Here, there and everywhere: a look at the roles of company, sector, function and setting

in determining work outcomes in global value chains.

Pamela Meil, Institute for Social Science Research, Munich

Global value chain analysis has contributed greatly to analyses of globalization processes by

turning attention to the relationship and interaction between units in value creation and value

differentiation along the entire chain. It is also an approach that captures the dynamic nature

of these relationships (they do not remain stable over time) and the role that power plays in

the governance structures across the chain. (Gereffi et al. 2005) However, GVC has been

criticized for its concentration on the firm as a unit of analysis. This has caused a blind spot in

considering the role of labor and the role of institutional context in which firms and actors are

operating.

Early research on the processes underlying the creation of GVC´s has tended to have a

perspective looking out from the developed economies: the strategies and motives that induce

outsourcing or offshoring for MNCs and lead firms and the consequences of geographically

dispersed production, development, distribution, etc. on home workforces. The dynamic

relationship between units in the chain, the actual processes involved in how firms get to

participate in chains and under what conditions, how upgrading might or might not occur,

how skills are or are not accessed or how knowledge transfer does or does not take place are

issues that were less explored and therefore not well understood. (Ramirez and Rainbird 2011;

Gereffi and Kaplinsky 2001)

I. Global value chains – what are they - intermediate goods trade and shift from

OEMs to suppliers

The way companies organize their value chains has consequences for how much and what

types of work gets carried out at various sites across the chain. The way business functions,

that is the various pieces that make up the production or service process, are organised and

coordinated beyond a firm’s boundaries, at the level of the value chain, affects the way jobs

are designed, the way people are allocated to these jobs, the way collaboration between

workers is organised, and the way working conditions are shaped. (Ramioul 2007)

Internationalization of production and services – exporting goods and setting up new sites to

access new markets – is certainly not new. What is a new phenomenon and one being pursued

quite aggressively is the organization of a new division of labor between sites and companies.

Global value chains encompass the full range of activities that are required to bring a good or

service from conception through the different phases of production – for instance, provision

of raw materials, the input of various components, subassemblies and producer services, the

assembly of finished goods – to deliver to final customers, as well as disposal after use. In the

context of globalization, the activities that constitute a value chain are generally carried out in

inter-firm networks on a global scale (Cattaneo, Gereffi, and Staritz 2010).

“By focussing on the sequence of value-added, from conception to production to end use,

GVC analysis provides a holistic view of global industries both from the top down (e.g.

asking how firms govern their global-scale affiliate and supplier networks) and from the

bottom up (e.g. asking how these business decisions can add value to the industry in specific

countries and regions)”. (Psilos and Gereffi 2011, p. 4)

Research issues to be addressed:

What are the companies´ motives – intentions when outsourcing or offshoring?

What are the destinations´ strategies for skilling and workforce development? How

much does country of destination and its institutional framework play in this equation?

What does the chain or network look like and how is it growing? Are there differences

between sectors in terms of the motives, the intentions of how the chain will be used,

how dynamic the chain is?

Exactly what kind of work is being done at which point along the chain?

This understanding of global value chains underscores a central factor in understanding them:

company strategies in outsourcing and offshoring are major drivers of how the chain is used,

what role different points along the chain have, what the chances for knowledge transfer and

upgrading are. In management ideology and practice, the reason to outsource and offshore is

to achieve competitive advantage and thus the initial and prima facie motive is cost reduction.

This motive transcends sector. The following tables display the answers that 7 companies in

diverse sectors gave regarding their motives for offshoring and the use of offshored sites.

Table 1: Company cases

Company Size Branch Sites

Glass 17,400

(6500 in

DE)

Process industryGlass based products, precision materials

German owned; 43 countries (Prod.)Incl. Singapore, India, Brazil, Czech Rep.

IT 40,000 ITHardware and software in IT sector

US-owned100 sitesIncl. Germany, Ireland, India, Egypt

Assembly:

1.Automobile

2.Aerospace

5700 Machine building and assembly systems

German-owned47 sites in 21 countriesIncl. China, USA, Brazil, Spain, Poland

Contact 500

(200 in

DE)

Machine buildingAutomatic coupling systems for transport

German-owned4 sites in 3 countriesIncl. China, Tunesia

Compo 14,249

(5500 in

DE)

Machine building pumps

German owned43 sites Incl. China, US, S. Amer.

Cable 1500 Cables for energy and telecommunication

British ownedGermany, W. Eur., US

Textile 107 Textiles German ownedDE: logistics and R&D; China, Bangladesh, Hong Kong: Prod., local design and marketing

Table 2: Core competence of sites

Company Core competence

German site

Core competence

Offshore site

Glass R&D; CoordinationProd.; New Product Devel.

Production

IT Coordination; Marketing; Production

ServiceAssembly

(1 = Auto;

2 = Aerosp)

1. R&D; Coordination; Controlling; New Prod. Develop.2. R&D Coordination; Controlling; Marketing; New Prod. Develop.

1. Production; Marketing/ Sales2. Engineering Services

Contact R&D; Production; Service; New Prod. Devel.

Marketing, Distribution; Service

Compo R&D; Production; New Prod. Devel.

Production; Marketing; Service

Cable R&D; Coordination; Production; Service

Production; R&D; New Prod. Devel.

Textile R&D; Controlling; Marketing/Sales; Distribution; New Prod. Devel.

Production

Table 3: Drivers and Motives of offshoringCompany Main

Chain Functions

Place on Chain

Top 3 reasons for expansion of network

3 Main Strengths of Foreign Sites

Glass ProductionTop Need for increased capacityCosts; Customer proximity

Customer Proximity; Costs;Local Content Laws

IT R&D, prod., logistics, IT services

US – topGerman site – high end subsidiary

Costs; Access to marketsAccess to technology potential

Access to qualified personnel; Access to new technology;Costs

Assembly1. Auto2. Aerosp.

R&DProd.

System top tier supplier

Costs; Local Content LawsAccess to Markets

1. Cost; Access to qual. Pers.; Customer proximity2. Access to qual. Pers.; Cost; Local content laws

Contact Prod., R&D

Specialist system supplier

Local ContentAccess to marketsCustomer Proximity

Local Content; Existing local partner NWs; Cost

Compo R&D, prod.

Supplier Costs; Local contentAccess to markets

Cost; customer proximity; Local content laws

Cable Prod., logistics

Specialist supplier

Access to marketsAccess to technologyInfrastructure

Access to new techn. potential; Customer proximity; Local Content laws

Textile Logistics, Production

Top of Prod. – but in buyer chain

Infrastructure; CostsAvailability of qualified personnel

Costs; good infrastructure; access to qual. Pers.

Table 4: Selection criteria for partners offshore

Company Selection Criteria for cooperation partners

Glass Product range; Technological know-how; existing qualifications

IT Technological know-how; existing qualifications; production range

Assembly

(Auto and

Aerospace)

Product range; existing qualifications; technological know-how

Contact Techological know-how; existing qualifications; product range

Compo Product range; technological know-how; existing qualifications

Cable Product range; technological know-how; existing qualifications

Textile Technological know-how; existing qualifications; product range

The 7 companies reveal the following trends:

Most of the sites of the companies from western developed economies, in 5 of the cases

German owned, saw R&D as their core competence. Coordination was an activity that was

continually gaining in significance as a core competence. The offshored sites were delegated

the less highly value added and less highly skilled activities, usually production. Interesting is,

however, that the German sites, often companies in manufacturing and traditional engineering

sectors, often mentioned production as a core activity for their own domestic sites, although

usually as a third or fourth choice. There was little difference between sector in either the

competency distribution or the motives for offshoring. In fact, some of the results were

surprising in that the producers of the most standardized goods (cables and textiles) were

often the most interested in factors other than cost.

Although the competence dispersion and drivers of offshoring displayed a rather traditional

picture, the selection criteria for cooperation partners do offer a more differentiated view.

The factors point to the types of characteristics that research on institutional framework and

national infrastructure systems emphasize. Thus development of the regional infrastructure

and workforce development do play a role for the offshoring policy of the companies

portrayed here, but they are secondary concerns.

Upgrading of chains

There are, of course, other relevant factors that drive value chain restructuring. And there are

many studies that indicate that the motives for value chain restructuring get more complex

and change over time, in which other factors, in particular access to qualified labor and access

to market move more and more into the foreground. (Dossani and Kenney 2006; Meil and

Salzman 2012)

This leads us to the issue of upgrading in value chains, which has gained in popularity

recently. From the value chain perspective the issue of upgrading began with the observation

that global markets are highly dynamic and competitive and for global value chains to survive

it was necessary to increase the skill content of their activities or develop competencies in

niche market segments (Humphrey and Schmitz 2002). This upward movement is referred to

as economic upgrading: and can occur in four different ways - process, product, functional,

chain or inter-sectoral. (Psilos and Gereffi 2011, p.4)

A perspective out of the firm and the chain has emerged which revolves around the

significance of institutional frameworks and regional infrastructures as the factors that foster

educational development and job improvements and lay the foundation for higher skilling and

workforce development. This improvement in the pool of labor is seen as a driver in the

potential upgrading in a value chain or global production network for developing economies.

It is clear that there is an interaction between the strategies and practice of companies both

from developed and emerging economies and the institutional frameworks in which they are

embedded that impact on upgrading outcomes.

The process of interaction is, however a complex one. The strategies of companies differ

depending on sector. They also differ depending on the type of chain (which business

functions does it cover?): Is it a production based chain? A logistic chain? A service chain? A

mixture of various functions? What has to be examined is whether work is distributed

differently across these different chain types and how workers across the chain are used

across the chain types. Are some chains more open to upgrading whereas others are less

dynamic and the relations between the units change less over time? Gereffi et al. observe that

“In industries where supplier capabilities are weak and where products and specifications are

complex, captive relationships may exist where suppliers may be confined to a narrow range

of tasks and be highly dependent on lead firms.” (Gereffi et al 2005) - But this is precisely

the point – what determines whether or not supplier capabilities remain weak or not?

Then there is the issue of the point of entry when trying to understand the distribution of work

across the chain, the role of the various actors and the upgrading process. How much of the

chain or network can you examine? Over which time period can you look at the development

of the chain or network?

Some evidence to answer the questions:

Many studies point to the increasing interest of lead firms in passing on knowledge to their

offshored sites in order to meet the quality and speed requirements of their customers. This

contradicts earlier accounts of global value chain restructuring in which core sites retained

highly skilled, highly value added tasks while low skilled and labor intensive tasks were

pushed out to the periphery. This simple core-periphery dichotomy has long ceased to exist.

(Fernandez-Stark et al. 2011; Plank et al. 2011) On the other hand, offshored sites do use

chain lengthening and precarious work to meet the flexibility requirements demanded by lead

firms. So although the top parts of the chain benefit from knowledge transfer, other lower

points on the chain don´t. Most developing and emerging economies pursue a two-tiered

strategy, with both highly skilled and low wage and low skilled labor segments participating

in global value chains.

It is a common development in service sector offshoring that the value chains tend to get

longer and longer, that the place on the chain is dynamic, and that firms, especially those

initially at the end of the chain, upgrade their place over time (Holtgrewe and Meil 2008 and

forthcoming). The reasons for the upgrading are varied: companies whose entry in the chain

were based on cost savings which are declining seek ways to upgrade their portfolio by

offering more highly skilled activities with a cost advantage but also by adding other less

expensive sites to their value chains to lower the overall cost that they can offer customers;

captive sites of MNEs become more and more integrated into their processes and their

projects and over time are able to carry out more of their functions; competition for the most

highly skilled and experienced workers in regional clusters in particular such as Bangalore

force companies to offer more challenging work in order to reduce attrition.

The role of multinationals and lead firms is particularly important in upgrading and

knowledge transfer. The ownership along the chain plays a role in this process. Those units

that are part of the enterprise group rather than just outsourcing suppliers or in extended units

of the chain have a greater chance of being integrated in the company division of labor and

getting upgraded. The following graphs show the within enterprise and outside enterprise

shares of international sourcing for a selection of European countries, in all sectors and

specifically in IT. There are large differences between countries in whether they source

internationally within or outside enterprise. German and Swedish firms in particular tend to

have a very large share of within company enterprises. In the IT sector, the majority of

countries have a large share of within company enterprises, although Sweden´s share is lower

than for total sector and Germany´s share is even higher.

The long term relationships and investments with the lead firm make movement up the chain

more likely. The lead firms tend to undertake more management, coordination and controlling

tasks and move more and more of the operative work out. The offshored sites get more and

more integrated in projects and take over more and more tasks. Companies along a varied

range of sectors and functions seem more and more willing to make a trade-off in which they

transfer knowledge and give up competency to perform certain tasks in order to reduce

official head counts, reduce or eliminate costs between projects, etc. The actual savings

involved or how rational this strategy actually is, is open to question.

Institutional framework and regional infrastructure

Comparative institutional frameworks and nationally based educational initiatives are

becoming a greater focus of global value chain or global production network research as a

means to protect workers from precarious work and negative working conditions in the chain

and to achieve workforce development that provides the skills that are a prerequisite for

upgrading and better jobs along the chain. Certainly institutional conditions are an important

factor in the chance for upgrading – but they are also not sufficient. And having programs for

workforce development and improved skilling possibilities does not necessarily eliminate low

skilled, precarious jobs in extended value chains. The parts of the chain that we investigate

have a large impact on the types of working conditions that we find. When we look at the

effects of value chains, we usually see and analyse the parts of the chain that intersect with the

lead firm or customer. So we see the buyer, lead firm or first tier supplier, then their direct

suppliers. What happens outside of this view is often bypassed or invisible.

The fact is that chains do get longer and longer in many different sectors. These are the parts

of the chain in which the lowest paid work is carried out in irregular work contexts and which

are the most difficult to capture and control. Although this phenomenon occurs across a wide

variety of sectors and countries, it is not surprisingly most evident in sectors in which

continuous cost reduction and downward cost pressure takes place as in textiles (See Plank et

al. 2011 for evidence from Romania and Morocco).

A summing up

Lead firms in a production or service chain in general and multinationals in particular play a

critical role in upgrading and in knowledge transfer processes. If the lead firm strategy

remains centered on cost reduction and a dichotomy of core and periphery skill use, the other

units in the chain have little opportunity to upgrade. In complex production sectors, IT

services, many business services, some upgrading for some units almost always occurs. For

textiles and food, the picture is more mixed.

In order to understand the upgrading process that emerges out of company strategies of

western developed economies and the institutional framework and local company strategies in

destination sites, it is necessary to look at the development path of offshored sites in their

interaction with the global value chain over time.

A view from the other side: the offshored site

The section below provides examples of 3 small Indian firms and their development paths.

(see Salzman and Meil forthcoming for a more detailed analysis of the cases) The three cases

show how important the interaction with MNEs was, how their strategies for offshoring

impacted on the Indian companies and the change over time. However, it also shows how

important the context for development and the various actors were in the development paths

and chances for upgrading.

Like many Indian suppliers the companies below did not want to be (or remain) merely

service suppliers to large MNEs (this was not their strategy). They started out as product

oriented firms, often established by oversee returnees, who wanted to develop their own

software products, but did not have the capital, access to the best skilled labor, or the

marketing capacity to succeed. Also, there was no domestic market for their products in India

at the time. Many chose the path to become service suppliers in the chains of MNEs as a

survival tactic, hoping that they might have enough capital to develop their own products

eventually.

Historical developments of value chain developments – 3 cases of small Indian firms

EDD – company history and goals

We see the development of technology entrepreneurs in India as stemming from two parallel

paths that began to converge in the late 1990s and early 2000s. The first involves factors

originating in India, such as the development of the Indian IT industry as a by-product of the

national defense industry and labs, and the launching of education policies and indigenous

infrastructures, accompanied by migration to Western institutions of higher education. The

latter two played key roles in developing highly skilled human capital in science and

technology fields. The second development was the corporate restructuring of primarily U.S.

but also European firms and their global distribution of work beginning in the 1990s, leading

to a unique interaction between multinationals and local Indian firms.

Indian policies provided, intentionally or not, an opportunity for Indian firms to grow with

some independence from U.S. and other foreign firms. Many of these initial technology firms

are now well-established multinationals in their own right (e.g., Infosys, WIPRO). At the

same time, with the re-entry of foreign firms into India, a second opportunity has emerged for

a new wave of small technological firms, but with a different set of market dynamics and

linkages to foreign MNEs.

Small firms, founded by returnees, often began with the intention of being product

development companies. The initial growth goals and strategies of most of these firms were,

however, not realized. The liberalization of government policy for foreign investment

enabled these small firms to meet the demand for services from foreign firms as they changed

strategy from product to service companies.

EDD’s founder followed the now-familiar education and career path of an undergraduate

degree from an elite Indian university and then a graduate degree in electrical engineering in

the United States in the mid-1980s. However, unlike many of his peers, he returned to India,

becoming the managing director of an India-US joint venture, created as a result of India’s

domestic ownership policy. In the early 1990s he left that company and founded his own IT

firm that was partly a joint venture with another U.S. IT company, created primarily as a sales

and marketing firm. Using this joint venture as a source of core revenue and investment

funds, he expanded the scope of his business. He founded separate operating companies, with

a board of expatriates with similar backgrounds: elite Indian undergraduate education,

graduate education in the U.S., and a range of work experience in the U.S. and for joint

venture companies in India.

Initially the operating companies focused on outsourced IT work, but they also developed IT

products for the Indian domestic finance industry. After the dot-com collapse in the United

States, they decided to expand outside of the IT industry. Building on their engineering and

development strengths, they developed engineering design and development capabilities in

several industrial sectors in a separate operating company, EDD. EDD provided dedicated

engineering and design capacity to foreign companies. EDD reserved physical space for each

of its clients and a dedicated engineering staff. This model protected the client’s IP and

served, in essence, as the offshore operation of the MNE. This model was successful in

providing a means for MNEs to “try out” higher-skilled, higher value-added offshore

engineering and development (i.e., for high level work rather than just lower level, more

routine work that was typically offshored at that time). In fact, the success convinced the

MNE to expand their offshore operations, but unfortunately, rather than expanding the

business of EDD, they opened their own offshore sites. The MNE proposed a transfer of the

entire dedicated engineering group at EDD to its own MNE site. EDD did not have much

choice, since the loss of business would have made a lot of their workforce redundant

anyway. So they agreed to facilitate the transfer, hoping to retain some business and also in

this way to attract new customers. EDD´s cooperation with the MNE allowed it to gain

expertise across a broad range of engineering development and design areas and industries

which they hoped to eventually capitalize on. A natural progression would be a move up the

technology value chain of other MNEs who want to outsource greater amounts of

engineering. Whether this model, as in electronics, will occur across a wide range of

industries remains to be seen.

New Tec – company history and goals

The second technology firm, “NewTec,” was started up in the mid-1990s in India by two

men. One was a returning Indian national who had gone to the United States for a graduate

education. He had worked for a U.S. firm and then decided to return home because he was

“bored with working in a large company” but also because he wanted to be near his family.

The other, more on the management than the technical side of the business, remained in the

U.S. in Silicon Valley to engage in sales and marketing work. NewTec was originally

conceived as a product company, with a dream of building a “world class product.” However,

given the difficulty of selling a platform product in India and competition in the general

market with some very high level players, New Tec decided to leverage capabilities and

become a service company as a niche player working only with product companies in order to

generate revenue. With this strategy, the company grew to 400 persons by the year 2000.

One of NewTec´s central roles in this new constellation began as a sales vendor for a U.S.

MNE: PC Products (PCP). This changing orientation for NewTec was at least partially a

result of changing Indian government policies which opened up the market for large MNEs.

As foreign products were more widely adopted in India, companies like NewTec found

greater growth coming from its sales and service for foreign companies than from its own

product sales. Accordingly, NewTec shifted its focus to do lower-level work for PCP and

other U.S. MNEs. However, because it had deep development capacity, NewTec began to do

some maintenance, testing, and development work for PCP on subroutines. NewTec’s own

products also found a market niche, but, these did not generate high sales volume. Meanwhile,

the demand for service work (testing, localization) by PCP and others was growing so rapidly

that NewTec started its own spinoff (All-Tec) to do dedicated work for NewTec. Eventually,

this spinoff shifted its focus to work directly for U.S. and European MNEs, concentrating

solely on maintenance and testing. NewTec’s product development staff, on the other hand,

had expertise far beyond the simple maintenance and localization work that PCP was sending

to India at that time. So NewTec proposed to PCP to undertake more technically challenging

and complex product development work. NewTec suggested ways to optimize subroutines

and even product modules. Gradually PCP adopted the greater scope of work submitted and

proposed by NewTec. Thus, NewTec’s expanded role in PCP’s product development took

place “bottom up” but then became part of PCP’s offshoring strategy. NewTec is also

extremely security conscious regarding intellectual property (IP) and follows stringent

guidelines which increase their credibility and attractiveness for MNEs. Nonetheless, New

Tec continues to engage in its own design and development work and its founders and many

of its high-level technical staff still harbor the goal of becoming a product company.

When asked why MNEs want to work with NewTec the answers given were:

1. They choose NewTec to build up variable capacity

2. NewTec meets specific technical needs and can develop data management

systems. This fits into the philosophy of particularly U.S. MNEs of “why build it

yourself when you can get the expertise elsewhere?”

3. Availability of human resources – the company possesses the skills to do

development and maintenance work

4. The company has a good engineering background – they are tuned to the

development cycle and will get the job done. They are willing to engage in

detailed work – which “may not appeal to the creative side of people”, but is still

challenging technical work.

5. Cost advantages – “Indian companies are more “efficient” than MNE captives.”

TechWare – Company history and growth

TechWare’s history is somewhat different from the other two TechEntre companies, EDD and

NewTec. It was initially established as a software division of a large industrial Indian

company in the mid-1980s. The restrictive environment for foreign MNEs and emphasis on

local development discouraged foreign entry and potentially provided an opportunity for

domestic firms to diversify and fill local product niches. TechWare was thus established as a

separate software product company in which the Indian industrial firm had equity but was run

by an independent management team. Unlike the founding management in the other

TechEntre firms, TechWare’s management team came from other Indian firms and nearly all

had done both undergraduate and graduate education in Indian colleges (primarily colleges in

the top two tiers).

TechWare had a large product catalogue for the Indian market, such as financial software for

different businesses, and various utilities. Most of the products were not successful and the

lax intellectual property laws at that time and the slow growing computer market led them to

change strategy. Instead of developing standalone products they shifted to localization

packages for existing U.S. software products. Some of their own products and the

localization packages were successful, but did not generate significant growth. In the early

1990s TechWare decided to use its sales channels and software experience to become the

Indian distributor of several U.S. software products and to provide support. In the mid-1990s

one of their major U.S. customers asked TechWare to do more software development for the

Indian market, initially localization projects. In the late 1990s, TechWare had such a rapid

growth opportunity in delivering offshore software services that they established a wholly-

owned subsidiary in the United States. They have since expanded throughout the United

States and Europe, built multiple Indian sites, and purchased a European technology

company.

The common elements in these three Indian companies (and in others that we studied but are

not reported here) is that they were established to fill niches created by restrictive Indian FDI

policies, either as Joint Ventures or to develop products that foreign companies were not

actively developing or selling in India. EDD and NewTec were true independent

entrepreneurial companies established by expatriate Indians, with college degrees from the

United States, whereas TechWare was established by a large Indian company and staffed with

graduates from Indian colleges. All three companies had a strong product focus and/or high

level engineering design/development focus although to survive, they all had to initially

depend on revenues from providing offshore services to Western MNEs.

Recruitment and Work organization

Getting access to skilled labor is a priority for MNEs as well as small Indian technology

firms, and they are in competition with one another to attract and keep employees. The Indian

market for engineers works in a very hierarchical fashion. Which school one attends and

which field of study one pursues determines placement and chances on the labour market.

This is because entry into particular schools and fields, such as computer science at a good

technical university, is highly competitive. Places at school and departments are awarded

according to test performance. The top places go to computer science. Other places go to

chemical engineering, mechanical engineering, electrical engineering, physics, etc. by how

highly valued particular degrees are on the labor market. Many students with technical

degrees are interested in obtaining MBAs to complement their competence profile.

Depending on which company type (MNE captive, large domestic Tier 1 company, niche

producer) and area (IT services, IT software development, product engineering software,

BPO - as domain expert or call center operator) - a recruitee enters, translates into very

different opportunities in terms of job content and salary. One interview partner described the

labor market as being divided into 4 sectors: (1) the lowest sector, Indian SMEs, (2) Indian

owned Tier 1 companies, (3) MNE captives, and (4) IT consumer services such as investment

banking houses and other financial services. This last group has a large resource base and

pays very high salaries. The sectors also operate as stepping stones, with employees in sector

2 gaining experience and specialist knowledge in the hope of moving into sector 3 businesses

where the pay is higher and the job content potentially more interesting. Sector 3 businesses

openly poach sector 2 employees. Movement from sector 1 to 2 or into sector 4 from any

sector is more difficult.

Interviews carried out with students from the IIT in Delhi underscore this picture. In one

class of about 100 students, we polled them on their career goals. The large majority of the

students, independent of field of study (nearly all with an engineering major) planned to work

in sector 4 firms in the foreign MNE financial sector. These were considered the most

desirable jobs in terms of money and career opportunity. With the global expansion of

financial firms into India, these jobs have replaced IT as the most desirable jobs for many of

the elite university graduates.

Most Indian companies build direct relationships with colleges and universities since the

competition for recruitment of the top graduates is high, especially in the centers of IT activity

such as Bangalore, Pune and Chennai. The links with educational institutions also operate in a

segmented fashion: the firms with high levels of resources and thus higher pay scales, often

MNE captives, have connections with the institutions with the best reputations (who have

attracted the best students). One model is to offer internships to work in the company while

still studying, and to offer a stipend to receive an MA in engineering of which 50% is paid by

the government and the other 50% by the company. Another draw is potentially more

interesting job content as captives take over ever larger pieces of the product´s life cycle and

more and more domain knowledge.

Typically small Indian companies such as NewTec attract young engineers and computer

scientists from non-elite Indian universities and colleges, very often with master’s degrees and

potentially previous job experience in very small Indian companies. Although NewTec goes

to college campuses to recruit, they also depend on word of mouth and “lateral” movement

from other companies. For small companies such as NewTec, they can be selective in their

hiring because they are hiring in small numbers, offer a good work environment, and

challenging work and career opportunities as new employees gain experience because of their

expanding portfolio of development and innovation projects. The large companies hire

thousands of workers in a cohort and have large backoffice IT services projects, though they

do have extensive training programs (e.g., Infosys’s training center accommodates over

13,000 and TCS is expanding to train 30,000 at one time; Wadhwa, et al., 2008)

As is usual in these companies, NewTec develops a career ladder in their small company, to

provide paths for advancement and higher salaries. The initial paths at NewTec are team

leader, program manager and then program architect. The ability to move up a hierarchy is an

important human resource tool because one of the main challenges for smaller Indian

companies is to retain personnel, especially the more highly skilled and experienced

employees. Most work on product modules for MNEs involves a range of tasks: back office

coding, developing high level software architecture and front-end client interface. Employees

want to be involved in the latter two tasks which are more variable and technically

challenging. Also higher level work tasks usually involve a trip abroad to discuss

development work with the MNE customer and this is also highly valued. Attrition is one of

the largest problems in Indian companies, and the call centers of BPO divisions have the

hardest time retaining people because it is considered the most boring and the least promising

for development. In contrast, offering leading edge work is a major recruitment and retention

advantage and can even permeate the usual sectoral divisions of the labor market.

Final Summary

To understand the process of upgrading, it is necessary to look at the interaction between the

offshoring strategies of the company of origin and the conditions at the destination site both in

terms of institutional framework and the strategies of local firms over time. This is of course a

complicated empirical challenge. What is being offshored in terms of sector and function play

a role; the policies, constraints and orientations of the companies at the site of origin play a

role, and the overall framework conditions at the destination site play a role.

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