When Elephants Fly.(information technology shifted to offshore)

When Jagdish Dalal first got the idea to hire computer programmers in India back in 1983, most people thought he was taking too big a risk. Sure, the engineers there were smart, and cheap compared with Americans. But as the Indian-born head of management-information systems for a data-storage company in Massachusetts, he had to haul punch cards and printouts back and forth on Air India flights to Mumbai. And indeed the first project was a "colossal failure," he says. The code was unusable. "At first we accused them of not having the right talent," recalls Dalal, but he quickly recognized that he had failed to communicate exactly what he wanted.

Two decades later, there's hardly a chief technology officer in the developed world who isn't just a bit starry-eyed over wages in China, Russia or (especially) India, which are some 80 percent lower than those earned by IT specialists back home. For several years, Western companies have been shifting ever-larger and more complex operations offshore, starting with basic data processing or code writing in the early 1990s and quickly moving up to customer services, such as the Indian call centers that answer questions about your Dell laptop or your American Express bill. Now, panicked at the cost pressures they face from a sluggish economy and global competition, companies are getting even more aggressive in their offshore ambitions, shipping payroll accounting, loan processing or human-resource departments off to India. You can now get a pink slip in Manhattan sent by a clerk in Mumbai.

A bandwagon effect has taken hold over the past six months as companies rush into what used to be a slow and careful decision. Many are emboldened by headlines trumpeting moves by the likes of Bank of America and EDS to shift more back-office jobs offshore. JPMorgan Chase recently unveiled plans to set up an off-shore equities-research unit in Mumbai with 40 analysts and support staff. General Electric already has 11,000 agents in its Indian call centers, and recently created a division of 400 people to analyze credit-card data and trends. The technology research firm Forrester predicts that 3.3 million U.S. service-sector jobs will move offshore during the next 15 years. TPI consulting estimates that in India alone, the value of Western outsourcing deals will rise from around $10 billion today to $80 billion by 2008. "It's a feeding frenzy," says Dalal, who now runs his own outsourcing-consulting company.

At the same time, companies are increasingly skittish about discussing their offshore plans because a backlash against exporting white-collar service jobs has sprung up in the past few months. In June technology executives were taken aback by dozens of placard-waving protesters and unemployed IT workers shouting at them as they entered an outsourcing conference at the Waldorf-Astoria in New York. CEOs also worry about protectionist noises from government. During the summer, New Jersey, Michigan and three other U.S. states began considering proposals to ban offshore work on public contracts.

There is also a bill before Congress to restrict the L-1 visas that allow U.S. companies to bring in foreign contract workers for training (often to replace American staffers) and another to provide tax benefits for companies that keep IT jobs in America. Elsewhere, British Telecom caused an uproar last month by announcing plans to create 2,200 new call-center jobs in India. The Communication Workers Union floated a giant pink elephant in front of BT headquarters to decry the stampede of jobs out of the country. --But the backlash has just pushed more companies to pursue deals more quietly. "No one is stopping plans because of it," says one consultant.

If the momentum around the offshore boom feels eerily familiar, it should. Remember the M&A boom of the late 1990s? Spurred by high stock prices, CEOs bought companies in the conviction that merging would bring ...