India's IT service providers want to prove they can innovate--not just serve up low-cost talent--but that's proving a difficult task from the other side of the globe. One solution: They're hiring more U.S. talent.

Tata Consultancy Services said last week it has opened a development center in a former paper plant outside Cincinnati, with initial plans to employ 1,000 people, which would make it one of the largest U.S. development centers by an India-based IT services company. The 200,000-square-foot facility will include a lab where TCS hopes to show off its experience in such areas as industrial engineering and services. TCS plans to hire Midwest tech talent for the facility.

It's similar to plans by Wipro Technologies, which in August acquired U.S. infrastructure management vendor InfoCrossing, with 900 employees, for $600 million. Wipro is recruiting about 500 people, largely recent college grads, for a new Atlanta development center, and it plans two more centers with staffing of up to 500 people each in to-be-announced U.S. cities. Wipro's also set up a center outside Detroit.

Indian IT companies also are buying small consulting companies, looking to add regional and industry experience. Satyam Computer paid $35 million in January for Chicago-based Bridge Strategy Group, a firm of 36 management consultants. Infosys also is doing select hiring in the United States, particularly for consulting. None of these add up to a big chunk of the workforce for Indian IT vendors; TCS, for example, has more than 100,000 employees, about 10% of whom are not Indian.

But companies believe they need more people close to the customer to work on innovation efforts such as process change and new product rollouts. "Globalization of our delivery model is something we're doing at a very aggressive pace," says N.S. Bala, Wipro's senior VP of manufacturing solutions.

A bigger U.S. presence also makes Indian providers a more viable option for companies that don't want to send sensitive data or product development offshore.

INNOVATION'S A TOUGH SELL

These providers have a lot of convincing to do. In an InformationWeek survey of 430 IT pros who work with Indian service providers, just 10% cite "innovative ideas" as one of the most significant benefits, while 72% cite lower costs. TCS is using innovation labs in the United States to show what it can do, such as one in Burbank, Calif., that demonstrates the latest technologies for the entertainment industry, one for engineering services in Indianapolis, and an RFID lab in Chicago.

The Cincinnati lab, using videoconferencing, also will let U.S. customers view what's happening at labs in other parts of the world. Yet setting up centers in the United States is about understanding the market and industry nuances, not just making it easier for U.S. customers to reach TCS. "It's one thing to have a theoretical business understanding, but another to understand how the telecom business functions on the ground in North America," says Pradipta Bagchi, TCS's senior general manager of communications.

That's critical to providing the higher-fee consulting the Indian vendors want. Yet even as they're trying to rise on the value chain, there's a lower-cost equation on American soil. They're not setting up in pricey areas such as New York City or the Bay Area. They're pulling from a talent pool of Midwesterners, many of them new grads, who are less likely to job hop or demand the higher salaries of those living in coastal cities.