SPECIAL COVERAGE: UNDERSTANDING OUTSOURCING

MARCH 16, 2004

'Offshoring'
Can Generate
Jobs in the U.S.

By CRAIG KARMIN
Staff Reporter of THE WALL STREET JOURNAL

Global giants aren't the only companies cutting costs by shifting jobs overseas. Increasingly, small businesses are finding that "offshoring" jobs is a boon to their bottom line -- and sometimes gives them room to create new jobs at home.

For example, when Rajeev Thadani wanted to expand Claimpower Inc., his medical-billing service in Fairlawn, N.J., he chose to outsource some of the work to India. But unlike most companies going this route, his business had just five other employees at the time.

Mr. Thadani, who runs the company with his wife, flew to his native Bombay in 2001 and hired four locals to help file insurance claims on behalf of New Jersey doctors. They use a software system that Mr. Thadani, a programmer by trade, developed specifically for the task.

Today, he employs 35 people there. Since he pays his Indian employees the equivalent of $133 to $663 a month -- quite good by local standards -- he can charge doctors less than his competitors and has more time to offer specialized attention. That has given his business a big lift: In a little more than two years, he says, his client list has soared to 41 doctors from 10, and his firm's annual revenue jumped to $700,000 from $100,000.

Now he's taking steps to expand his business nationally, while planning to add staff in the U.S. In the past, Mr. Thadani relied on referrals from existing customers to get new business. He will soon add a sales team for recruiting clients and hire new managers in the U.S. to work with doctors. Longer term, he hopes to add as many as a dozen U.S. employees, plus 30 or so additional people in India, to help him reach his goal of handling claims for 500 doctors nationwide.

At a time when the U.S. has lost 2.3 million jobs over the past three years, foreign outsourcing -- to India in particular -- is frequently blamed for the jobless economic recovery. But recent employment trends suggest the moves also can trigger the creation of new U.S. jobs.

"This shows that outsourcing is not the one-way street many think it is in the United States," says Joseph Quinlan, chief market strategist at Banc of America Capital Management. "Outsourcing can also be a catalyst for lowering costs and creating jobs, notably at small and medium-sized companies."

An industry like medical billing is particularly well suited for outsourcing, says Bob Burleigh, a billing consultant and president of the Healthcare Billing & Management Association, a trade group. He notes that many of the larger medical billing companies -- and even a few of the smaller ones -- have hired workers abroad to cut costs at a time when insurance companies are paying less to doctors per claim.

"The business is characterized by a high volume of fairly predictable, fairly repetitive data-entry tasks," Mr. Burleigh says. "The employees in India speak English and often have higher levels of education than the people doing data entry in the U.S."

At Claimpower's Bombay operations, workers input figures on a computer, print out forms and proofread them, stuff envelopes and phone insurance companies in the U.S. with follow-up questions.

Like most Americans, Mr. Thadani never much thought about outsourcing until a few years ago. A lanky 48-year old born to a middle-class Indian family, he graduated with an economics degree from Bombay University and moved to New York in 1981.

Mr. Thadani worked as a programmer, eventually becoming an outside contractor taking on long-term projects for major Wall Street firms.

Ten years ago he was writing software programs for a Wall Street company when he agreed to help a friend launch a medical-billing business. In 1995, when the business partner got married and left the country, Mr. Thadani and his wife took over the operation. They hired part-time workers to help enter data.

Not content to run a mom-and-pop shop, Mr. Thadani looked to expand his business but believed the costs of taking on more employees in New Jersey were too high. That's when he placed a phone call to a friend in Bombay, leading him to hire a manager and two employees there to enter data.

The initial results weren't encouraging. The manager didn't know the business and couldn't properly train the two employees. Mistakes abounded and there was confusion over how the software worked. "I thought I was going to have to shut that office down," Mr. Thadani recalls.

So, as his wife worked in their U.S. office, he flew to Bombay and found a new manager. Then Mr. Thadani helped the manager hire four other data processors and personally trained them on his software. The business began to turn around and in 2002 he decided to quit his work for J.P. Morgan and devote himself full time to Claimpower. During the following two years, he hired 30 more workers in Bombay.

Several physicians have switched to Claimpower after bad experiences with other billing companies. Antonio Ciccone, a primary-care physician in Belleville, N.J., says he pays Claimpower on average a 5% commission of the amount it collects from insurers; that's less than half of what he paid his previous service, which also made too many mistakes.

Because Mr. Thadani isn't preoccupied by the day-to-day operations and data entry that are done overseas, he can focus on client relations, Dr. Ciccone says. "I can get Rajeev on the phone in five minutes if I have a question," he says.

Mr. Thadani currently has five full-time U.S. employees. While his company is a net positive for U.S. jobs -- Mr. Thadani said he never could have expanded at all were it not for the possibility of hiring workers in India -- he's unapologetic about the phenomenon even when it causes job losses. "There will be pain in the economy and there will need to be retraining," says Mr. Thadani, who adds that his previous job writing software for J.P. Morgan was itself recently eliminated by outsourcing. "But this will put an even greater premium on innovation in the U.S."

His 13-year-old son learned this last year when Mr. Thadani informed him that the part-time job he had with Claimpower was now going to be handled in India. While his son eventually got a different task to do, it taught him the importance of keeping his skills ahead of the curve in the job market, Mr. Thadani says. "It was a good lesson for him."