Why anti-outsourcing bills don't work
By Anupam Govil

Post US-Presidential election, the outsourcing juggernaut continues to build momentum. Corporate boardrooms heaved a collective sigh of relief as Presidential hopeful John Kerry's strident anti-offshoring stance got relegated to the backburner leading to a pronounced dip in negative coverage in the media.

Even the recent report by National Foundation for American Policy (NFAP), that more than 112 anti-outsourcing bills have been introduced in at least 40 states within the first three months of 2005, failed to dampen the spirits of the offshoring protagonists.

In 2004 over 200 bills made it to the state legislative sessions but only 5 actually got approved and became law. This proves that most of these bills are hastily written for populist reasons and do not have the backing that is needed to be passed into law.

General provisions under these bills include the following anti-offshore outsourcing measures:

• Generally prohibit offshoring state government, and not private sector, contract work.
• Require the call centre to identify the country receiving and placing the call and offer to re-direct to a US-based call centre if requested to do so.
• Services procurement restriction to US citizens or permanent residents or US locations.
• Restriction on data flow outside the US for 'personally identifiable information.'
• Prohibiting state or local government to contract for services, unless the company certifies that all work will be performed solely by workers in the United States.

While some of these provisions carry onerous fiscal and regulatory burden, they apply mostly to projects in the government sector. The fact is that state government contracts currently account for less than two percent of the total IT work handled by Indian IT firms.

This is valued at about USD 150 million and for most companies it is below 10% of their total income from US. Indian firms have avoided the costly mistakes made by US firms like EDS, CSC and CACI that grew the seemingly lucrative government outsourcing business disproportionate to their private sector component and subsequently suffered losses or were locked into unfavourable contracts.

Although outsourcing amongst government agencies (Federal, State and Local) has been on the rise recently, it is still a very competitive field and fraught with cumbersome qualification procedures, labyrinthine bidding processes and expensive underwriting requirements. Margins on government contracts are typically 25% to 40% lower than private sector ones but tend to be longer term in duration and larger in scope. Most Indian firms prefer to sub-contract through established US players that specialize in the government sector like SAIC, CSC, AMS-CGI and CACI.

While the continuing sentiment against offshoring of jobs is a matter of concern from a public image point of view, the actual business impact of these legislations is still unclear. Recently there has also been a fair amount of positive press around the increased hiring by the offshore firms in the US. An improved job market has also helped matters. At the end of the day, market forces will determine the future of outsourcing, and despite the naysayers, current indicators all point towards an upward and broadening trend.

(Anupam Govil is the director of TiE global and President & CEO of Global Equations, a BPO firm in Austin)