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Protectionist Backlash Against Outsourcing
The Associated Chambers of Commerce and Industry of India ^
| July 2003
| ASSOCHAM
Posted on 07/30/2003 9:44:14 PM PDT by RockyMtnMan
ASSOCHAM Bulletin July 2003 (The Associated Chambers of Commerce and Industry of India)
PROTECTIONIST BACKLASH AGAINST OUTSOURCING IN THE U.S AND EUROPE
What should be Indias Response?
ASSOCHAM REPRESENTATION TO THE MINISTRY OF COMMUNICATIONS AND INFORMATION TECHNOLOGY
The proponents of complete liberalization of trade and full market access have often sited economic efficiency to substantiate their viewpoint. Multilateral trade bodies like WTO are also based on these non-discriminatory principles. Ironically, the recent criticism of outsourcing, a concept based on efficiency criterion, comes from the patrons of trade liberalization i.e. U.S and U.K.
Form of the outsourcing backlash
- Legislation aimed at keeping jobs in the U.S. is pending in at least five states i.e. New Jersey, Connecticut, Maryland, Missouri and Washington State. The bills employ a variety of methods, including blocking companies from using foreign workers on state contracts and requiring foreign call-centre employees to identify where they are located.
- A proposed L-1 visa bill in the U.S. seeks to prohibit software companies from sending professionals to carryout onsite work at client sites. Though the bill has not become legislation, it has already led to increased scrutiny like personal appearance for all L-1 applicants and restriction on qualifications.
- Certain U.S. states are considering restrictions on outsourcing software services (specially of network facing nature) in telecommunications and defense industries to foreign companies.
- U.K has added Software services to the Shortage Occupation List which specifies that the employer must make good faith efforts to employ individuals from the U.K, before employing foreign professionals.
- U.K. has also started audit of work permits to restrict the use of Intra Company Transfer Work permit by Indian companies.
Implication: Anti-Outsourcing Bills:
In the short term, Indian ITES industry will experience a minimal to moderate impact even if these bills become laws in various U.S. states. It has however been observed that 95% of such bills dont become laws and this process could take two years. Long-term impact directly depends on the emergent economic scenario.
L-1 Visa Bill:
As Indian BPO vendors move up the value chain and target new service lines like systems integration, package integration, package implementation, IT outsourcing and IT consulting, they need to operate on a Offshore/Onsite model. This requires IT professionals to be deputed at the client location for executing the project. The proposed L-1 visa bill will restrict the use of L-1 visa by Indian companies which is expected to severely affect the Indian IT industry in the long term.
Reaction of the Indian ITES Industry
In order to gauge the opinion of the ITES industry on this subject, the Communications Convergence Committee of ASSOCHAM followed a two-pronged approach. This was:
A) Conducting a nation-wide BPO Industry Confidence Survey in the months May-June, 2003 (the period when foreign & Indian media highlighted this issue)
B) Getting inputs from distinguished contact-persons in the industry (ASSOCHAM BPO Steering Committee)
Analysis of survey responses:
A part of the survey was designed to get specific inputs from the responding companies on what is their perception of the impact of anti-outsourcing bills on the Indian BPO industry based on the time-frame. The responses are depicted graphically below:
If Anti-Outsourcing Bills become Laws: Impact Analysis
In the short-term, majority (approx. 60%) of the respondents feel that the current anti-BPO tirade by some U.S. senators would have only a moderate impact on the growth prospects of this industry. However, there was near unanimity that some impact would definitely be felt even in the short run.
In the long term, fear overpowers optimism. Nearly 34% of the responses show a very serious impact of these moves in U.S. and U.K. on the Indian BPO industrys revenues and profitability.
Another one-fourth of the respondents opine a moderate-serious impact in the long run.
Inputs from Wipro Spectramind, Bharti TeleTech, IDC, KPMG, A.T.Kearney, PWC, Sify & HCL Tech.
Graph see hyperlink
ASSOCHAM had forwarded a 4-point strategy to ITES industry in the survey on what could be Indias response to the proposed anti-BPO legislations in the U.S. and U.K. An analysis of the survey responses shows:
- Strong PR exercise, a must: An overwhelming 84% of the respondents favour a very strong PR exercise in U.S and Europe on the benefits from outsourcing. This exercise should involve Government of India and all major industry bodies and stakeholders. While some industry bodies have begun to lobby individually, a joint government-industry front will strengthen our case.
- Senior-level diplomatic talks, imperative: ASSOCHAM lauds the efforts of the government for taking-up the industrys case and making Indias viewpoint clear to U.S. senators. This step is backed by nearly 80% of the respondents to the survey. However, India needs to persist in its lobbying efforts so that these bills are defeated as and when they are introduced in the various U.S states.
- The WTO-restrictive practices umbrella: The survey revealed only a moderate favour (42%) on India making its case at the WTO. Indias case at WTO could have been that the proposed bills amount to an unfair trade practice and hamper level-playing field for BPO and IT service providers.
- Forming country-level-alliance with China and other BPO beneficiaries: This option was considered a solution by only 30% of the respondents.
ASSOCHAM initiated a discussion within its BPO Steering Committee on what could be Indias multi-faceted strategy on this subject. Accordingly, an 8-point strategy model is presented below:
The 8-Point Strategy Model
- Strategy #1: Government appointed PR agency: There should be a communication through American media (advertisements, talk show participations, participation in media features, stories etc.) of the value the Indian BPO Industry is adding to the American society, polity and economy. To achieve this, a multi-modal mass information campaign on outsourcing can be carried out in the U.S and European countries.
- Strategy # 2: There is a need to put together a cogent case outlining how the 5 American States and U.K considering the bill against offshoring to India stand to lose in a net lose-lose proposition. The business case needs to be put together along the following lines:
- How much will the states lose in additional costs per call that are taken in the U.S/ U.K versus taken in an offshore destination like India.
- What is the opportunity cost of the spend base i.e. where else could the U.S. states put the monies that they will end up spending extra can the money be deployed in creating alternate employment opportunities (up-skill/re-skill displaced employees) or other social/developmental programs.
- Strategy # 3: India should try to develop a bigger picture of cooperation with U.S trade, commerce and geo-strategic links.
- Strategy #4: Focus on interest groups (India Caucus etc.) within the legislature to form an opinion against any protective/restrictive legislation.
- Strategy #5: Forward a well-prepared economic argument for outsourcing: The contours of this economic logic could be based on the following points:
- Nearly 3/4 th of the American and European households invest in shares of companies and venture funds. If outsourcing improves the rate of return of these companies/funds, the ultimate beneficiaries would be the shareholders.
- Research suggests that offshoring to India helps most companies increase their EBITDA by 10-50%.
- Offshoring of activities to a cost-effective, more-productive location like India contributes to the overall-development of U.S and European countries. This reasoning is based on a chain-process according to which outsourcing will lead to greater workforce productivity thereby a higher economic growth.
- Strategy #6: Visa related suggestions: The Indian Government can take-up the following visa issues with the U.S. administration:
- Special visa for IT professionals
- Separate visas for short-term work upto 180 days
- One year restriction on L-1 visa stamping on reciprocity basis should be dropped
- Considering the restriction on L-1 visa, cap on H1-B should be enhanced. India should also seek to remove the attestation requirement that is present today.
- Strategy #7: Learn from the Japanese experience: Japan went through a similar experience with respect to their automobile and electronics industry in the eighties. The Indian Government in association with industry bodies can spend sometime with the people who managed these rough patches for Japan Inc.
- Strategy #8: Make a case under various WTO agreements that these bills will act as trade barriers and not allow a fair movement of services. However, the opinion of BPO Steering Committee members and survey responses indicate this option should be used only as a secondary measure.
The Indian IT and ITES industry is currently going through a challenging phase. Sluggish economic conditions, specifically in the U.S. and Europe which are the worlds largest market for Indian BPO services still prevails. With the continuing squeeze on technology spend of major global corporations; future revenues of the ITES industry may come under pressure. Additionally, competition from countries like Ireland, Philippines, China etc. is increasing. Despite all these constraints, Indian ITES industry has clocked a significant growth of 59% during the last financial year.
The ASSOCHAM BPO Steering Committee requests the government to further strengthen this industry by helping to solve various regulatory, legal, taxation and infrastructure related issues. The ITES/BPO industry has great potential to transform India into a global power by reducing unemployment thereby raising the overall standard of living of the masses. Undoubtedly, a joint industry-government partnership is essential to attain this.
TOPICS: Business/Economy; Foreign Affairs; Government
KEYWORDS: backlash; india; offshoring; outsourcing
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To: RockyMtnMan
Most sales folks bypass techies and go straight to the check writer only to learn later the techies killed the deal because it didn't match their requirements. Not the good ones.
But, I'm not going to argue with you. I'm confident in my career. Products are largely commodities in today's market. "Check-writers" buy value, ROI, perception, and company reliability and viability.
I've moved from one company to another, both selling performance management software, and displaced the product I sold previously.
The decision-maker trusted me; he could care less what I was selling.
61
posted on
07/31/2003 8:47:49 AM PDT
by
sinkspur
("Boy, watch that knife!'" Rev. Capt. Samuel Johnston Clayton in "The Searchers")
To: sinkspur
Sounds like my company could use a guy like you. Our software has a significant ROI and the industry analysts are fawning over our value proposition.
To: RockyMtnMan
The reason they don't have any is because they lack the creativity, perseverance, ingenuity and overall skills we have developed here in the USA.You really should stop. TRW will tell you that the Indian developers implementing SAP globally are BETTER than their American counterparts, outwork them, and understand requirements better.
Why should companies trust their develop efforts to a country who has no track record? Sounds like shareholders should be concerned about the long-term viability of their investments.
Shareholders are concerned about companies remaining competitive, and Indian development is enabling them to achieve that objective.
63
posted on
07/31/2003 8:51:02 AM PDT
by
sinkspur
("Boy, watch that knife!'" Rev. Capt. Samuel Johnston Clayton in "The Searchers")
To: sweetjane
Big time lefties feel that leftist policies only apply to everyone else. How many congresscritters' kids go to public schools? And then there is the opposition to windmill power in the bay if it is in the view of the democrats. The Texas Dems shirking their duties of elected officials. It's always a case of do as I say, not as I do.
64
posted on
07/31/2003 8:53:49 AM PDT
by
freeangel
(freeangel)
To: sinkspur
TRW will tell you that the Indian developers implementing SAP globally are BETTER than their American counterparts, outwork them, and understand requirements better.I'll ask my cousin he works for TRW.
Shareholders are concerned about companies remaining competitive, and Indian development is enabling them to achieve that objective.
They will be competitive in the short-term but in the long term it will bite them hard. The "working-class" is also the investment class, without investment stock prices will fall and companies will be short of capital.
To: sinkspur
Listen, bub, NOTHING happens in this country until somebody sells something. LOL! Thats the honest to God truth! You should also add that when you are good at selling the only time you will run out of work is when there is nothing left to sell.
If my industry collapses I will go sell something else. If I cant sell something in the US I will sell it overseas. If no company wants to employ me, I will buy things on my own and sell them for more than I paid.
To: RockyMtnMan
There is nothing that can stop this. It is not just that the foreigners are cheaper. Based on what I have seen coming out of CS depts in this country, it will soon be the case that only foreigners will be able to do the work. Already it is well-known that IIT in Madras is more difficult to get into than MIT.
67
posted on
07/31/2003 9:46:50 AM PDT
by
eniapmot
To: Dissident1
Not true.
We make the world's most popular dog food.
68
posted on
07/31/2003 9:49:52 AM PDT
by
eniapmot
To: RockyMtnMan
Oh, and you've got to know a bit about cost of money and ROI today to close deals As well as RFPs, RFQs, needs evaluation, presentation skills, markups, budgets, third party billing, invoicing, non-accrual billing, customs, international shipping, interstate taxation of goods and services and so on and so on...
Anyone who is considering sales as a career should start with a commission vs. draw pay structure. You learn pretty quickly whether or not youre cut out for it.
To: sinkspur
Writing code in Java is like cutting someone's lawn. It's easy to do, as long as you know how to crank a lawnmower. I am not sure what you mean by that. What I do know is that I have hired people who had a full two semesters of Java and presumably could "write code in Java," but who couldn't write the programs I wanted. There is no language that is so difficult that one can't learn the basic syntax. What counts is your grasp of algorithms and how to put simple code together to make a real program.
70
posted on
07/31/2003 9:55:49 AM PDT
by
eniapmot
To: superloser
re: Legislation can stop this trend by adding a tax on foreign labor. )))
Worth a try--at least it'd level the field a bit. India doesn't have workman's comp, lawsuit craziness--we do. Or, perhaps a tariff leveled on the finished goods. We could also try getting rid of our legislated competitive disadvantages. Either that, or tariffs.
71
posted on
07/31/2003 9:56:34 AM PDT
by
Mamzelle
Comment #72 Removed by Moderator
To: RockyMtnMan
Without products their can be no sales, this isn't a chicken-egg conundrum, one always comes before the other. Ever heard of "vaporware"?
73
posted on
07/31/2003 10:01:38 AM PDT
by
dfwgator
To: sinkspur
The decision-maker trusted me; he could care less what I was selling.BINGO! You just said the magic word, "trust." Great book called "The Internet Weather" that talks about the reality of today. There are basically four value propositions: Time, Truth, Privacy and Trust, that basically remain the same no matter what happens. Time, truth and privacy can all be purchased and managed by individual effort. Trust, on the other hand can only be built over time. In a world where it is increasingly easier to get quick access to information (and disinformation) and knowledge, and those barriers to entry are quicker knocked down, the people and businesses that will succeed in the long run are not going to be the smartest or the most innovative, they are the ones that can build the most trust.
And in my opinion, that is where offshoring is most vulnerable, in the trust factor. Who is coding your mission -critical applications? Could they actually be Al-Qaeda agents masquerading as software developers intentionally placing "trojan horses" in the application? Eventually the offshore companies are going to get called on this. Can they reassure the companies that indeed they screen their employees?
74
posted on
07/31/2003 10:18:50 AM PDT
by
dfwgator
To: freeangel
Of course God is responsible for Christ's crucifixion and resurrection. The Pharisees and Romans who made it happen were purely mechanical devices of God's sovereign will and man's free will. The point in my response is that there are historical references available, other than the Gospels. Some people would like to see the evidence. What the book I was quoting does is offer additional historical evidence for those who need it. I wholeheartedly agree that Jesus' atonement is for all of us who are willing to accept it. Doesn't matter whether we are Jews, Romans, whatever.
Seeing into Pilate's life at the time does not affect my spirituality or religion.
It is interesting to note, of course, that Rome, where Christians were so persecuted early in the Church, has been the home to the Catholic church. Something happened there.
I'm of the protestant persuasion, but I love to see God's irony and work in the world. It really hits home.
To: freeangel
Oops, I accidently just sent the wrong response to your message. Please excuse me!
But, at the same time, I know where your coming from about lefties.
To: RockyMtnMan
Strategy #8: Make a case under various WTO agreements that these bills will act as trade barriers and not allow a fair movement of services. However, the opinion of BPO Steering Committee members and survey responses indicate this option should be used only as a secondary measure.Note they are now contending how our GOVERNMENTS spends their tax-payer money is a 'trade barrier'. They don't seem to mind that there will be no tax-payers footing the bills for these jobs if we don't protect jobs.
77
posted on
08/10/2003 1:36:30 PM PDT
by
Paul Ross
(A nation which can prefer disgrace to danger is prepared for a master, and deserves one!-A. Hamilton)
To: RockyMtnMan
Strategy #8: Make a case under various WTO agreements that these bills will act as trade barriers and not allow a fair movement of services. However, the opinion of BPO Steering Committee members and survey responses indicate this option should be used only as a secondary measure.Note they are now contending how our GOVERNMENTS spends their tax-payer money is a 'trade barrier'. They don't seem to mind that there will be no tax-payers footing the bills for these jobs if we don't protect jobs.
78
posted on
08/10/2003 1:36:30 PM PDT
by
Paul Ross
(A nation which can prefer disgrace to danger is prepared for a master, and deserves one!-A. Hamilton)
To: RockyMtnMan
This is the beginning of the end for the "working class" unless government intervenes.>>>>>
I would say you are behind the curve, it is more like the tail end of the heyday of the American working class.
To: RipSawyer
80
posted on
07/21/2005 9:00:05 AM PDT
by
HiTech RedNeck
(No wonder the Southern Baptist Church threw Greer out: Only one god per church! [Ann Coulter])
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