Tough pbuttage to India

Local companies say doing business overseas isn't an easy path to profits

By Julekha Dash Baltimore Business Journal Updated: 8:00 p.m. ET July 3, 2005

BANGALORE, India -- Crossing the street in this Southern Indian city is something like playing the video game Frogger.

Drivers of scooters, cars and motorized rickshaws blissfully ignore traffic rules, flowing in and out of Bangalore's commercial district where neon lights and mega billboards blazon international brands like Levi's, Lipton and Sony. Story continues below �� advertisement

A few blocks away from the chaos, Maryland's CBay Systems Ltd., occupies two buildings on a leafy street that recalls Bangalore's past life as a quiet haven for retirees.

Though its name is not as universal as the heavyweights -- Accenture Ltd., Hewlett-Packard Co. and CB Richard Ellis Inc. -- surrounding it, its leaders have invested in managing people and resources across continents.

The company's roughly 1,700 workers in Bangalore, Hyderabad and Mumbai prepare medical reports dictated by physicians in the United States while technology workers create software applications to support these documents.

In Annapolis, CBay employs 170 in divisions that require more client interaction -- sales, operations, marketing and customer service.

Technology advances have put offshoring within reach not just for the likes of Microsoft Corp., but smaller firms, like CBay, resulting in a new breed of company -- the "micromultinational," as described by one local CEO. No matter what it's called, the hiring of foreign workers is still seen as the great threat to the U.S. economy.

But companies relying on offshore labor have found the process rife with challenges. Managing people separated by 10 hours and two distinctly different cultures puts a burden on executives to invest in communications, travel and training -- all big hits to the bottom line.

CBay's experience also dispels many buttumptions about offshoring -- namely that it is an easy path to profits and that it is only companies in developed countries sending jobs to low-wage nations. In CBay's case, it can be argued that the Indian-funded firm took the reverse route. Labor shortage

In Bangalore, rows of headphone-wearing, twenty-something workers type away furiously at their computers in an office that could just as easily be in Baltimore or Boston. Managers motivate employees by celebrating birthdays and treating them to the occasional free dinner.

There also is a rooftop cafeteria with views of palm trees in the distance and onsite yoga instruction twice a week. A company-employed driver shuttles executives and visitors to and from the office.

Bangalore and other Indian cities offer an abundant supply of young, educated, English-speaking workers for a fraction of the cost of what employers would pay in the United States and other developed countries. That trend has sparked outrage among displaced U.S. workers and labor advocates who are concerned that service sector industries are following the same downward path as manufacturing did decades earlier.

But in some industries, such as the medical transcription field, experts say employers have looked offshore because workers in the United States are tough to find.

"There's a critical shortage of qualified labor," said Lea Sims, a spokeswoman for the American buttociation of Medical Transcription, in Modesto, Calif.

Medical transcriptionists in the United States are aging. The median age for workers in the profession is between 48 and 50 years of age and younger workers are not lining up to enter the profession, which requires extensive training and time to become proficient, Sims said.

Sims, who ran her own transcription services firm for eight years, said she always had more work than qualified people to do it.

That's why the industry has looked at offshore labor, although that strategy comes with its own host of challenges, such as ensuring the security of patient data and encountering communication barriers, health experts say. The 'micromultinational'

A medical records transcriptionist earns in Baltimore between $31,000 and $36,000, according to Salary.com, with a median salary of $33,000.

In contrast, an Indian transcriptionist at CBay earns a fraction of that -- between $5,000 and $12,000 annually, depending on their experience and productivity, said V. Raman Kumar, CBay's CEO.

The cost savings in India enables CBay to save between 20 percent and 40 percent for its clients, officials say. Contracts with small medical practices run anywhere from $10,000 to $50,000 per year, while hospitals pay $250,000 to $3 million a year for multiyear contracts, Kumar said.

Though the salary for an Indian worker is considerably lower than that of an American worker, services in India cost less. A pedicure costs the equivalent of $5, compared to at least $22 in the United States, while dinner at a nice restaurant in Bangalore will set you back $8 per person. Rituraj Borooah, started his Indian Web development company rupees in hand, which is roughly $225.

Such cost savings have enabled small companies to compete against the behemoths like Wal-Mart, which can tap international suppliers, said Christopher C. Foster, deputy secretary of the Maryland Department of Business and Economic Development.

Take, for instance, Anjan Shah. He and his business partner, Ketan Patel, don't have an office for their startup Baltimore marketing firm, Shakti Media. But they can still boast they are a global company. With a niche in the nonprofit and performing arts industries, the labor for clients such as WYPR and clbuttical violinist Hilary Hahn.

The offshoring phenomenon has even resulted in a host of new businesses, like Baltimore's Artifact Software, whose services help companies manage outsourced software projects, CEO Mark Wesker said.

Wesker dubs companies like CBay and Shakti the "micromultinational." Once viewed as the exclusive domain of Fortune 500 companies, the offshoring phenomenon has fallen within the reach of smaller companies as well, Wesker said.

There are definitely big growth opportunities.

With $31 million in revenues, CBay's growth in its six years has earned it a spot on private company rankings by Forbes magazine and Deloitte & Touche LLP. The company recently doubled its office space in Annapolis, to 20,000 square feet.

Managers credit the company's growth to its ability to slash transcription costs for cash-strapped hospitals like the University of Michigan Health System and physician practices by relying on cheaper resources overseas.

CBay "probably wouldn't be here" if they couldn't offer compebreastive pricing, Foster said. Shattering the myths

And CBay wouldn't be here without the Indian-born Kumar, who had deep pockets and even deeper connections.

Most people's perception of how and why U.S. companies decide to go offshore goes something like this scenario:

* An American company is under shareholders' pressure to save money. * Managers lay off employees and hire cheaper labor in a developing country. * The U.S. firm instantly saves money.

But CBay's history offers an entirely different model that reflects a more symbiotic relationship among the world's business leaders.

The company got its start in 1999, after three globetrotting executives decided to pool their collective skills to serve a growing need in the health care market.

The trio included Mahidhar (Mahi) Reddy, an Indian technology veteran; Donald L. "Skip" Conover, a former U.S. Marine Corps lieutenant colonel who had founded a telecommunications firm; and CEO Kumar, who had raised capital for multibillion-dollar steel, oil and gas projects for Indian conglomerate Essar Group.

After getting $100,000 in seed money, Kumar went on to raise $2 million from private investors, mostly NRIs, the nickname for non-resident Indians. (Raman declined to reveal how much of this money was his own.)

As the company grew, he solicited $20 million from angel investors and venture capitalists in the United States, India and Mauritius. It was also Kumar who decided the company had to have a significant presence in the United States, which housed the bulk of the medical transcription market. Cross-cultural challenges

In Annapolis, executives including Christopher Foley, CBay's chief operating officer, conduct daily conference calls as early as 5 a.m. with managers in India who are winding down their day.

Foley visits CBay's Indian subsidiary once a quarter. His boss, Kumar, wrestles even more frequently with jet lag: He splits his time between Maryland and the three Indian cities, making the 18-hour trek every 15 days. (He has accumulated 1 million frequent flyer miles on British Airways, which he likes for their flat beds in business clbutt. No one flies first clbutt, according to company policy.)

At any given time, about half a dozen employees in CBay India are in Annapolis and vice versa. Recognizing cultural differences between the two offices, Kumar said the only way the two staffs can get familiar with one another is by meeting more often.

Kumar knows something about managing people across cultures, having lived in Zurich, Dubai, London and Hyderabad. But in spite of the hectic travel schedule, Kumar understands there are limits to the cross-cultural commingling.

"I'm not going to bring an Indian guy and put them in charge" of American workers, he said. But what about Kumar, who grew up in the southern Indian city of Hyderabad? Kumar got his MBA from Yale.

Nor will he send U.S. workers to live in India as expatriates "drawing a huge salary and living there," thereby feeding resentment among their Indian co-workers. Instead, he and staff members bear the jet lag. (There are pills for that, he explains.)

Another key ingredient to making the cross-cultural company work is investing in training, officials say.

Overseeing training efforts is a big part of the job for managers in CBay India, said Dinesh Kumar, director of CBay India. The company spends six to nine months training transcriptionists, after which they must pbutt a certification exam before they can work. A team of 150 quality butturance employees in Mumbai and Bangalore review transcriptionists' work, scouring for mistakes.

A trainer from the Annapolis office goes to India two or three times a year to teach them American expressions while a team of doctors offer regular medicine and pharmacology lessons.

But U.S. grammar and spelling can be tricky to transcribers, who are used to British English, said Biju Thomas, a transcription manager. This is the result of 170 years of British rule, which ended in 1947.

When CBay gets a new client, transcribers go through sample reports and get accustomed to a physician's voice and accent.

It is investments such as these that have made CBay's offshoring a challenging proposition, Raman Kumar said. While CBay's revenue growth is impressive, these figures don't tell the whole story.

After bleeding $15 million in losses during its first four years, the firm finally became profitable in 2003, Raman Kumar said.

It has taken five years to train the Indian work force and develop the infrastructure, Raman Kumar said.

While transcriptionists in India earn a fraction of their U.S. counterparts, many of those savings are offset by other costs, such as training and travel, he said. Even experienced medical transcriptionists in India are about 25 percent less productive than their American counterparts, Raman Kumar said.

Offshoring has its downside, said Joel Naroff, chief economist for Commerce Bancorp Inc. The biggest challenge is managing labor which may not be culturally in tune with what you want to do, he said.

"That's not a small thing," Naroff said.