Venture Capital: Debate heats up as jobs go overseas

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VC Notebook

Friday, April 18, 2003

Venture Capital: Debate heats up as jobs go overseas

By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER

Sanjay Kumar has quietly built one of the fastest-growing companies in Seattle. In less than four years, the 37-year-old founder of vCustomer Corp. has hired 2,500 employees, landed contracts with some of the biggest names in technology and watched revenues soar. Better yet, vCustomer's profits have doubled every quarter for the past year.

No wonder that Kumar recently scored $7 million in financing at a higher valuation than the previous round -- a rarity in today's market.

But if you live in Seattle, don't go knocking on the company's front door looking for a job. Ninety-nine percent of vCustomer's work force is based in New Delhi, India, where the company operates three massive call centers. From these modern facilities, vCustomer answers 2.5 million phone calls and 500,000 e-mails per month -- primarily from North American consumers who rarely know they are speaking with someone 7,000 miles away.

With 15 sales and marketing executives in Seattle, vCustomer is successfully riding two of the biggest business trends of the 21st century: globalization and outsourcing. Business is so good at vCustomer that Kumar -- a former manager at Teledesic and Microsoft -- plans to open two new customer support facilities in New Delhi this year. By Christmas -- the company's peak season -- Kumar expects to have 5,000 employees working in India. He declines to disclose revenues or customers, saying only that "the business has grown pretty dramatically."

"I want to find out if there is anything like business steroids," jokes Kumar, a native of Mumbai who holds a Ph.D. in computer science from the University of Pennsylvania. "The two things I have learned is that nothing replaces hard work and nothing replaces perseverance."

But vCustomer's business model -- while highly profitable -- does have its share of critics. Labor groups say companies like vCustomer are exporting U.S. jobs overseas. WashTech has been one of the most vocal critics. The Seattle labor organization has been handing out fliers and standing in front of high-tech businesses with signs that say, "Where do you want your job to go today?" WashTech President Marcus Courtney calls outsourcing "a serious threat to the economic stability of people working in this country."

Forrester Research estimates that as many as 3.3 million U.S. jobs and $136 billion in wages could be moved to such countries as India, China and Russia in the next decade or so.

Seattle jobs have already started to flow offshore. Amazon.com, Microsoft, RealNetworks and Click2Learn are just a few of the local companies that have either set up operations in India or partnered with outsourcing companies with facilities there.

Meanwhile, more than a half-dozen call centers have closed in the past two years in the Seattle area at a cost of 1,900 jobs. Citing exorbitant costs and high employee turnover rates, companies have shifted some of the work to cheaper facilities overseas.

If vCustomer did not capitalize on the opportunity, Kumar said some other company certainly would. In fact, a number of companies are racing to do just that.

The cost of running a call center in India is 50 percent less than in the United States, Kumar said.

Furthermore, India has a stable and highly educated work force. While the average employee turnover rate at a call center in the United States is more than 200 percent, Kumar said his New Delhi facilities usually lose only about 3 percent of workers annually.

"These are probably not jobs that people in the U.S. want to do," Kumar said. "But they are very good for people in places like India because they provide a stable environment and a very good standard of living."

As a former call-center employee, WashTech's Courtney disagrees. "There is an oversupply of labor," Courtney said. "And companies are trying to pit workers in India versus workers in the U.S." He worries that the outsourcing trend already has started to accelerate beyond manufacturing and technical support jobs to higher-paying positions in software development and network engineering.

With the new capital infusion, vCustomer will expand services such as data entry, electronic catalog building and claims processing.

Kumar declined to discuss salaries for his workers. But he said they are paid at levels that elevate them to a much higher standard of living than others in the country.

Kumar, who spends a few weeks in India each quarter, said the country of 1 billion people has only recently developed the telecommunications infrastructure to provide high-quality voice support. vCustomer has spent $20 million building its own telecommunications infrastructure, a network that is powered by Cisco equipment and can support 1,600 simultaneous phone calls.

"Two years ago, the infrastructure was not very reliable so you always worried about it breaking down," said Kumar, a former network engineer. "Now in my centers in New Delhi I have three fiber links. There are very few buildings outside Seattle where you can get three fiber connections. In Bellevue, there is no way. But in New Delhi you can."

With the network in place, a talented pool of workers and a fresh round of capital from two new investors, Kumar believes vCustomer is poised for continued growth. An initial public offering is not out of the question, though Kumar said in this climate it is not going to happen any time soon. Expansion beyond India also is a possibility, with the company exploring initiatives in Latin America.

Investors in the $7 million round include West River Capital and Ajay Shah, a board member at Solectron Corp. Previous investors include former Microsoft executive Scott Oki, former Seafirst CEO Luke Helms and investment firm Warburg Pincus. The company has raised $20 million in financing.

P-I reporter John Cook can be reached at 206-448-8075 or johncook@seattlepi.com. For more information on Seattle-area start-ups or venture capital firms, visit www.seattlepi.com/venture.

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