US anti outsourcing laws: Not a threat to providers

Wednesday, 08 September 2010

Ohio Governor Ted Strickland has issued an executive order prohibiting "the expenditure of public funds for services provided offshore”, thereby preventing any government outsourcing deals. Recent US political stances indicate two evident policies to promote protectionism, the first curbing overseas immigration / temporary work permits and the second of actively discouraging offshoring through bans / additional levies. Nasscom believes the recently passed Border Security Bill will cause Indian IT firms (the largest seekers of temporary H1 B work permits) to shell an additional $250 million through increased visa fees. While the anti outsourcing movement was at its peak a few years back, strong voices are being heard from the likes of American media critics like Lou Dobbs and more recently, political opponents. President Obama announced he would make the creation of local jobs his top priority in 2010, and hinted the government could end tax breaks for companies that created jobs overseas (rather than locally). Senator Charles Schumer’s proposed 25 cent excise tax could lead to lower incentives for US companies to outsource work out of the country. Changes like these are bound to mar the industry’s optimistic outlook, but the truth seems quite the contrary as the outsourcing industry is said to be ‘unfazed’. Most Indian outsourcing providers not overly concerned Aggressive pro American policies have not really perturbed the outsourcing providers, because:   The cost of compliance legislation such as the 25 cents tax are expected to be higher than the said 25 cents a call as such. The tax is a fee charged to every company whose call centre transfers a call overseas, on a per call basis. It also mandates informing the caller that the call is being transferred outside of America.   Given the current post Global Financial Crisis (GFC) scenario, recouping costs forms top priority of many US banks. Adding a cost percentage would impair / delay their loan repayment capacity – something that the US economy cannot afford in its present condition.   Legislative changes lean more towards ‘governance’ rather than actually looking to reduce or debar outsourcing as a practice.   A majority of the contracts outsourced are from private players and government contract bans are not expected to affect offshore service orders excessively. Leading Indian outsourcing providers feel that outsourcing cannot be done away with. The increasing cost of offshoring could backlash into adding to US firms’ expenditure rather than benefit the economy. While outsourcing service providers will be impacted by these changes, some like Indian firms, including big ticket players Wipro and Cognizant, hinted at passing additional costs incurred due to increase in US visa fee hikes to clients. Obama administration’s plans to double exports and boost bilateral trade with India will be difficult to achieve with this protectionist policy. Is it really worth changing the law? Media overstating actual statistics for offshoring plays a larger part in public uneasiness over off shoring. According to U.S. Bureau of Labor Statistics (BLS) figures, of the approximately one million layoffs in 2004-05, just 16,197 (under 2% of all job layoffs) have been due to offshoring. At the peak of the 2008-2009 GFC, figures from the same source indicate 11,431 lay offs due to “out-of-country relocations” out of a total approximately 1.5 million layoffs – just under 1%. Even though Nasscom and some of its members are unhappy over the Ohio outsourcing ban, they may not lose work outsourced to delivery centres in the US (for example, TCS operates a delivery centre of 400 employees in Ohio, others like Infosys operate in Georgia). Infosys Chairman Narayan Murthy has called it a “passing effect of the global recession”.

 

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