Mumbai: The top multinationals banks continue to set up new back office units or expand their existing captive operations in India, even as the model is under criticism for being high cost and less efficient than third-party vendor operations.
Organizations such as Wells Fargo, Ingersoll Rand and Standard Chartered are setting up or expanding their back-office centres in India, reports The Economic Times.
For example, Standard Chartered is setting up a new Knowledge Process Outsourcing (KPO) centre in Bangalore, while Wells Fargo is expanding its captive operations in India for technology services and Business Process Outsourcing (BPO).
According to MarketVista, a Dallas based Everest Research Institute, these three are among the 11 firms that have set up new units or added more staff to their existing units in India during the September quarter, taking the number of captives being set up globally to an 18 month high. Around 28 firms are setting up captive operations in Asia, Europe, and Latin America with India being the most popular destination.
"The numbers of new captives being set up are far more than divestures, indicating a revival in the market," Ameet Singh, Vice President, Global Delivery, Everest. German firm Kontron, one of the world's largest manufacturers of embedded computer technology and a supplier to Original Equipment Manufacturers, is also setting up a contact centre in Bangalore to provide sale and tech support to its Asia-Pacific operations.
"Near-term economic pressures that were there earlier have been reduced. But organisations that reviewed their global sourcing agenda could still be looking at the same outcome, a modified strategy or a more intensive one," said Singh.
The September quarter also saw four captive divestures; UBS' captive to Cognizant Technology Services, AIG's to Mphasis, Schneider Logistics to EXL Services and Kyocera Wireless to MindTree.
According to Singh, the market for outsourcing transactions is seeing two counter forces; lower business volumes and opportunity to reduce costs.
"The companies are attempting to push the envelope further in terms of costs leading to offshoring and outsourcing," said Singh. Based on publicly disclosed transactions, the overall numbers of transactions have fallen to 422 in the September quarter from 467 in the past quarter but contracts from sectors such as financial services have almost doubled from the previous quarter, according to Everest's research.
Apart from financial services, sectors such as healthcare, travel and energy and utilities are also seeing significant rise in demand for offshoring.
"Although there was a marginal decline of 10 percent in the reported global transaction volumes (BPO volumes decreasing by 14 percent and IT sourcing activity reducing by 8 percent), there were signs of improvement in key geographies and verticals," said Everest in the study.
Showing posts with label anti outsourcing. Show all posts
Showing posts with label anti outsourcing. Show all posts
Friday, November 6, 2009
Sunday, September 27, 2009
Top Outsourcing Comanies of the world
he International Association of Outsourcing Professionals has announced the world's best outsourcing service providers in 2008.
The Global Outsourcing 100 list has 6 Indian companies among the top ten. In the global 100 ranking, Infosys is ranked third, followed by Capgemini and TCS at fifth and sixth positions, respectively.
'Global Outsourcing 100' is an international list of companies that provide the full spectrum of outsourcing services. The selection criteria include the size and growth of the company, customer experience, depth and breadth of competencies and management capabilities.
Following are the top 10 global outsoucring companies, excluding the Indian firms in the list:
The Top 10 global outsourcing companies
Accenture (Rank 1)-- Key strength: Customer testimonials
IBM (Rank 2) -- Key strength: Size & growth
Sodexo (Rank 4) -- Key strength: Global presence
Capgemini (Rank 5) -- Key strength: Achievement recognition
Hewlett Packard (Rank 8) -- Key strength: Outsourcing experience
EDS (Rank 12) -- Key strength: Outsourcing experience
ACS (Rank 13) -- Key strength: Balanced performance
CGI group (Rank 14) -- Key strength: Customer testimonials
SPi (Rank 17) -- Key strength: Customer testimonials
Colliers International (Rank 18) -- Key strength: Global Presence
The Global Outsourcing 100 list has 6 Indian companies among the top ten. In the global 100 ranking, Infosys is ranked third, followed by Capgemini and TCS at fifth and sixth positions, respectively.
'Global Outsourcing 100' is an international list of companies that provide the full spectrum of outsourcing services. The selection criteria include the size and growth of the company, customer experience, depth and breadth of competencies and management capabilities.
Following are the top 10 global outsoucring companies, excluding the Indian firms in the list:
The Top 10 global outsourcing companies
Accenture (Rank 1)-- Key strength: Customer testimonials
IBM (Rank 2) -- Key strength: Size & growth
Sodexo (Rank 4) -- Key strength: Global presence
Capgemini (Rank 5) -- Key strength: Achievement recognition
Hewlett Packard (Rank 8) -- Key strength: Outsourcing experience
EDS (Rank 12) -- Key strength: Outsourcing experience
ACS (Rank 13) -- Key strength: Balanced performance
CGI group (Rank 14) -- Key strength: Customer testimonials
SPi (Rank 17) -- Key strength: Customer testimonials
Colliers International (Rank 18) -- Key strength: Global Presence
Monday, September 14, 2009
US should be concerned about OutSourcing
From steel to textiles, industries that once employed cities worth of Americans have disappeared, the work heading overseas. The common argument is that globalization is nothing to worry about in the long view because those lost jobs, many of them blue-collar, are being replaced with high-tech ones.
However, in this flat world, even high-tech, high-skill jobs are heading overseas — often with the United States’ urging, says Ron Hira, assistant professor of public policy at Rochester Institute of Technology.
“The narrative is offshoring doesn’t affect the total number of jobs in the U.S., what happens is the change in the mix,” said Hira, who wrote a chapter about the offshoring of research and development for Manufacturing a Better Future for America, published in July by the Alliance for American Manufacturing. “The problem with that is it’s not clear it’s only low-level jobs moving offshore. What it doesn’t talk about is the fact trade can be win/lose. When China gets better at the things the U.S. is good at, the U.S. can get poorer.”
Hira, also the author of Outsourcing America, in 2005, talked recently about his views. Here are excerpts:
On jobs moving overseas:
Hewlett-Packard Co., when it took over Electronic Data Systems, announced it was going to lay off about 24,000 workers as part of the restructuring plan. That work is not going to disappear. At least half of those jobs will end up in low-cost countries somewhere. They’ll be basically offshored.
IBM has gone from a 6,000 headcount in 2003 in India to, they won’t say exactly how many, but estimates are over 90,000. That’s a 16-fold increase in six years.
People say these are kind of the lower-wage, lower-level jobs within IBM, within EDS. But that’s not true, either. There are a number of R&D centers that are being opened up in India and China. Boeing just recently announced an R&D center opening in Bangalore (India). Google has a facility in Bangalore. Microsoft has cutting-edge basic research being done in China. The offshoring of R&D and innovation is clearly happening. Clearly, high-skill, high-wage jobs are moving offshore.
On how much of this is going on:
No one has a really good handle, in part because the companies have a strong interest in not talking about these things. They don’t want to get the bad press on it. They don’t want to get on the Lou Dobbs list, so to speak, of companies that are offshoring. They don’t want their current employees to know because they need a lot of them to train their foreign replacements. One of the main things, (they don’t) want their customers to know. Once the customer knows you’re offshoring work, they know you’re getting cost savings and they expect you to pass along some of those cost savings to them.
On how this is different from the rise of Japan in the 1980s:
They made better consumer electronics, they made better cars. They had a better management system. What did (GM) have to do? They learned the Toyota manufacturing system, they learned from Japan. This time around it’s not GM vs. Toyota. This time around it’s IBM competing its U.S. workers vs. its Indian workers. This time around, what do you do? How do you make these American workers justify their five-times salary differential?
On companies’ motivations:
From the companies’ point of view, they’re acting rationally. One of the big problems in the public discussion was really started in 2004 when presidential candidate John Kerry called CEOs who offshore and outsource “Benedict Arnolds.”
The CEOs of these companies making the decisions aren’t compensated by how many U.S. workers they have (or) how much R&D they keep in the U.S. vs. Singapore or China. They’re compensated by their profits, their focus on shareholders. We have a systems issue here, where the interest of IBM or Kodak isn’t necessarily in the interest of the U.S. They’re global companies — why should they care more about their U.S. workers than their Indian workers or their Chinese workers?
Sam Palmisano, the CEO of IBM, wrote sort of the manifesto — “The Globally Integrated Enterprise” — where he talks about companies having been restructured and the notion of a multinational corporation has become anachronistic. In the past, you set up an IBM India to serve the Indian market (and) an IBM China to serve the Chinese market. That’s no longer true. We’re going to do the design and development from wherever it makes sense geographically. So we have an integrated enterprise across these country boundaries.
On what is to be done:
We should open our eyes that there’s a problem here from a U.S. national interest point of view. Politically, we have to have countervailing forces. These companies have huge influence over policy and the political process. They have millions of dollars they spend on lobbying. They have a huge presence in Washington and rightfully so; they’re big employers.
But there’s no group that represents the national interest in any way in Washington to counterbalance this. Which is why you see no action in Washington to address these issues. Who represents American workers in this debate? Who represents accountants? Who represents engineers? No one.
However, in this flat world, even high-tech, high-skill jobs are heading overseas — often with the United States’ urging, says Ron Hira, assistant professor of public policy at Rochester Institute of Technology.
“The narrative is offshoring doesn’t affect the total number of jobs in the U.S., what happens is the change in the mix,” said Hira, who wrote a chapter about the offshoring of research and development for Manufacturing a Better Future for America, published in July by the Alliance for American Manufacturing. “The problem with that is it’s not clear it’s only low-level jobs moving offshore. What it doesn’t talk about is the fact trade can be win/lose. When China gets better at the things the U.S. is good at, the U.S. can get poorer.”
Hira, also the author of Outsourcing America, in 2005, talked recently about his views. Here are excerpts:
On jobs moving overseas:
Hewlett-Packard Co., when it took over Electronic Data Systems, announced it was going to lay off about 24,000 workers as part of the restructuring plan. That work is not going to disappear. At least half of those jobs will end up in low-cost countries somewhere. They’ll be basically offshored.
IBM has gone from a 6,000 headcount in 2003 in India to, they won’t say exactly how many, but estimates are over 90,000. That’s a 16-fold increase in six years.
People say these are kind of the lower-wage, lower-level jobs within IBM, within EDS. But that’s not true, either. There are a number of R&D centers that are being opened up in India and China. Boeing just recently announced an R&D center opening in Bangalore (India). Google has a facility in Bangalore. Microsoft has cutting-edge basic research being done in China. The offshoring of R&D and innovation is clearly happening. Clearly, high-skill, high-wage jobs are moving offshore.
On how much of this is going on:
No one has a really good handle, in part because the companies have a strong interest in not talking about these things. They don’t want to get the bad press on it. They don’t want to get on the Lou Dobbs list, so to speak, of companies that are offshoring. They don’t want their current employees to know because they need a lot of them to train their foreign replacements. One of the main things, (they don’t) want their customers to know. Once the customer knows you’re offshoring work, they know you’re getting cost savings and they expect you to pass along some of those cost savings to them.
On how this is different from the rise of Japan in the 1980s:
They made better consumer electronics, they made better cars. They had a better management system. What did (GM) have to do? They learned the Toyota manufacturing system, they learned from Japan. This time around it’s not GM vs. Toyota. This time around it’s IBM competing its U.S. workers vs. its Indian workers. This time around, what do you do? How do you make these American workers justify their five-times salary differential?
On companies’ motivations:
From the companies’ point of view, they’re acting rationally. One of the big problems in the public discussion was really started in 2004 when presidential candidate John Kerry called CEOs who offshore and outsource “Benedict Arnolds.”
The CEOs of these companies making the decisions aren’t compensated by how many U.S. workers they have (or) how much R&D they keep in the U.S. vs. Singapore or China. They’re compensated by their profits, their focus on shareholders. We have a systems issue here, where the interest of IBM or Kodak isn’t necessarily in the interest of the U.S. They’re global companies — why should they care more about their U.S. workers than their Indian workers or their Chinese workers?
Sam Palmisano, the CEO of IBM, wrote sort of the manifesto — “The Globally Integrated Enterprise” — where he talks about companies having been restructured and the notion of a multinational corporation has become anachronistic. In the past, you set up an IBM India to serve the Indian market (and) an IBM China to serve the Chinese market. That’s no longer true. We’re going to do the design and development from wherever it makes sense geographically. So we have an integrated enterprise across these country boundaries.
On what is to be done:
We should open our eyes that there’s a problem here from a U.S. national interest point of view. Politically, we have to have countervailing forces. These companies have huge influence over policy and the political process. They have millions of dollars they spend on lobbying. They have a huge presence in Washington and rightfully so; they’re big employers.
But there’s no group that represents the national interest in any way in Washington to counterbalance this. Which is why you see no action in Washington to address these issues. Who represents American workers in this debate? Who represents accountants? Who represents engineers? No one.
Thursday, September 10, 2009
Indian IT Companies Skip Campuses
Bangalore: With Nasscom, the software industry's apex body advising its members not to go to campuses for recruitment, the placements at engineering colleges has dried up. However, although 2008-09 was a difficult year for training and placement officers (TPO) at engineering colleges, 2009-10 could be the most critical year for campus placements, reports Economic Times.
JN Pitambare, Dean of Sinhagad Institute says, "Normally, 75-80 percent of the placements used to take place by mid-August. However, this year I will be happy if I am able to place even 10-15 percent of our students by December."
SV Dravid, TPO, DY Patil College of Engineering at Akurdi, near Pune said, "Last year, we had placed 150 students by this time. This year, not a single student has been placed. I hope the situation improves by December." Normally the big software companies finish recruitment by mid-August, placing around 75 percent of the college students.The core sector companies used to come from August, but this year they are non-committal.
Companies have been telling TPOs that their placement requirements are yet to be firmed up since things are not planned yet or they do not know how many projects they will get. "Most of the core companies are in a dilemma. They have promised to come for placements by December," said TPO Federation President Professor Shital Rawandale. Not only are there fewer jobs on offer for 2009-10 but the companies are adopting various techniques to defer the joining dates of candidates recruited last year or even to reject them.
Top colleges like the College of Engineering Pune (COEP) are also facing problems. "Of the 576 students placed last year, only 150 have joined till now. For the rest of them, joining has been deferred from July to December," said Assistant TPO, COEP, SA Meshram.
Some of the selected candidates are being asked to take more tests. With the recession, singing of bonds has also returned. "Some small and medium-sized software companies now want the candidates whom they had already selected to enter into two-year bonds," said a TPO.
JN Pitambare, Dean of Sinhagad Institute says, "Normally, 75-80 percent of the placements used to take place by mid-August. However, this year I will be happy if I am able to place even 10-15 percent of our students by December."
SV Dravid, TPO, DY Patil College of Engineering at Akurdi, near Pune said, "Last year, we had placed 150 students by this time. This year, not a single student has been placed. I hope the situation improves by December." Normally the big software companies finish recruitment by mid-August, placing around 75 percent of the college students.The core sector companies used to come from August, but this year they are non-committal.
Companies have been telling TPOs that their placement requirements are yet to be firmed up since things are not planned yet or they do not know how many projects they will get. "Most of the core companies are in a dilemma. They have promised to come for placements by December," said TPO Federation President Professor Shital Rawandale. Not only are there fewer jobs on offer for 2009-10 but the companies are adopting various techniques to defer the joining dates of candidates recruited last year or even to reject them.
Top colleges like the College of Engineering Pune (COEP) are also facing problems. "Of the 576 students placed last year, only 150 have joined till now. For the rest of them, joining has been deferred from July to December," said Assistant TPO, COEP, SA Meshram.
Some of the selected candidates are being asked to take more tests. With the recession, singing of bonds has also returned. "Some small and medium-sized software companies now want the candidates whom they had already selected to enter into two-year bonds," said a TPO.
Friday, April 24, 2009
Anti India Bill Introduced in the US
WASHINGTON: A legislation has been introduced in the US Senate on reforming the H-1B and L1 visa programmes, popular among Indians, under which th e American firms looking for skilled foreign professionals are required to make a "good faith" attempt to recruit local workers first.
Given that the skilled professionals from India are the one who account for the maximum number of H-1B and L1 visas, Indian professionals followed by those from China are likely to be hit the most if the legislation introduced by Senators Chuck Grassley and Dick Durbin is passed by the Congress and then signed into law by the President.
The bill, introduced yesterday, requires all employers who want to hire an H-1B guest worker to first make a good faith attempt to recruit a qualified American worker. Employers would be prohibited from using H-1B visa holders to displace qualified American workers.
"Our bill will put a stop to the outsourcing of American jobs and discrimination against American workers," Senator Durbin said in a statement. "The H-1B visa programme should complement the US workforce, not replace it," he argued.
The bill prohibits the practice of 'H-1B only' ads and prevents employers from hiring additional H-1B and L-1 guest workers if over 50 per cent of their employees are H-1B and L-1 visa holders, Grassley said in a statement. It gives power to the Department of Labour to investigate, audit and penalise abuse of H-1B and L1 visa employers.
However, Grassley argued the bill does not eliminate the programme or change the numerical cap of visas available to petitioning employers. "The H-1B programme was never meant to replace qualified American workers. It was meant to complement them because of a shortage of workers in specialised fields. In tough economic times like we're seeing, it's even more important that we do everything possible to see that Americans are given every consideration when applying for jobs," he said.
If there are not qualified Americans, companies can use the legal immigration programmes available, "but we must return the H-1B and L visa programmes back to their original intent," Grassley said.
"Congress created the H-1B visa programme so an employer could hire a foreign guest worker when a qualified American worker could not be found. H owever, the H-1B visa programme is plagued with fraud and abuse and is now a vehicle for outsourcing that deprives qualified American workers of their jobs," Durbin said.
He claimed that the H-1B visa programme is currently being used by some companies to outsource American jobs to foreign countries. "Under current law, an outsourcing company can use American workers to train H-1B guest-workers, fire American workers and outsource the H-1B workers to a foreign country where they will do the same job for a much lower wage. In fact, Indian Commerce Minister Kamal Nath has referred to the H-1B as 'the outsourcing visa," he said.
It was Grassley and Durbin who were mainly instrumental in the Congressional legislation early this year which stopped hiring of foreign workers by US companies receiving the federal stimulus money. As a result of this, coupled with the general economic recession, the filing of H-1B visas has dropped quite significantly.
In the first three weeks after they started receiving applications, US authorities received about 44,000 H-1B visa petitions against the Congressional mandated quota of 65,000. In previous years, they had been receiving H-1B petitions several times the number of Congressional mandated quota.
In October last year, they had released a Benefit Fraud and Compliance Assessment that highlighted rampant fraud in the H-1B programme. The report revealed more than a 20 per cent violation rate by those who use the H-1B visa programme.
"When Citizenship and Immigration Services report that there is more than a 20 per cent violation rate in the H-1B visa programme, it's pretty clear that many companies are abusing the programme and not using it as was intended. Fraud and abuse of the H-1B visa programme will not be tolerated and our bill puts companies on notice," Grassley said.
"Our legislation to reform the programme will benefit American workers, while still ensuring that US companies get the highly specialised workers they need."
Grassley alleged that fraud and abuse had become all too prevalent in the H-1B programme and thus there was need to close loopholes and enact reform.
Given that the skilled professionals from India are the one who account for the maximum number of H-1B and L1 visas, Indian professionals followed by those from China are likely to be hit the most if the legislation introduced by Senators Chuck Grassley and Dick Durbin is passed by the Congress and then signed into law by the President.
The bill, introduced yesterday, requires all employers who want to hire an H-1B guest worker to first make a good faith attempt to recruit a qualified American worker. Employers would be prohibited from using H-1B visa holders to displace qualified American workers.
"Our bill will put a stop to the outsourcing of American jobs and discrimination against American workers," Senator Durbin said in a statement. "The H-1B visa programme should complement the US workforce, not replace it," he argued.
The bill prohibits the practice of 'H-1B only' ads and prevents employers from hiring additional H-1B and L-1 guest workers if over 50 per cent of their employees are H-1B and L-1 visa holders, Grassley said in a statement. It gives power to the Department of Labour to investigate, audit and penalise abuse of H-1B and L1 visa employers.
However, Grassley argued the bill does not eliminate the programme or change the numerical cap of visas available to petitioning employers. "The H-1B programme was never meant to replace qualified American workers. It was meant to complement them because of a shortage of workers in specialised fields. In tough economic times like we're seeing, it's even more important that we do everything possible to see that Americans are given every consideration when applying for jobs," he said.
If there are not qualified Americans, companies can use the legal immigration programmes available, "but we must return the H-1B and L visa programmes back to their original intent," Grassley said.
"Congress created the H-1B visa programme so an employer could hire a foreign guest worker when a qualified American worker could not be found. H owever, the H-1B visa programme is plagued with fraud and abuse and is now a vehicle for outsourcing that deprives qualified American workers of their jobs," Durbin said.
He claimed that the H-1B visa programme is currently being used by some companies to outsource American jobs to foreign countries. "Under current law, an outsourcing company can use American workers to train H-1B guest-workers, fire American workers and outsource the H-1B workers to a foreign country where they will do the same job for a much lower wage. In fact, Indian Commerce Minister Kamal Nath has referred to the H-1B as 'the outsourcing visa," he said.
It was Grassley and Durbin who were mainly instrumental in the Congressional legislation early this year which stopped hiring of foreign workers by US companies receiving the federal stimulus money. As a result of this, coupled with the general economic recession, the filing of H-1B visas has dropped quite significantly.
In the first three weeks after they started receiving applications, US authorities received about 44,000 H-1B visa petitions against the Congressional mandated quota of 65,000. In previous years, they had been receiving H-1B petitions several times the number of Congressional mandated quota.
In October last year, they had released a Benefit Fraud and Compliance Assessment that highlighted rampant fraud in the H-1B programme. The report revealed more than a 20 per cent violation rate by those who use the H-1B visa programme.
"When Citizenship and Immigration Services report that there is more than a 20 per cent violation rate in the H-1B visa programme, it's pretty clear that many companies are abusing the programme and not using it as was intended. Fraud and abuse of the H-1B visa programme will not be tolerated and our bill puts companies on notice," Grassley said.
"Our legislation to reform the programme will benefit American workers, while still ensuring that US companies get the highly specialised workers they need."
Grassley alleged that fraud and abuse had become all too prevalent in the H-1B programme and thus there was need to close loopholes and enact reform.
Tuesday, March 17, 2009
US senate move on limiting H1B workers may hurt IT firms
The Indian IT industry, which recently lowered its growth projections on the back of a slowing economy, sees no immediate impact of the recent US Senate vote to prohibit banks, that are bailed out, from replacing laid-off workers with foreign guest workers (read H1B workers).
The situation, however, would hurt the fortunes of Indian IT firms if the amendment becomes policy since the top 10 H1B visa list is made up largely of India-based firms that provide outsourcing services, including Infosys Technologies, Wipro and Satyam Computer Services. The deadline for companies to request petitions for new H-1B visas is April 1. Both US (read Silicon Valley) and Indian companies have repeatedly stressed the need to raise the cap, which was reduced from 195,000 to 65,000 two years ago.
However, Senators Sanders and Charles Grassley (a well-known H1B opponent) recently introduced an amendment that would require bailed-out banks -- where there have been layoffs -- to hire only Americans for two years. This was accepted by the US Senate a day after it was revealed that Americans lost almost 600,000 jobs in January. The amendment, though, has to go 'reconciliation' (a legislative process) before going to Congress and finally the President before it becomes policy.
It is feared that these banks (bailed-out with taxpayer money), in a bid to contain or cut costs, would outsource and offshore more work to low-cost countries like India jeopardising the chances of American workers from getting a job. The senate amendment seeks to prevent this, and it could affect the fortunes of the Indian IT industry since outsourcing from the Banking, financial services and insurance (BFSI) sector accounts for almost 40 per cent of the sector's revenue.
"Wall Street caused the crisis, millions of people lost jobs, including 100,000 in financial institutions. Now they want to bring in foreign workers," Senator Bernie Sanders said in a release. It is feared that the bailed-out automakers too would face a similar diktat. This is another lucrative revenue segment for local IT firms.
Software body Nasscom opines that it's up to American banks to choose whether they need to outsource more work to cut costs. "The wording is very confusing. Besides, one may also remember that it is applicable only to H1B dependent companies (an H-1B dependent employer is one whose workers brought in with that visa comprise 15 per cent or more of the employer's total workforce). We hardly have any such IT firms in India," explains Som Mittal, President, Nasscom.
"There won't be any immediate impact but if the issue persists and becomes policy, then the concern could become grave," cautions Ganesh Natarajan, Chairman Nasscom and deputy Chairman and Managing Director of Zensar Technologies.
The H-1B visa issue has always been a bone of contention but the economic recession has added fuel to fire. Vinu B Kartha, Partner at Research and Advisory firm Tholons says: “There can’t be a complete ban on outsourcing because it is a free market economy but the new administration in the US will make it difficult for those companies do business who are outsourcing their work. Companies will get incentives to not to outsource work like tax refunds and other benefits.”
Analysts say it will be difficult for the Indian IT companies to get new projects and they will now have to ensure that none of their existing accounts are under the purview of law. The slowdown will ensure that only the best qualified people get jobs in the US and this is where the Indian workforce will suffer. “Outsourcing will continue but the Indian IT vendors will have to focus on verticals other than BFSI like telecom, manufacturing, healthcare among others,” explains Kartha.
Incidentally, Microsoft which was among the top 10 firms getting approvals for H-1B visas in the year ended September 30, 2007, also was questioned by Senator Grassley when it recently downsized its US workforce. He called on Microsoft to give preference to American workers over visa-holding H-1B foreign workers during its downsizing.
There have also been fears that President Obama, once elected, would revisit the outsourcing and offshoring story that could adversely affect Indian IT firms. However, analysts note that President Obama has filled some of his top White House positions with people like Senator Judd Gregg and Diana Fareell (ex McKinsey Globa Institute) who not only support expanding the H-1B visa programme, but also see offshore outsourcing as postive for the US economy. McKinsey, a management consulting firm, has published research that argues that offshore outsourcing to low-wage countries brings "substantial benefits" to the U.S. Its studies and reports have been cited by the tech industry in support of the H-1B visa programme.
Observers also note that the amendment isn’t as tough as the one Senator Grassley proposed on February 5, which would have prohibited firms from hiring H-1Bs altogether.
The situation, however, would hurt the fortunes of Indian IT firms if the amendment becomes policy since the top 10 H1B visa list is made up largely of India-based firms that provide outsourcing services, including Infosys Technologies, Wipro and Satyam Computer Services. The deadline for companies to request petitions for new H-1B visas is April 1. Both US (read Silicon Valley) and Indian companies have repeatedly stressed the need to raise the cap, which was reduced from 195,000 to 65,000 two years ago.
However, Senators Sanders and Charles Grassley (a well-known H1B opponent) recently introduced an amendment that would require bailed-out banks -- where there have been layoffs -- to hire only Americans for two years. This was accepted by the US Senate a day after it was revealed that Americans lost almost 600,000 jobs in January. The amendment, though, has to go 'reconciliation' (a legislative process) before going to Congress and finally the President before it becomes policy.
It is feared that these banks (bailed-out with taxpayer money), in a bid to contain or cut costs, would outsource and offshore more work to low-cost countries like India jeopardising the chances of American workers from getting a job. The senate amendment seeks to prevent this, and it could affect the fortunes of the Indian IT industry since outsourcing from the Banking, financial services and insurance (BFSI) sector accounts for almost 40 per cent of the sector's revenue.
"Wall Street caused the crisis, millions of people lost jobs, including 100,000 in financial institutions. Now they want to bring in foreign workers," Senator Bernie Sanders said in a release. It is feared that the bailed-out automakers too would face a similar diktat. This is another lucrative revenue segment for local IT firms.
Software body Nasscom opines that it's up to American banks to choose whether they need to outsource more work to cut costs. "The wording is very confusing. Besides, one may also remember that it is applicable only to H1B dependent companies (an H-1B dependent employer is one whose workers brought in with that visa comprise 15 per cent or more of the employer's total workforce). We hardly have any such IT firms in India," explains Som Mittal, President, Nasscom.
"There won't be any immediate impact but if the issue persists and becomes policy, then the concern could become grave," cautions Ganesh Natarajan, Chairman Nasscom and deputy Chairman and Managing Director of Zensar Technologies.
The H-1B visa issue has always been a bone of contention but the economic recession has added fuel to fire. Vinu B Kartha, Partner at Research and Advisory firm Tholons says: “There can’t be a complete ban on outsourcing because it is a free market economy but the new administration in the US will make it difficult for those companies do business who are outsourcing their work. Companies will get incentives to not to outsource work like tax refunds and other benefits.”
Analysts say it will be difficult for the Indian IT companies to get new projects and they will now have to ensure that none of their existing accounts are under the purview of law. The slowdown will ensure that only the best qualified people get jobs in the US and this is where the Indian workforce will suffer. “Outsourcing will continue but the Indian IT vendors will have to focus on verticals other than BFSI like telecom, manufacturing, healthcare among others,” explains Kartha.
Incidentally, Microsoft which was among the top 10 firms getting approvals for H-1B visas in the year ended September 30, 2007, also was questioned by Senator Grassley when it recently downsized its US workforce. He called on Microsoft to give preference to American workers over visa-holding H-1B foreign workers during its downsizing.
There have also been fears that President Obama, once elected, would revisit the outsourcing and offshoring story that could adversely affect Indian IT firms. However, analysts note that President Obama has filled some of his top White House positions with people like Senator Judd Gregg and Diana Fareell (ex McKinsey Globa Institute) who not only support expanding the H-1B visa programme, but also see offshore outsourcing as postive for the US economy. McKinsey, a management consulting firm, has published research that argues that offshore outsourcing to low-wage countries brings "substantial benefits" to the U.S. Its studies and reports have been cited by the tech industry in support of the H-1B visa programme.
Observers also note that the amendment isn’t as tough as the one Senator Grassley proposed on February 5, which would have prohibited firms from hiring H-1Bs altogether.
Curbs on H1B, Outsourcing
The US government, as part of its stimulus plan to revive the depression in the US economy, recently decided on including an amendment that imposes a ban on firms receiving government bailouts, from hiring workers from other countries. Microsoft has recently been asked to remove foreign workers that are employed under the H-1B Visa program, resulting in the software giant announcing that 5,000 jobs will be cut in the next six months; including 1,400 immediately.
H-1B visas are offered by the US government to enable international students and highly skilled international workers, from all over the world, or who are already living in the USA, the opportunity to live and work in America legally.
From the beginning, there has been criticism from various quarters, over the role of the H-1B program in replacing US workers. There were several instances of US staff being replaced with H-1B workers. The ploy employers used is to hire these H-1B replacements from contract job shops. This way the companies could claim that they had not applied for H-1B visas, making it possible for them to legally replace their US staff.
Another complaint was that US Employers hired H-1B workers because they pay significantly less than they would have to for US workers. This cheap labor causes depression in the overall wage structure.
Currently, 65,000 H-1B visas are granted by the US annually to Hi-technology workers from countries like China, India and Philippines.
The US government states that they are not against the H-1B program, but it has to be used in the actual spirit of why it was started in the first place – to have alternatives for specialized workers when there is no availability in the US. It was also clarified that since the 900 billion dollars for the stimulus plan is being paid by the American taxpayer, it is only fair that American workers are hired.
This decision for foreign countries could mean hundreds of thousands of foreign students studying in the US universities will not get employment and millions will be made jobless.
The US government is also planning on controlling outsourcing. American firms that move their jobs to other countries will not be eligible for any tax breaks. Obama, in his address said, “We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.”
This will affect more than 1,000 American firms that have over the years moved their jobs outside the country. The government is doing away with a particular provision of the tax code where US companies pay lower taxes for profits earned from foreign countries. There has been opposition for this tax code for a long time, as it was seen as an encouragement for companies to send their jobs abroad, when they rightfully belong to the American workers. The government’s aim through this move is to make outsourcing unattractive to companies in the US.
However, many believe that tax breaks when compared to savings through outsourcing do not stand a chance. While the idea of tax breaks would certainly appeal to the US businesses, it would require a huge tax break to change the established trend of global outsourcing. It would be highly unlikely for companies involved in significant outsourcing to take their businesses, and the related infrastructure and human-resource costs back onshore. So, the impact of this move may be very little.
People who oppose this move say that this move will only hurt the US as outsourcing makes a lot of sense; both economic and logical. It is left to be seen what actually happens. However, with Obama focusing on the revival of the US economy, this is the kind of positive reaction that Americans expect from their new President.
H-1B visas are offered by the US government to enable international students and highly skilled international workers, from all over the world, or who are already living in the USA, the opportunity to live and work in America legally.
From the beginning, there has been criticism from various quarters, over the role of the H-1B program in replacing US workers. There were several instances of US staff being replaced with H-1B workers. The ploy employers used is to hire these H-1B replacements from contract job shops. This way the companies could claim that they had not applied for H-1B visas, making it possible for them to legally replace their US staff.
Another complaint was that US Employers hired H-1B workers because they pay significantly less than they would have to for US workers. This cheap labor causes depression in the overall wage structure.
Currently, 65,000 H-1B visas are granted by the US annually to Hi-technology workers from countries like China, India and Philippines.
The US government states that they are not against the H-1B program, but it has to be used in the actual spirit of why it was started in the first place – to have alternatives for specialized workers when there is no availability in the US. It was also clarified that since the 900 billion dollars for the stimulus plan is being paid by the American taxpayer, it is only fair that American workers are hired.
This decision for foreign countries could mean hundreds of thousands of foreign students studying in the US universities will not get employment and millions will be made jobless.
The US government is also planning on controlling outsourcing. American firms that move their jobs to other countries will not be eligible for any tax breaks. Obama, in his address said, “We will restore a sense of fairness and balance to our tax code by finally ending the tax breaks for corporations that ship our jobs overseas.”
This will affect more than 1,000 American firms that have over the years moved their jobs outside the country. The government is doing away with a particular provision of the tax code where US companies pay lower taxes for profits earned from foreign countries. There has been opposition for this tax code for a long time, as it was seen as an encouragement for companies to send their jobs abroad, when they rightfully belong to the American workers. The government’s aim through this move is to make outsourcing unattractive to companies in the US.
However, many believe that tax breaks when compared to savings through outsourcing do not stand a chance. While the idea of tax breaks would certainly appeal to the US businesses, it would require a huge tax break to change the established trend of global outsourcing. It would be highly unlikely for companies involved in significant outsourcing to take their businesses, and the related infrastructure and human-resource costs back onshore. So, the impact of this move may be very little.
People who oppose this move say that this move will only hurt the US as outsourcing makes a lot of sense; both economic and logical. It is left to be seen what actually happens. However, with Obama focusing on the revival of the US economy, this is the kind of positive reaction that Americans expect from their new President.
Buy US Clause Seen in Contracts
Bangalore: Indian information technology (IT) services firms could see business slowing from US banks and financial institutions that have been bailed out by that country’s government, which has also become increasingly protectionist as it tries to protect jobs in the world’s biggest economy.
At least two people familiar with the matter said they have recently seen IT outsourcing tenders with so-called “buy American” or work-onsite clauses that ensure that the business goes to an American firm or to one operating on American soil.
“I have seen some ‘buy American’ inserts in a small number of requests for proposal, but this doesn’t seem to be enforceable,” said Phil Fersht, research director for global business and outsourcing services at AMR Research, an IT advisory firm.
According to Fersht, one of these was for a health care firm, and a few others for financial services firms that had been bailed out by the government.
According to the fine print of the final stimulus Bill, passed in the US, troubled assets regulation programme (TARP) recipients cannot outsource call centre work to foreign firms and can hire only a limited number of foreign workers on H-1B visas.
The second person, an executive at an Indian IT services company who did not want to be identified also said that some US firms that had usually been comfortable with moving work offshore were becoming risk averse in the current environment. “They (customers) insist that critical work should be retained within the US,” added the executive who said this measure wasn’t protectionist, but a possible reaction to economic uncertainty.
Nasscom, the Indian software industry’s lobby group, said the US government had to do this to tackle an economy on a downswing. “The fact of the matter is that they are giving funds to TARP. They have to look at generating employment locally. We will see some of these kinds of small issues rising. We are confident that better sense will prevail,” said Ameet Nivasarkar, vice-president of Nasscom.
The US, the world’s biggest spender on technology is in a recession, triggered by a crisis in its financial system, which has seen several firms going bankrupt and several others being wholly or partly taken over by the federal government. The world’s largest economy has shed 4.4 million jobs since December 2007 with nearly half of those losses coming in the last three months, prompting President Barack Obama to announce plans to cut tax breaks for firms that move jobs to foreign shores.
Indian IT services firms such as Infosys Technologies Ltd and Tata Consultancy Services Ltd (TCS) derive a significant portion of their revenue from companies in businesses such as banking, financial services, and insurance. Such firms contributed almost 41% of the $40.4 billion (Rs2.09 trillion) revenue of Indian IT services firms in the year to March 2008. As business slows from US firms, Nasscom forecasts that growth for the IT firms will halve to 16% in the year to March.
An analyst said outsourcing firms could also face subtler constraints. “At least those programmes are overt,” said Peter Redshaw, vice-president for research in banking and finance services at Gartner Inc., a technology research firm, referring to the US legislations. “A second issue is the rise in ‘soft constraints’ where governments, central banks and regulators put pressure on banks (such as greater scrutiny or a need for higher transparency) that may inhibit decisions to go offshore.”
“So, banks may in some cases be prohibited from going offshore or they may need to be more politically sensitive and risk averse in their operations,” Redshaw added.
India’s two largest IT firms, however, said they were yet to encounter TARP-related constraints. TCS and Infosys Technologies said that they haven’t seen any impact due to these measures. “Currently, we are not seeing any such impact from any of our clients,” said V. Balakrishnan, chief financial officer at Infosys.
Still, the legislations itself were passed only last month and it is likely it will take a while before Indian firms feel the fallout.
Analysts say that a bigger impact on offshoring would, however, be felt if Obama goes ahead with his plan to cut tax breaks for companies that offshore work.
“However, I would expect clauses to be put into contracts that allow for work to be pulled back onshore in the event of tax changes that impact offshoring,” said Fersht of AMR.
At least two people familiar with the matter said they have recently seen IT outsourcing tenders with so-called “buy American” or work-onsite clauses that ensure that the business goes to an American firm or to one operating on American soil.
“I have seen some ‘buy American’ inserts in a small number of requests for proposal, but this doesn’t seem to be enforceable,” said Phil Fersht, research director for global business and outsourcing services at AMR Research, an IT advisory firm.
According to Fersht, one of these was for a health care firm, and a few others for financial services firms that had been bailed out by the government.
According to the fine print of the final stimulus Bill, passed in the US, troubled assets regulation programme (TARP) recipients cannot outsource call centre work to foreign firms and can hire only a limited number of foreign workers on H-1B visas.
The second person, an executive at an Indian IT services company who did not want to be identified also said that some US firms that had usually been comfortable with moving work offshore were becoming risk averse in the current environment. “They (customers) insist that critical work should be retained within the US,” added the executive who said this measure wasn’t protectionist, but a possible reaction to economic uncertainty.
Nasscom, the Indian software industry’s lobby group, said the US government had to do this to tackle an economy on a downswing. “The fact of the matter is that they are giving funds to TARP. They have to look at generating employment locally. We will see some of these kinds of small issues rising. We are confident that better sense will prevail,” said Ameet Nivasarkar, vice-president of Nasscom.
The US, the world’s biggest spender on technology is in a recession, triggered by a crisis in its financial system, which has seen several firms going bankrupt and several others being wholly or partly taken over by the federal government. The world’s largest economy has shed 4.4 million jobs since December 2007 with nearly half of those losses coming in the last three months, prompting President Barack Obama to announce plans to cut tax breaks for firms that move jobs to foreign shores.
Indian IT services firms such as Infosys Technologies Ltd and Tata Consultancy Services Ltd (TCS) derive a significant portion of their revenue from companies in businesses such as banking, financial services, and insurance. Such firms contributed almost 41% of the $40.4 billion (Rs2.09 trillion) revenue of Indian IT services firms in the year to March 2008. As business slows from US firms, Nasscom forecasts that growth for the IT firms will halve to 16% in the year to March.
An analyst said outsourcing firms could also face subtler constraints. “At least those programmes are overt,” said Peter Redshaw, vice-president for research in banking and finance services at Gartner Inc., a technology research firm, referring to the US legislations. “A second issue is the rise in ‘soft constraints’ where governments, central banks and regulators put pressure on banks (such as greater scrutiny or a need for higher transparency) that may inhibit decisions to go offshore.”
“So, banks may in some cases be prohibited from going offshore or they may need to be more politically sensitive and risk averse in their operations,” Redshaw added.
India’s two largest IT firms, however, said they were yet to encounter TARP-related constraints. TCS and Infosys Technologies said that they haven’t seen any impact due to these measures. “Currently, we are not seeing any such impact from any of our clients,” said V. Balakrishnan, chief financial officer at Infosys.
Still, the legislations itself were passed only last month and it is likely it will take a while before Indian firms feel the fallout.
Analysts say that a bigger impact on offshoring would, however, be felt if Obama goes ahead with his plan to cut tax breaks for companies that offshore work.
“However, I would expect clauses to be put into contracts that allow for work to be pulled back onshore in the event of tax changes that impact offshoring,” said Fersht of AMR.
Sunday, March 15, 2009
Anti Outsourcing : Pharma First Victim
With Barack Obama taking over as the President of the United States, outsourcing of activities from the US to the Indian market might get adversely affected, hitting the pharmaceutical sector the most, a top industry official said.
"President Obama has a conservative stance on outsourcing of services since he wants to create jobs and protect existing ones (in the US). As the Indian pharma industry is sustaining mainly on outsourcing, especially from the US, the future does not appear very smooth," pharma major Promed Group's President Deepak Bahri told PTI.
The Promed group manufactures and delivers branded as well as generic pharmaceutical formulations to Russia, CIS, south-east Asian countries, the UK and EU.
There will be increased competition in the US generics market since the US Food and Drug Administration-approved plants will enable many players to enter into the US market, earlier ruled exclusively by a few big companies, Bahri said.
"Companies that are cost-effective and good in supplies will survive," Bahri said.
With the global economy in a recession, it would make business sense for Indian pharma companies to address the CIS markets.
"CIS nations are taking aggressive steps to address their healthcare sector. Therefore, Indian pharma companies should be ready to grab the opportunities available in these markets," he said.
Though the healthcare system in the CIS countries are in a process of reformation, there are several challenges for the drug manufacturers.
"The shift towards the generic market has opened the gates for a variety of international companies and the market has become fiercely competitive," Bahri added.
Pharma companies have experienced a dip in profit margins on account of the global slowdown, Bahri said, attributing it to competition from China and appreciation of the Rupee against the US dollar.
Indian companies, however, have proved their manufacturing and research and development capabilities and the CIS nations can benefit enormously by establishing tie-ups with Indian pharma companies, he said.
"Today, the markets have evolved with time. In countries like Russia, consumers are ready to pay a higher cost for quality and there are international competitiors who are fighting for a share of these growing markets," he said.
The global meltdown could negatively impact Indian pharma exports but "good relationships with the target audience help to sustain longer in the markets," Bahri said.
Marketing of pharma products calls for a strong field-force network complimented with a robust supply-chain. A growing product portfolio is the key to beat competition and this will ensure a constant flow of income into the business," the Promed chief said.
The Promed Group is an emerging Indian pharmaceutical entity offering pharmaceutical products to global markets and has clocked a growth rate of 119 per cent for the period April-December 2008 as compared to the year-ago, Bahri said.
In the last five years, the company has recorded a Compound Annual Growth Rate of 34.49 per cent, an absolute growth of 340.80 per cent and an average yearly growth of 68.01 per cent.
The group clocked a turnover of Rs 100 crore (Rs 1 billion) in FY 08.
FICCI worried: Outsourcing Blues
ASSOCHAM president Sajjan Jindal has expressed serious concern over the Obama administration decision to deny tax benefits to US companies that outsource their jobs, adding that it will prevent free flow of goods and services under WTO regime.
In a statement, Jindal said that the beneficiary of outsourcing jobs has not only been the receiving country but more so the country which has outsource their jobs in the past and the trend will remain so even in future. Estimates reveal that a US$ job outsourced fetched the outsource country more than 10 times of economic benefits and therefore discourage outsourcing by denying tax benefits can prove disastrous, Jindal added.
The entire world is reeling under pressures of global meltdown and assuming that protective measures like denial of tax benefits will work towards benefis of domestic economy will prove be a serious mistake. It will also go against the spirit of competition and free market economies in which trans-national trade barriers are fastly fading away and the color of the capital is becoming colorless.
Jindal has called for its immediate renew for final withdrawal as the rest of economies will get inspired with this decision to provide unnecessary safeguards for their corporates.
In a statement, Jindal said that the beneficiary of outsourcing jobs has not only been the receiving country but more so the country which has outsource their jobs in the past and the trend will remain so even in future. Estimates reveal that a US$ job outsourced fetched the outsource country more than 10 times of economic benefits and therefore discourage outsourcing by denying tax benefits can prove disastrous, Jindal added.
The entire world is reeling under pressures of global meltdown and assuming that protective measures like denial of tax benefits will work towards benefis of domestic economy will prove be a serious mistake. It will also go against the spirit of competition and free market economies in which trans-national trade barriers are fastly fading away and the color of the capital is becoming colorless.
Jindal has called for its immediate renew for final withdrawal as the rest of economies will get inspired with this decision to provide unnecessary safeguards for their corporates.
Earlier: Tax breaks for outsourcing
Tax breaks for outsourcing
John Kerry has been claiming that loopholes in the tax code encourage companies to send jobs off shore. .
Here's the loophole:
...the ability to defer and often never pay taxes on foreign-earned profits. The result: foreign profits of U.S. companies end up taxed at a lower rate than their U.S. income, creating an incentive to invest overseas in factories. The jobs are where the factories are.
And here's how it works
The tax code is written in a way that allows companies not to pay the full 35% U.S. corporate tax rate on foreign income when that money remains invested overseas.Backing up a step, here's how it works before the loophole: A company earns $100 million abroad in Lowtaxistan where the corporate tax rate is 20%. The foreign subsidiary pays that money to the U.S. parent. The parent then pays $35 million to the U.S. government and takes a credit for the 20% (or
$20 million) payment to the Lowtaxistan government. So the net to the U.S. Internal Revenue Service is $15 million.But here's how it works with the loophole: The U.S. subsidiary simply keeps the money offshore and certifies to its accountants that the money is invested overseas. It never remits the money to the parent and so never pays the $15 million extra to Uncle Sam.
The buzzword for people in the know in big corporations is "unrepatriated earnings" i.e. money you make off shore that doesn't come home to the US. Apparently, its getting to be more and more prevelent.
These are called "unrepatriated earnings" and they are increasingly commonplace. ...What we know is that the amount of unrepatriated foreign earnings is growing substantially. The non-partisan Congressional Research Service in a report last year said it had increased to $639 billion in 2002 from $403 billion in 1999....
If you look into the issue on companies balance sheets
What you'll find is something like this from Pfizer."As of December 31, 2003, we have not made a U.S. tax provision on approximately $38 billion of unremitted earnings of our international subsidiaries. These earnings are expected, for the most part, to be reinvested overseas. It is not practical to compute the estimated deferred tax
liability on these earnings."Pfizer says it added 15,000 U.S. workers through its recent purchase of Pharmacia. Still, only 37% of its work force is in the U.S.
Note that the $38 billion total of unremitted earnings is cumulative over the years. In 2002, Pfizer had $29 billion, so the increase was $9 billion in the past year, helping the company substantially shave its tax bill.
According to the article, this is how the tax code has been set up since the early 1900s, when the ability to move capital and goods so freely was never considered.
And, being the Journal, they, of course, are not advocating fixing the problem by closing this loophole. Nope, they claim that we need to allow our firms this tax break so they can stay competitive with lower taxed nations. Lest our firms simply move off shore. This argument seems falacious to me. There are lots of reasons that companies decide to stay in the US. Better workers, tradidition, infrastructure, rule of law, you name it, we've got it.
Friday, March 13, 2009
Barack Obama’s anti-outsourcing stance concerns India
Barack Obama’s anti-outsourcing stance concerns India
American President, Barack Obama’s anti-outsourcing movement came as a big blow to the Indian IT Industry. Of the total foreign currency earned by the Indian IT sector, 60% ($64 billion) comes from outsourcing. At present, about 1,000 American companies have shifted their jobs in abroad. Barack Obama, in his first US Congress session on February 25, 2009, said that his government would give tax breaks to companies that would retain jobs in US and vice versa. This would badly hit the American companies that have outsourced jobs in abroad.
Kamal Nath, India’s Minister of Commerce and Industry, said that he will clarify this issue with Washington. Indian government will also discuss this anti-outsourcing movement in the World Trade Organization. Mr. Nath said that his government would make sure that America’s movement is compatible with WTO when they had been talking about bi-lateral trade and movements of goods, people and services. He also said that one has to see how the US companies are using India as a base for technological development. It can not shutdown instantly.
Moreover, the US companies that are receiving bail out money would not be able to hire employees through the H-1B visa which is another major blow to the thriving Indian IT industry. As per his election agenda, Obama started this outsourcing movement to retain jobs in USA. The US President has also set goals to creat 3.5 million jobs in the country.
Obama’s decision upset the heads IT companies in India. Kris Gopalakrishnan, CEO, Infosys, said that outsourcing increased the competitiveness of US companies and it created more jobs inside the country. Ashok Soota, CMD, MindTree, said that Obama’s speech was an extension of what he had said in his campaigns. Sujata Rakhra, Vice President, Marketing and Communication, APAC, Perot Systems said that businesses today are truly global than ever before and such protectionalist measures would not only restrict innovation but would also hamper the progress of globalization.
Along with Indian IT companies, this new decision also upset many US companies that are saying that such a move would hurt US.
American President, Barack Obama’s anti-outsourcing movement came as a big blow to the Indian IT Industry. Of the total foreign currency earned by the Indian IT sector, 60% ($64 billion) comes from outsourcing. At present, about 1,000 American companies have shifted their jobs in abroad. Barack Obama, in his first US Congress session on February 25, 2009, said that his government would give tax breaks to companies that would retain jobs in US and vice versa. This would badly hit the American companies that have outsourced jobs in abroad.
Kamal Nath, India’s Minister of Commerce and Industry, said that he will clarify this issue with Washington. Indian government will also discuss this anti-outsourcing movement in the World Trade Organization. Mr. Nath said that his government would make sure that America’s movement is compatible with WTO when they had been talking about bi-lateral trade and movements of goods, people and services. He also said that one has to see how the US companies are using India as a base for technological development. It can not shutdown instantly.
Moreover, the US companies that are receiving bail out money would not be able to hire employees through the H-1B visa which is another major blow to the thriving Indian IT industry. As per his election agenda, Obama started this outsourcing movement to retain jobs in USA. The US President has also set goals to creat 3.5 million jobs in the country.
Obama’s decision upset the heads IT companies in India. Kris Gopalakrishnan, CEO, Infosys, said that outsourcing increased the competitiveness of US companies and it created more jobs inside the country. Ashok Soota, CMD, MindTree, said that Obama’s speech was an extension of what he had said in his campaigns. Sujata Rakhra, Vice President, Marketing and Communication, APAC, Perot Systems said that businesses today are truly global than ever before and such protectionalist measures would not only restrict innovation but would also hamper the progress of globalization.
Along with Indian IT companies, this new decision also upset many US companies that are saying that such a move would hurt US.
Obama: Virginia Tech Slaughter: Older News
Taken from a speech today from Barack Obama, isn't just ignorant, it's exploitative and offensive:
"There's also another kind of violence that we're going to have to think about. It's not necessarily the physical violence, but the violence that we perpetrate on each other in other ways," he said, and goes on to catalogue other forms of "violence."
There's the "verbal violence" of Imus.
There's "the violence of men and women who have worked all their lives and suddenly have the rug pulled out from under them because their job is moved to another country."
Ugh. Words aren't violence. And to suggest they are betrays a nonchalance about the First Amendment that's rather disturbing (but not surprising given the generally hysterical reactions to Imus). After all, if words are as bad as guns, if Imus' comments were even remotely comparable to the Virginia Tech slaughter, then words, like guns, should be heavily regulated,
right? Or even banned?
The outsourcing line was even worse. No one has the "right" to be paid by someone else for their labor. Employment in a free market is peaceful and voluntary, on both sides. So is the decision to stop that agreement, both for the laborer, who may find a better job, or for the employer, who may find someone who can do the job better, or cheaper, or both. There's nothing remotely violent about any of it.
To compare a business decision to employ cheaper labor to the senseless slaughter of innocents--even if by way of tortured, nonsensical metaphor--is really reprehensible. It reeks of exploitation. "See, the people who are really upset about this massacre, the people who really care about the victims, they vote for me, and take the same position I do on controversial issues."
Also, does this also make the poor people in developing countries who take outsourced jobs complicit in the "violence?"
Jesus. Couldn't the politicians wait a full 48 hours before propping up the dead for campaign speeches?
"There's also another kind of violence that we're going to have to think about. It's not necessarily the physical violence, but the violence that we perpetrate on each other in other ways," he said, and goes on to catalogue other forms of "violence."
There's the "verbal violence" of Imus.
There's "the violence of men and women who have worked all their lives and suddenly have the rug pulled out from under them because their job is moved to another country."
Ugh. Words aren't violence. And to suggest they are betrays a nonchalance about the First Amendment that's rather disturbing (but not surprising given the generally hysterical reactions to Imus). After all, if words are as bad as guns, if Imus' comments were even remotely comparable to the Virginia Tech slaughter, then words, like guns, should be heavily regulated,
right? Or even banned?
The outsourcing line was even worse. No one has the "right" to be paid by someone else for their labor. Employment in a free market is peaceful and voluntary, on both sides. So is the decision to stop that agreement, both for the laborer, who may find a better job, or for the employer, who may find someone who can do the job better, or cheaper, or both. There's nothing remotely violent about any of it.
To compare a business decision to employ cheaper labor to the senseless slaughter of innocents--even if by way of tortured, nonsensical metaphor--is really reprehensible. It reeks of exploitation. "See, the people who are really upset about this massacre, the people who really care about the victims, they vote for me, and take the same position I do on controversial issues."
Also, does this also make the poor people in developing countries who take outsourced jobs complicit in the "violence?"
Jesus. Couldn't the politicians wait a full 48 hours before propping up the dead for campaign speeches?
Tax Subsidies Abolished for Outsourcers:Barack Obama
On Tuesday night in Washington, US President Barack Obama proposed abolishing tax subsidies for American companies who outsource work offshore. It may be premature to start a heated debate on the nine words he devoted to this issue in a fairly long speech to a joint session of the US Congress, but it is necessary to establish the fact that in the real world his intentions may well remain only a paper promise.It’s somewhat as feasible as commanding a rollback of the tides!
Outsourcing, shorn of all its political and cultural contexts, is a business requirement, pure and simple. It is necessary for companies to retain competitiveness and enhance shareholder value, and no amount of administrative fiats can reverse or stall a commercial entity’s drive to do so.
Punitive measures in the United States to reduce outsourcing will no doubt affect Indian technology firms in the short term. Even now, a major chunk of revenue for these companies flow in from the US, and any protectionist measure will undoubtedly have a negative impact on the fiscal health as well as market capitalisation of Indian IT companies.
However, in the long run, it will prove to be more of an opportunity for sustained growth. Indian companies will start seriously exploring and tapping other markets to broaden their client base. Companies in the larger non-American world too need to enhance competitiveness and increase returns for stakeholders, and outsourcing is an essential tool they will need to do so. And it is difficult to think of a stronger vendor than India for such services globally.
Unfortunately for American companies, President Obama’s plans may actually end up damaging their long-term prospects far more than the short-term effects on Indian technology service providers. The competitiveness of US companies is bound to suffer in a globalised economy as well as diminish the returns they in turn can pass on to their stakeholders.
US companies will have to make a hard choice at this stage. No outsourcing means companies will have to strictly regulate their overheads, and be prepared to face far greater competitive pressure. Either way, their profit margins will take a dip.
Therefore, the main negative fallout of Mr Obama’s proposal will be on the very firms that he wishes to encourage to hire more Americans and at the expense of the American stakeholders of these companies.Earlier, the Bush administration had argued that tax cuts and deregulation actually prevent American firms from needlessly exporting jobs, even though US regulations were weaker and corporate tax rates lower than those in most other countries.
The argument also was that the efficiency of US capital would increase through optimal outsourcing policies and practices by rewarding companies with tax breaks for outsourcing work. These companies become more competitive globally and are also able to improve their bottomlines and enhance shareholder returns. President Obama’s proposal to end tax subsidies for outsourcing companies fly against the face of these arguments, and are also extremely unlikely to significantly reduce the lure of labour arbitrage.
For most companies the decision to outsource is not an easy one, and it only gets tougher when you have no option but to farm out services to a third party purely for economic reasons. But apart from the cost factor, there are other compelling reasons for outsourcing. The other main factor is the availability and use of technology.
Historically, companies have found it hard to manage advanced technologies over which they had no control. They were unable to update or provide technology solutions to critical business requirements in spite of having access to the right technology. In such a situation, it made sense to move out those jobs to places where it finds the right balance with the latest technologies that suited their business model.
This is one of the main reasons why outsourcing gained so much credibility and momentum over the past years.When you base taxation policy on populist expediency and not on sound economics or even ground reality, companies might stay for some time but when the going gets really tough they will relocate to places where they get tax incentives. They go where they can make money and that is sound business, if not sensible economics.
When you take away the tax cuts, you accelerate that process much more instead of stemming it.The key deciding factor here will be the cost of quality labour in the preferred outsourcing destinations. If US companies find that even with the added tax liability factored in, the cost of outsourced labour is cheaper than US labour, they will continue to outsource. Executive fiat or not.
For Indian IT-enabled services and BPO firms, this means more severe pressure on their margins and sustained labour cost control. This also means that the Indian vendors have to start investing heavily in strengthening internal operational processes and governance systems that can closely track the delivery efficiency of their organisations.
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