five years.
• Most of the center’s employees are the first members of their families to have office jobs. They speak halting English at best, but have enough skill with the language to do basic data entry, read forms and even write simple e-mail messages.
• Here in Bagepalli, the Rural Shores office hums through two shifts a day. One set of workers answers customer service e-mail messages for an Indian loyalty card company. Another processes claims for an insurance company. In one room, workers capture data from scanned timecards filled out by truck drivers in the United States. They record nights spent in Abilene, Texas, deliveries in Kansas City and breakdowns in Salt Lake City, all of which the workers decipher and enter into a database.
• The time sheets belong to American truck drivers, and Rural Shores has been hired as a subcontractor for a larger outsourcing company in Bangalore to do the data entry portion of the work. Deciphering scrawls on the scanned documents, the 20 workers on Mr. Saicharan’s team race to earn bonuses for being the fastest typist.

And here is the key takeaway:

• With much lower rent and wages than in similar centers in cities, the company says it can do the same jobs as many outsourcing companies for half the price. A Bangalore office worker with skills similar to those of workers here commands about 7,000 rupees a month, or $150, Mr. Srinivasan said. In small towns and villages, a minimum-wage salary of about $60 a month is considered excellent.

Boom, 60% cost reduction.

Next.

Comments

[Mrudula Shah:]

TraderMark,

You have hit the point that is the goal of the Planning Commission of India. The aim of the commission, as the father of the nation (Gandhiji) wanted, is to eradicate poverty. Large industrial outfits can't do it, neither can any multinational. So, the government established good school-systems throughout the nation especially covering small villages where more than 70% of the population lives and a larger percentage of the poor remain. With establishment of telecom facilities (battery-operated cell phones and computers with internet facilities) nation-wide after building sufficient wealth through planned development, the country has now turned to address the poverty-eradication more effectively. But, the outsourcing you mentioned is not the only effort towards the eradication, the country have already built a lot of irrigation and other agricultural facilities which alone are not sufficient to engage the entire rural population and eradicate the poverty. Also, the planning commission, consisiting of well-educated and dedicated visionaries, did not want to create large urban centers, like in China and other oriental countries, to show-case national pride but want to preserve the country's rural nature with its past traditions and culture intact. Certainly, people in general in India are very appreciative of what America and certain Americans have done for them. They admire America and Americans for what America has done to help their democracy while itself being in a capitalist system. India is a democracy where the nation's poor are not a forgotten class, neither would India be where it's to-day without America. I know it because I was born there in a poor family and in a small village, educated there, and worked for the government for ten years before moving to America, my other and current beloved country.

Nov 13 05:46 PM

[ebworthen:]

My Daughter and I watched a Disney Tinkerbell movie last night on DVD.

When the credits rolled, it became apparent that all of the computer animation and assembly had been outsourced to India.

The only part done in the U.S. were the songs and the writing of the story. The rest had been done in India.

Nov 14 08:01 PM

[Uppai Mappla:]

Yes, it seems that rural India is the country's hidden strength. Part of the reason is democracy. There are severe problems but they will be surmounted. I recall reading "The Third Wave" by Alvin Toffler, some 25 years ago, in which he had predicted that technology will render large factorylike offices and schools, and consequently cities, obsolete. I wonder whether this is already happening in rural India. In fact India's most successful FMCG company, ITC, has made huge investments in rural areas with its "e-chaupal" initiative. I have a feeling that once the basic infrastructure, including roads, realiable power and broadband is established in the countryside, people may not find cities particularly attractive. Part of this shift maybe is seen in the statistics from Legatum Prosperity Index (www.prosperity.com/ran...) which ranks India at 45th in the world, much higher than China's 75th rank. India's ranking has been pushed up so much mainly due to its social capital (rank 4) and democratic freedom. It seems that the only thing needed to push up India to developed status is rapid growth of infrastructure.

Nov 15 03:10 PM