SPECIAL COVERAGE: UNDERSTANDING OUTSOURCING

MARCH 9, 2004

Press 1 for Delhi, 2 for Dallas

Latest Wrinkle in Jobs Fight:
Letting Customers Choose
Where Their Work Is Done

By JESSE DRUCKER and KEN BROWN
Staff Reporters of THE WALL STREET JOURNAL

Customers using online lender E-Loan Inc. now have a choice about who will process their application: They can let the company make use of workers in India. Or they can request to have their loan processed domestically by U.S. workers -- and wait as many as two days longer.

With the movement of U.S. jobs overseas becoming a hot political issue, companies are trying to find new ways to avoid the backlash. E-Loan's move is the latest wrinkle: disclosing that they have workers overseas, and letting customers themselves decide whether to opt for the advantages they offer.

"Companies have gotten themselves into a box because they're not telling people, and that's alarming consumers," says Chris Larsen, E-Loan's chairman and chief executive. Since the company started offering the option four weeks ago, roughly 86% of its customers for home equity loans have chosen the India route. To offer the faster service, E-Loan contracts with a unit of Wipro Ltd., a big Indian outsourcing company that is growing so rapidly it is expanding its work force by 3,000 each quarter.

E-Loan officials expect more companies will follow suit. Mr. Larsen said he was surprised that the company, based in Pleasanton, Calif., didn't have to offer a financial incentive to encourage customers to use the offshore processors. "That may change as people get more concerned about U.S. jobs. ...This is really a massive struggle between consumers and labor," says Mr. Larsen, whose company did $6 billion in loans last year.

Some labor groups say they expect more businesses to disclose that they have moved work abroad in the hopes that consumers will chose the cheaper or faster service anyway. "It creates an argument that people don't care where their loan is processed or where their call is answered to service their computer," says Marcus Courtney, president of WashTech, a union for technology workers based in Seattle. "Clearly, companies when offering that choice are trying to bolster that argument."

The controversy is putting American companies on the defensive about their hiring practices in a way that executives haven't seen in years. Some compare the current anxiety to the mid 1990s, when furor erupted over downsizing. Several chief executives, including AT&T Corp.'s then-Chief Executive Robert Allen, ended up on the cover of Newsweek under the headline "Corporate Killers."

As concern mounts, legislation has been proposed in Congress and in dozens of state capitals to crimp such moves abroad. Among the proposed techniques: barring government purchasing that involves work sent abroad; imposing tax penalties on companies that send work offshore; and requiring companies to disclose such moves.

Democratic Presidential candidate John Kerry has introduced legislation in the Senate that would require customer-call centers overseas to identify their location. He also has talked about eliminating tax breaks that encourage companies to shift business abroad. Meantime, the Bush administration has kept a low profile on the issue, though it did endure days of critical news coverage after a top White House economist, N. Gregory Mankiw, said outsourcing may benefit the U.S. over the "long run."

Many economists argue that offshore outsourcing both helps economic development overseas and lowers prices domestically, which frees up capital to invest in new jobs in the U.S. and increases consumers' purchasing power. However, the country's lackluster job growth has turned the offshore outsourcing of jobs into a front-burner issue, particularly as white-collar workers find they no longer are immune to the trend.

In the meantime, companies increasingly are reluctant to talk about their use of workers overseas or plans to move work abroad for fear of ending up as an example on the campaign trail. Some companies say the backlash has given them pause. J.H. Cohn LLP, a 600-employee accounting firm in Roseland, N.J., sent some tax returns overseas last year on a test basis with clients' approval, but its partners formally decided recently not to continue the practice. "From a personal point of view, we don't need to be shipping jobs overseas," says Tom Marino, the firm's CEO. "There's something that tells me that the clients are not going to like that."

Still, the negative publicity surrounding the move of work offshore is having little impact on the actual operations of the companies involved. Consulting firm Everest Group, and its subsidiary Outsourcing Center, are proceeding with plans for their annual "Outsourcing Excellence Awards" at an Oscar-like ceremony in May. The finalists include several pairings of U.S. companies and their overseas outsourcing partners.

"We have not talked to anyone who says that because this is a political problem, I am simply not going to do this now," said Kathleen Goolsby, a senior writer and analyst for Everest Group and Outsourcing Center. "They were exploring this because they had a business problem. They still have to solve that business problem regardless of the fact that there's a political issue."

Big Four accounting firm Ernst & Young requires clients to sign a document that acknowledges that some of their tax-preparation work could be done overseas. "We're not required to have that language in our engagement letters," says spokesman Ken Kerrigan. "But as a matter of policy, we choose to put it there."

Rather than outsourcing the work to a foreign company, Ernst & Young employees in India and elsewhere handle the tasks at a fraction of the cost and turn the paperwork around faster, Mr. Kerrigan says. "If [clients] show any concern whatsoever, we have said fine, we'll do it in the United States if that's what you want," he says.

Not all accounting firms disclose they use overseas workers. Uncertainty over the situation is prompting the American Institute of Certified Public Accountants to consider changing its 30-year-old rules that cover outsourcing, which currently don't require firms to disclose when they send work outside.

"I think if anyone is going to outsource any part of their clients' [tax] returns to India, they should tell their clients," says Alan Weiner, the senior tax partner at accounting firm Holtz Rubenstein & Co. LLP of Melville, N.Y.

Some companies that have reversed course and returned work to the U.S. say it is for business reasons, not because the trend has become controversial. At Dell Inc., the computer maker shifted customer calls back home after finding the technical staff it used in India wasn't as experienced as business demanded.

Other companies have backed down for others reasons: AT&T Wireless Services Inc. was in the advanced stages of plans to move overseas more than 3,000 positions in its computer operations and customer service. However, after a botched software upgrade that rendered the company unable to activate tens of thousands of customers on its new network -- and led to high customer defections -- the company backed away from its plans, according to a person familiar with the situation. A company spokesman says the plan was put under review only after it agreed to be purchased by Cingular Wireless.

Wipro, which does the work for E-Loan, has been watching the furor from India. "We're very concerned about the angst that is there," says Sangita Singh, Wipro's chief marketing officer. "Our heart reaches out to the people getting affected with all the job losses."

--Bob Davis and Kris Maher contributed to this article.