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Labor group: Microsoft offshoring work on Longhorn

Organization says documents contradict industry claims that offshore outsourcing will be limited to mundane tasks.

Microsoft is outsourcing some of the work related to its next-generation operating system to India, according to a labor group.

The WashTech organization said Wednesday that it obtained internal Microsoft documents showing that at least two of India's offshore outsourcing companies are working on the operating system dubbed Longhorn, which is expected in 2006. One of the documents indicates that a contract with India-based Infosys Technologies concerns a "Longhorn Migration Guide."

WashTech also said Microsoft indirectly employs more than 1,000 people in India through contractors.

"The high-tech industry and proponents of offshore outsourcing have argued that the next generation of technology work will always be done by U.S.-based employees while the low-level and routine legacy work will be sent offshore," WashTech said in a statement. "These documents clearly dispute that idea and show that U.S. employees are directly competing with Indian companies for work on next-generation technologies--that originally were developed in the United States."

Microsoft denied that work on key pieces of Longhorn is being done by third-party companies but declined to comment on the number of workers assigned to the company through contractors in India. "The development of our core technologies, our intellectual property, is done by Microsoft employees," Microsoft spokeswoman Stacy Drake said.

Drake also emphasized that most of the company's "core" development work is done by U.S. employees.

Offshore outsourcing, which refers to farming out tasks to lower-wage nations such as India or the Philippines, has become a hot-button issue over the past year or so. Defenders of the practice--including President Bush's top economic advisor--say it ultimately assists the U.S. economy. But critics say it costs U.S. workers jobs and threatens the country's long-term tech leadership. The exact scale of the trend remains unclear.

WashTech disclosed what it said were contact lists for direct and indirect Microsoft employees in India, agreements with companies such as Wipro and Satyam Computer Services and lists of alleged Microsoft contracts with companies including Infosys, Wipro and Satyam. Among the contracts with Wipro were two that indicated testing work for Longhorn.

Microsoft's Drake said the company does business with Indian technology services companies, but she declined to comment on specific projects. She did say, though, that "testing is not development work." She also said a migration guide would not involve a key piece of Longhorn, but rather a way to move from another technology platform to Longhorn.

In the past year, about 4 percent of Microsoft's multibillion-dollar research and development budget went to outside companies doing work for the Redmond, Wash.-based software giant. Less than 1 percent of the R&D budget went to companies outside the United States, Drake said.

Microsoft R&D activities include development of what the company considers its core products--such as Longhorn--but also work considered less central. In one instance, Microsoft turned to an outside company to help it build a customer support system that lets consumers buy products through its MSN Web site.

Marcus Courtney, president of WashTech, said Microsoft's distinction between "core" and noncore work on Longhorn gets into a "semantics debate." "Clearly they are doing next-generation product development for something that is a core product of Microsoft," Courtney said. "And it's being done offshore."

Wipro and Satyam could not be reached for comment. Infosys said in a statement that it "does not comment on the specifics of client contracts."

Microsoft has about 1,000 employees in India, Drake said. The company has about 57,100 employees worldwide. It plans to hire 7,000 people in the coming year, with 3,000 of the new hires to be added to its Redmond, Wash., offices.