[Note the admission that H-1B employees are paid less.]

Forbes May 31, 2000

http://www.forbes.com/tool/smallbus/00/may/0531/feat.htm
letters@forbesdigital.com


LG Soft India Kick Starts U.S. Startups With 24-Hour Programming

By Kevin Ferguson


As a cog in the wheel, Rakesh Kalra gets used to the grind. Mind-numbingly
long work weeks--sometimes lasting 80 hours--are part of his U.S. tour of
duty and nothing less than what he expected. And he produces nothing less
than what his employer, LG Soft India, promises its U.S. clients:
around-the-clock programming to help them pull ahead of their competition.


But LG Soft India realizes the soft-spoken, 25-year-old Kalra is just one
man and he can't stay awake forever. So when Kalra winds down his daily
programming for client PurchasingCenter.com, Burlington, Mass., at around
11:00 PM, his co-workers at LG Soft's engineering center in Bangalore,
India, take up the task. They check his work for bugs, make revisions and
additions and at the completion of a 12-hour shift there turn the work back
to Kalra, who begins the cycle anew.


It is a grind, but that's how each of them--Kalra, LG Soft India and
PurchasingCenter.com--plans to get ahead. Kalra, who's been here ten months,
will journey later this year to Bangalore to marry, returning to
Massachusetts with his bride for as long as his H-1B visa will permit. LG
Soft India--a tiny, $8.2 million unit of Korea's $80 billion LG Group, which
entered the software industry only four years ago--adds another
labor-strapped company to its client list. And PurchasingCenter.com, a
Web-based industrial supplies distributor that began using LG Soft India 11
months ago, halves its development time and reduces its labor cost by
one-third.


PurchasingCenter.com is not LG Soft India's only American client. The
developer's small but growing stateside portfolio includes Open Market
(nasdaq: OMKT), Burlington, Mass.; iBelong, whose chief executive officer,
Shikkar Ghosh, also co-founded Open Market; empowerTel Networks, San Jose,
Calif.; and CommerceTone, Burlington, Mass. But PurchasingCenter.com has
been LG Soft India's best U.S. customer. The relationship has worked out so
well, in fact, that LG Soft India has built a special 10,000-square-foot
area in its Bangalore facility reserved for employees working on the
PurchasingCenter.com account. There, 22 programmers work in tandem with
Kalra and ten other Indian programmers stationed in Burlington.


India's information technology (IT) consulting firms have largely ignored
such startups. For example, Bangalore-based Wipro, one of the largest Indian
IT companies with 1999 revenue totaling $485 million, regularly serves
General Motors (nyse: GM). And New Delhi-based NIIT, whose 1999 revenue
totaled $206 million, has a clientele that includes British Airways (nyse:
BAB) and Sun Microsystems (nasdaq: SUNW). With a growing tendency among such
corporate giants to outsource their IT work, there is little chance Wipro or
NIIT will bother with smaller startups like PurchasingCenter.com, says
Shubho Kundu, group manager for LG Soft India engineering center in
Bangalore. "The 'body shops' are not moving into our space," says Kundu, of
Wipro and NIIT, using a slightly derisive industry reference to consulting
firms that established themselves in the 1980s and 1990s by funneling Indian
workers here for a fee.


Like its larger counterparts, LG Soft India saves its clients money on
programming costs. Indian programmers working in the U.S. on temporary H-1B
visas typically earn 25% to 30% less than their naturalized colleagues.
Kalra, for example, will earn $60,000 this year, while others with his
experience here could easily earn $75,000. And in India, he would earn just
$7,000 annually. Of course, the cost of living there is much less.


But the strategy is not to nickel and dime programmers, U.S. executives
insist. It is to get to market more quickly. "We opened our office on March
20 and by April 15 we had 12 people working," says Sean Rosser, CEO of
CommerceTone, which, he says, will launch "an e-commerce infrastructure for
small merchants" on the Web in August. "It's nominally cheaper, but that's
not the real driving force," he says. "It's really the time. And they have
the necessary Web logic, Java and Oracle skills." CommerceTone employs six
full-time LG Soft India workers to complement its staff of 12. Similar time
savings were realized by PurchasingCenter.com, says Raman Sud, vice
president of engineering at PurchasingCenter.com. Using LG Soft India
programmers, the startup was able to halve some of its site building
processes to "a couple of months."


All told, LG Soft India employs 250 workers, about 10% of which work for
foreign clients in Australia, Asia, Europe and the United States. "We aren't
the biggest guys," concedes Kundu. "If GM outsources, they'll need 200
employees. We can't do that." But it can make all the difference for
companies, such as those in New England, where 10% of high-tech jobs remain
vacant because of a shortage of qualified workers. "For most small
companies, cutting time to market means quality has to take a backseat. But
we don't want to do that," says Sud. "So it's really key for us to expand
the India operation."


Startups that wish to outsource should take heed, however: Indian
programmers cannot provide a panacea. "The value proposition suggests that
you should be able to get cheaper 24-by-7 labor offshore. But management is
a hassle," warns B.C. Krishna, chief technology officer, Open Market. "You
need to be able to take a portion of the project offshore and have it run
autonomously." Krishna unsuccessfully tried outsourcing to an Indian company
"a couple of times" a few years ago while serving as chief technology
officer at FutureTense, later acquired by Open Market. "It works better for
a larger company that has products going into sustaining, or end-of-life
production, mode," he says. "Or if you have a Web site that needs to be
built and you have all the specs already. That could work reasonably well."
Open Market, a six-year-old company with $83 million in annual sales, uses
LG Soft India programmers to perform ongoing maintenance work on its
e-commerce software.


The management problems to which Krishna refers are not to be taken lightly
and others concur. Government bureaucracy is mind-boggling, even to Indians
familiar with the system. PurchasingCenter.com's Sud, for example, abandoned
plans to create an Internet messaging company in 1993 after becoming
entangled in red tape while trying to acquire technology licenses. And
face-to-face meetings are indispensable, even in an ongoing relationship.
That requires monthly 24-hour journeys for many Indian-American executives.
So if you want to use Indian programmers to save you time, be prepared to
spend some up front.


And speaking of time, Kalra reports he has much more of it now that
PurchasingCenter.com has hit its stride with more than 80,000 items
currently listed in its online catalog. "Things are back to normal," says
Kalra. Now he works just 50 to 60 hours a week.