When sales of their security software slowed in 2001, executives at ValiCert Inc. began laying off engineers in Silicon Valley to hire replacements in India for $7,000 a year.
ValiCert expected to save millions annually while cranking out new software for banks, insurers and government agencies. Senior Vice President David Jevans recalls optimistic predictions that the company would “cut the budget by half here and hire twice as many people there.” Colleagues would swap work across the globe every 12 hours, helping ValiCert “put more people on it and get it done sooner,” he says.
The reality was different. The Indian engineers, who knew little about ValiCert’s software or how it was used, omitted features Americans considered intuitive. U.S. programmers, accustomed to quick chats over cubicle walls, spent months writing detailed instructions for overseas assignments, delaying new products. Fear and distrust thrived as ValiCert’s finances deteriorated, and co-workers, 14 times zones apart, traded curt e-mails. In the fall of 2002, executives brought back to the U.S. a key project that had been assigned to India, irritating some Indian employees.
“At times, we were thinking, ‘What have we done here?’ ” recalls John Vigouroux, who joined ValiCert in July 2002 and became chief executive three months later.
Shifting work to India eventually did help cut ValiCert’s engineering costs by two-thirds, keeping the company and its major products alive—and saving 65 positions which remained in the U.S. But not before ValiCert experienced a harrowing period of instability and doubt, and only after its executives significantly refined the company’s global division of labor.
The successful formula that emerged was to assign the India team bigger projects, rather than tasks requiring continual interaction with U.S. counterparts. The crucial jobs of crafting new products and features stayed in Silicon Valley. In the end, exporting some jobs ultimately led to adding a small but important number of new, higher-level positions in the U.S.
In February 2003, ValiCert agreed to be acquired by Tumbleweed Communications Corp., a maker of antispam software with its own offshore operation in Bulgaria. Today, the combined Tumbleweed is growing, and again hiring software architects in Silicon Valley with six-figure salaries, as well as engineers overseas. Without India, Mr. Vigouroux says, “I don’t know if we’d be around today.”
ValiCert’s experience offers important insights into the debate over the movement of service jobs to lower-cost countries, such as India. Such shifts can save companies money and hurt U.S. workers. But the process is difficult, and the savings typically aren’t as great as a simple wage comparison suggests. Some jobs cannot easily or profitably be exported, and trying to do so can risk a customer backlash: In recent months, Dell Inc. and Lehman Brothers Holdings Inc., for example, moved several dozen call-center and help-desk jobs back to the U.S., after employee and customer complaints.
Founded in 1996, ValiCert specializes in software to securely exchange information over the Internet. Banks use ValiCert’s software to safeguard electronic funds transfers, health insurers to protect patient medical records. Although still unprofitable, ValiCert conducted an initial public offering in July 2000, in the dying embers of the dot-com boom. In two months, the stock doubled to $25.25.