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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: WRhine
if wages keep on collapsing in this country there will be a backlash >>>>>>
There are some on this forum who beleive the average wage is rising in real terms (adjusted for puchasing power). I personally beleive these people are smoking some kind of weird stuff.
To: HiTech RedNeck
Yeah, I guess I am. I stumbled on this thread and typed a couple of replies before I realized how old it is.
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