US President Barack Obama is back to bashing outsourcing. Amid talk of
fading allure and promises not kept, an embattled Obama,
bruised by economic, political, and foreign policy crises in
his first year in office, has pledged to stop US companies
from taking jobs overseas and warned Americans about
increasing competition from India and China.
Incidentally, this is not the first instance of Mr Obama
upping his anti-outsourcing rhetoric. In May last year, he
had said American companies' shipping jobs overseas will
be required to pay more taxes, and that tax-deferral
benefits for such companies will be ended. "It's a tax code that says you
should pay lower taxes, if you create a job in Bangalore, India, than if you
create one in Buffalo, New York," Obama had said.
However, for once Indian IT companies, who get over 50% of their
revenues from the US, are not rattled by Obama comments. The IT stocks
too don't seem to have suddenly caught `Obama flu'. Here's over to the
nine reasons which analysts and industry honchos believe will keep
outsourcing going strong tax breaks or no tax breaks.
• Indian IT cos not direct target
IT industry body Nasscom said it's unlikely to have any direct
impact on Indian IT companies. "We think the target, if at all,
could be subsidiaries of American companies that book profits
in low tax regions, and do not repatriate the same to the US,
where tax rates are higher. A measure like that won't affect
• Outsourcing can't be reversed
A widespread belief is that outsourcing has become
mainstream and it will be impossible for Obama to reverse
it. As the overall market would be growing the problems of
tax breaks will be overlooked by the firms. All the recent
data shows that cost and competitive pressures are
increasing on American companies. In such a scenario, they
are bound to be compelled to offshore to destinations like
India to bring costs down.
• Obama's healthcare reforms an opportunity
Obama wants to improve healthcare coverage. In fact, he wants to bring
40 million new people into it. Indian IT companies have an
excellent track record in offering solutions to financial
services, telecom, IT enabled services, etc, but it is still
evolving when it comes to providing healthcare solutions. If
they can develop expertise in this area and offer innovative
solutions to the US insurance companies to improve
efficiency by avoiding wasteful expenditure, it would be a
great opportunity for them.
(4) of (8)
• Trade is two-way process
Confidence also comes from the fact that the Obama
administration has so far not introduced any significant legislation
that has been protectionist.
"Besides, he has been talking of increasing US trade with other
countries. And trade is a two-way street. If one country places
restrictions on trade, partner countries are sure to react similarly ,
and the US is unlikely to want that.
• Advantage India
India had flourished not because of any tax advantage, but
because of its cost and quality advantage, its huge, young
labour market and its time zone and demographic
advantage. Some said they could understand the pressures
that Obama was facing, given the unemployment levels in
the US. So long as this situation remains, there will be
pressure on US companies to not be aggressive on off
shoring. Indian providers will have to be agile enough to
adapt to new engagement models.
• Markets beyond US
If the tax breaks are taken away, it is not going to impact the
Indian IT industry adversely. With the global economy looking up, a
lot of emerging markets are opening up. The contribution from
those markets is going to offset the impact of tax breaks if any.
• Protectionism cannot work
Experts argue that such protectionist measures are short-sighted because
many US companies derive significant revenues from outside the country,
and any protectionist stance could lead to a backlash in
other markets. Some of the top outsourcing customers,
include Citigroup, GE and JP Morgan.
For instance, Citigroup in 2007 generated 52% of its
revenues outside the US, and over 60% of its workforce
operated from abroad, as its banking business spanned 100
countries. Citigroup's international revenues stream kept
pace through 2008, despite the financial crisis, and
amounted to a whopping 74% of the total revenues