After Obama’s protestations on jobs being “Bangalored”, Senator Schumer’s Borders Security Bill, and visa fee hikes, the news of the Ohio state government’s proposed ban on outsourcing of government IT projects has apparently sent shudders down the collective spines of the National Association of Software and Service Companies (Nasscom) as well as Indian IT majors. But, not everybody tracking the sector is worried.
Chief executive officer of India’s second largest software firm, Infosys, Kris Gopalakrishnan, on Wednesday expressed concern about the ban on offshore outsourcing by the Ohio state government. “Infosys’ initiative in the public services sector is focused on creating a domestic delivery centre in the US. Hence, this should not be affected,” he said.
S Mahalingam, CFO of TCS, which is the only Indian company to operate in Ohio where it employs about 400 people, said, “we will have to see the long term impact of the move. But it is too early to predict the impact and industry associations would take up the issue.”
The ban was proposed last month by Ohio governor Ted Strickland on the plea of service delivery problems with offshore providers, and quality issues.
There have been concerns that Ohio would resort to such a ban after governor Strickland recently objected to Parago, a Texas company that administers Ohio’s $11 million appliance rebate programme, offshoring the task of processing applications and answering customer calls to a call centre in El Salvador.
“This is an understandable move given that the US unemployment rate is high and there is pressure on the industry and government to create more jobs locally. We are in constant talk with the governments, industry associations for a solution. We need to take a global perspective and we are trying to increase local recruitments,” Gopalakrishnan said. He also ruled out that the ban would spread to private sector projects and said Indian IT companies exposure to government projects is minimal.
Wipro has invested in expanding its US presence through partnerships with states like Georgia where the company has built a development centre in Atlanta. “We have also been focussing our investments and efforts in developing solutions for the government segment to help government become more effective and efficient. These moves and announcements seem counter-productive to the government’s efforts to reduce deficit,” said a Wipro statement.
A Cognizant Technologies spokesperson said that the company does not have government business in the US on its radar. Lakshmi Narayan, vice-chairman of Cognizant added, “Ban on offshoring has happened in the past also. We are not unduly concerned and this is a passing phase. We will always look at hiring good talent in India and abroad. Unlikely that other states in US will follow suit if value can be demonstrated then customers will pay for it”.
The unemployment rate in Ohio is higher than the US national average of 10.5 per cent. Besides, mid-term elections due in November could be another reason, said Avinash Vashistha, CEO of IT outsourcing advisory Tholons. “The Ohio ban happened over a month ago, but nobody really raised the issue to me when I was in the US during this period. I doubt if such a move will be replicated by other states in the US,’’ he said.
Indian companies still do not garner a significant share of the $100-billion in tech spending absorbed by government and public sector projects in the US, according to industry insiders. Government outsourcing to India is still not substantial and only a fraction of the total government tech spend comes to Indian companies, they said. Since Indian companies have not been doing too many government projects, the impact of such a ban would not be significant, said Vashistha.
“This is a populous move with an eye on the mid-term elections in November. Besides, who can enforce such a ban? The private sector in the US is fiercely independent when it comes to outsourcing and will not follow state-led mandates. Hence, the ban will have no material effect and is to be viewed from a political perspective,” said former Microsoft veteran Krishnan Thyagarajan, who is now managing director at Quest Software India.
Nasscom has noted that while the US public sector represents only a small fraction of the overall demand for offshored services, it does represent a future focus area. Calling the Ohio ban “counter-productive”, Nasscom cautioned that the move could possibly lead to an increased tax burden on US citizens.
The nodal body of India’s IT industry is studying the legality of the bill being passed by the Ohio state. Nasscom will lead a delegation to the US later this month and will be taking this up with relevant officials in the US. “The proposed ban (on outsourcing of government IT projects) comes at a time when the November elections to the United State Congress and Ohio governorship are drawing nearer. More such electoral rhetoric that can be expected in the next few months,” Nasscom said.
The $60-billion Indian IT outsourcing industry, which has struggled to maintain operating margins caused by pricing and demand pressures from existing clients, has viewed the US government sector as a risk mitigator of choice. In June this year, Infosys had incorporated a government-focussed US subsidiary, Infosys Public Services, headed by Eric Paternoster.
The US still accounts for about 60 per cent of the revenues generated by the Indian IT industry. About 90 per cent of the receivables of Indian companies are in US dollars.
However, the anti-outsourcing brigade has grown strident in its opposition to jobs being sent out of the US; they have seriously joined issue against outsourcing to India post-December 2007, when Wipro subsidiary Infocrossing Healthcare Services, bagged a multiple-year contract worth $407 million to provide medic-aid services to the state of Missouri’s healthcare programme.
Nasscom has said that it will seek support from minister for industry and commerce Anand Sharma, who is visiting the US this month, to address the proposed Ohio ban and broader issues of protectionism with his counterparts.
Source:http://www.mydigitalfc.com/it/ohio-outsourcing-ban-backfire-922
