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Outsourcing backlash in the US — Time for a strategic rethink

Krishnan Thiagarajan

Seen in the backdrop of an election year in the US, "job losses" are beginning to acquire political momentum and logic in their own right.

LIKE a bad dream, the monstrous threat of an outsourcing backlash continues to haunt the Indian software industry. Over the past 10 days, the spotlight in the US has been on the looming fear of job losses in the information technology sector through outsourcing to offshore locations such as India.

The cancellation of a $15-million government contract of Tata Consultancy Services by the Indiana State in the US; popular television talk shows such as CNN's "Lou Dobbs Tonight" titled "Exporting America"; and a torrent of stories in the US media flogging the job loss theme were symptoms of this trend.

The election theme

Seen in the backdrop of an election year in the US, "job losses" are beginning to acquire political momentum and logic in their own right.

At present, eight States in the US, up from five three months ago, have introduced legislation seeking a ban or restriction on outsourcing of government contracts. It is possible that the US economy will clam up on outsourcing of government contracts. But the entire private sector in the US remains gung ho about the quality and cost effectiveness of offshore outsourcing to India. And since they call the shots in a free market such as the US, it may be reasonable to expect that any fierce resistance to outsourcing will never build up. End of story...! How we all wish if it ends this way? Unfortunately, this time around, it may not be as straightforward and simple.

Is it different this time?

Sooner or later, the US political establishment and the academic/economic elite will have to take a call on two aspects of this job loss debate. One, what will be the pace at which jobs are likely to migrate to offshore locations such as India.

The US Congress has commissioned the General Accounting Office and the Information Technology Association of America (ITAA) to study how many jobs may be affected by offshoring and its report is due soon. Mr Harris Miller, President of the ITAA, who was in India recently, feels that only 7-9 per cent of all IT jobs will move out of the US in the next 10-15 years.

This is clearly a manageable number and may not provoke any adverse reaction in the political establishment. But offshoring gathering pace in the recent past may lead to a different conclusion.

Two, what impact will this pace of offshoring have on the innovative edge enjoyed traditionally by the US in the field of technology. Eminent thinkers, including Nobel laureates, have joined the debate. And this debate is going to remain in the public domain for some time to come.

For New Delhi, Nasscom — the apex software association — and the industry leaders, this represents the biggest challenge. For the Indian software industry, whose fortunes are linked to trends in offshore outsourcing, it represents a big risk. To manage these expectations, they will have to work on two fronts in the short run:

Employ a different tack

The Government, along with Nasscom, will have to reorient its strategy to handle the offshore outsourcing debate. So far, Nasscom has focussed on cost savings to the US economy as an effective argument favouring offshore outsourcing. But this has clearly not worked while lobbying for retaining the H1B visas at 1,95,000 level.

Instead of harping on this theme of cost savings, Nasscom may to have to shift the focus of the argument to how offshoring will help in improving the competitiveness of the US economy in different sectors and create new jobs. In addition, it needs to be reinforced that the offshoring process will also free up resources and management attention to concentrate on high level innovative technology jobs.

Protect L1 visa

With the annual H1B visa quota scaled down to 65,000, it is imperative for Nasscom to ensure that the flexibility of an L1 visa (intra-company branch transfers) is protected at any cost.

In the medium term, the Indian software industry will be hurt if the US political establishment takes steps to either imposes a ceiling on the number of L1 visas or restricts their use for specific purposes. Given the sensitive nature of the issue, diplomacy and deftness alone can help India win on this score.

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