Both Microsoft and HP intend to greatly increase the staff they have working in India, where trained, cheap staff have precipitated a large and controversial outsourcing (offshoring) effort by US companies.

Microsoft is increasing the number of staff at its software development center in Hyderabad in South India from 200 to about 500 employees by 2005. And HP is intending to add to its accounting outsourcing on the sub-continent with more back-office services, although it is keeping the exact details close to its chest.

Microsoft is also increasing the headcount at another center in Hyderabad that handles application development for Microsoft's in-house IT requirements. This centre currently employs about 125 staff, and it is thought they will be joined by another 125 this year. "We are taking both these operations and combining them at a single facility at Manikonda near Hyderabad," confirmed an MS spokeswoman.

Microsoft announced last year it has agreed with the government of the state of Andhra Pradesh to acquire 42.5 acres of land for a facility in Manikonda. Construction of the facility is scheduled to be completed by the end of this year. The company currently uses leased facilities.

Meanwhile a senior HP official in India, who spoke on condition of anonymity, said: "Having gained the confidence that we can do this out of India, we are extending these accounting services to our clients."

To begin with, HP is setting up a back-office accounts processing facility in Bangalore for Procter & Gamble. HP said in March it had agreed in principle to outsource P&G's worldwide accounts operations to HP Services, although it didn't say at the time where the work would be done. HP has three similar outsourcing deals in the pipeline, sources said.

Offshoring deals are becoming increasingly popular with US companies, although controversy regarding lost US jobs is increasing. Last month, Forrester has predicted that by the end of 2005, 830,000 service US jobs will have moved offshore - a figure it revised up 40 percent on a study it published in 2002.

In March, IBM was forced to announce a $25 million retraining fund for its US workers because of growing resentment. And in January, the UK Chancellor of the Exchequer voiced fears about offshoring.

The Microsoft move looks set to cause just as much concern, with one protest by the Washington Alliance of Technology Workers already registered. "Microsoft expanding in India means that workers in Redmond will face direct competition from workers that make a fraction of their wages," said Marcus Courtney, president of WashTech. "This will only lower wages and benefits for Microsoft US-based employees. The work that Microsoft is getting done in R&D in India can be done in this country."

Microsoft has said that the US will continue to be its development hub and has attempted to blur the issue. "While we do not yet understand how large our presence will be in the future, it made good business sense to buy this parcel [of land in India] now should we need it in the future."