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US at it again! Ohio bans outsourcing to India

Last updated on: September 8, 2010 14:34 IST

US at it again! Ohio bans outsourcing to India

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The spectre of protectionism has reared its head again in the United States, with Ohio Governor Ted Strickland enforcing a ban on outsourcing of all IT and back-office projects to India by government departments, says a ComputerWorld report.

Given the precarious condition of the American economy, the rising unemployment rates, and the fear of the United States slipping into a double-dip recession, analysts fear that other US states too might implement a similar ban dealing a body blow to the global outsourcing industry.

Strickland calls offshore outsourcing not just a threat but a major IT security risk. In an order pronounced last week, Strickland prohibited all state agencies from sending any work offshore, particularly to India, stating that outsourcing exposes them to unacceptable levels of risk of data security, privacy and identity theft.

'There are pervasive service delivery problems with offshore providers, including dissatisfaction with the quality of their services and with the fact that services are being provided offshore,' Strickland said in the order, adding that "it is difficult and expensive to detect illegal activity and contract violations and to pursue legal recourse for poor performance or data security violations,' reports ComputerWorld.

Still reeling under the blow caused by the US significantly increasing its visa fees, the Indian IT industry would be badly hit by this order.

The move followed a workers' union in West Virginia filing a lawsuit against outsourcing of jobs by state departments.

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Image: Ohio Governor Ted Strickland.
Photographs: Reuters
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However, the ComputerWorld  report said that Strickland had also wooed offshore companies to Ohio. In 2007, Indian IT giant Tata Consultancy Services had said it would set up a centre in Ohio because the state was offering almost $19 million in tax credits to it for creating local jobs.

TCS is the only Indian company to operate in Ohio and it employs about 400 people at its centre there.

The Indian outsourcing industry is a giant $50-billion operation and has been a win-win alliance for the American corporations, who save billions of dollars by sending work to low-cost locations like India, and for Indian business process outsourcing industry which makes neat profits from this arrangement.

More than 30 lakh (3 milion) people are directly or indirectly engaged in the BPO industry in India.

Every now and then, US politicians make statements aimed at curbing outsourcing to India to appease their constituents. Just last year, United States President Barack Obama had aired the mantra: 'Say no to Bangalore and yes to Buffalo', as he struggled to bring the ailing American economy back on track.

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Photographs: Reuters
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He announced the end to years of tax incentives to those US companies which create jobs overseas in places like Bengaluru.

Instead, the incentives now go to those creating jobs inside the US, in places like the Buffalo city -- bordering Canada in upstate New York.

"We will stop letting American companies that create jobs overseas take deductions on their expenses when they do not pay any American taxes on their profits," Obama had said at White House announcing the international tax policy reform.

The new tax laws expectedly hit countries like India, China and the Philippines, where US companies have been outsourcing their work.

Just last month, the US Congress cleared a contentious legislation increasing visa fees for funding the country's Mexico Border Security programme.

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Photographs: Reuters
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Terming the American proposal to increase visa fees as discriminatory, India's Commerce and Industry Minister Anand Sharma said the increase would cost Indian firms $200 million extra a year and make them less competitive.

"The Bill will have an (estimated) additional cost implication of over $200 million annually and an adverse impact on the competitiveness and commercial interests of Indian companies....," Sharma said in a letter to US Trade Representative Ron Kirk.

The US Senate on August 5 had approved a substantial increase in application fees for H1 B and L visas, the most sought after Indian IT professionals.

The hike is proposed to fund a $600 million emergency package to improve security along the porous Mexican border.

The Senate measure increases the visa fee to $2,000 per application on those companies that have less than 50 per cent of their employees as American citizens.

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Image: US President Barack Obama.
Photographs: Reuters
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In his letter, Sharma conveyed the concerns of the Indian software industry that the increase in US visa fee would adversely impact companies of Indian origin, which account for about 12 per cent of the total number of visas issued by the US.

The proposed massive increase in visa application fee would primarily affect the top Indian IT companies, who rely majorly on these categories of visas to continue with their work in the US.

Corporate America too had come down heavily against all those in the United States who of late have been alleging that Indian companies grab most of the H-1B work visas thus taking away most jobs from Americans.

In a latest report on immigration, US Chamber of Commerce, which is world's largest chamber with more than 3 million members, asserted that such an allegation against Indian companies is 'hyperbole'.

"While some have expressed fears that H-1B professionals hired by Indian companies threaten the US workforce -- or have expressed concern that Indian companies do not sponsor many of their employees for green cards -- the actual numbers are such as to make any concerns overwrought, even if using a simplistic, zero-sum view of the labour market," US Chamber of Commerce said in its latest report.

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Photographs: Reuters
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"In FY 2009, Indian tech companies used 4,809 new H-1B visas, which equals to 0.003 per cent of the US civilian labour force, less than 1/100th of 1 per cent," it said

"Moreover, H-1B use by Indian companies has declined by 70 per cent between 2006 and 2009," it added.

The new H-1Bs used by Indian companies represented only about 6 per cent of total initial beneficiaries (new employment), according to US Citizenship and Immigration Services, the report said.

"When information technology services companies -- whether Indian or non-Indian -- perform work in the United States it is only because US companies believe such work makes their businesses more profitable," it said.

If such service providers enable US businesses to concentrate on core functions and run more effectively, then US companies can hire more people in the long run, it added.


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