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India sees bright side to US outsourcing
threat
By Indrajit Basu
KOLKATA - The sword of Damocles has been hanging
for a while now, but few thought that United States
lawmakers would finally allow it to drop. It was hardly
surprising then, that when the US Senate, in its first
federal move against outsourcing, passed a bill late
last week seeking a ban on the sub-contracting of
government jobs outside the US, India's money-spinning
information technology industry was shell-shocked.
"We are dismayed to learn about the bill that
restricts offshoring of work contracted out by the US
government," said Kiran Karnik, president of the
industry lobby, NASSCOM, while Anand Mahindra, president
of India's most powerful business lobby, the
Confederation of Indian Industry (CII), termed the moves
as "unfortunate and unwarranted".
But even as
many, starting from the industry minister, analysts to
industry honchos, hastened to add that the move's
financial blow on the country's IT-enabled sector would
be "little to nil", nobody can deny that the economic
and political implications of this bill are significant.
On the face of it, the bill may have little
impact on India's relatively nascent but fast growing
outsourcing service provider industry. According to
US-based market analyst Datamonitor, the biggest
Business Process Outsourcing (BPO) spending in 2003 came
from the US government, which accounted for US$18.5
billion worth of contracts, out of which only 1.4
percent of the deals involved offshore delivery.
Factoring in the total contracts given out by the US
government and the US Defense Department, the magnitude
is estimated to amount to $511 million.
In other
words, although the US bill could dam up a lucrative
portion of the flow of BPO contracts, for the country's
close to $4 billion revenue-a-year IT-enabled services
sector, slated to grow at 54 percent this year, $511
million is surely not a large enough chunk to be overly
worried about. Moreover, NASSCOM's Karnik says that
since the bill is limited to a period up to September
2004, and that it only covers contracts by government
departments, its impact in numerical terms will be
"small because the share of US federal government
contracts in exports of IT software and services from
India is less than 2 percent".
Industry sources
also add that low-value IT-enabled sectors such as
medical transcriptions, which depend heavily on third
party contractors, have no cause for worry either. In
this sector, the major chunk of the work flows to India
from third parties. For example, says Suresh Menon of
HealthScribe, one of the largest medical transcription
companies, "most hospitals in the US are under private
control and the bill does not seek to debar third party
US contractors from outsourcing work to Indian medical
transcriptions".
Still, Raman Roy, chairman of
WiproSpectramind, one of India's most aggressive
outsourcing service providers, says that the real
significance of moves like this does not lie much in its
monetary consequences. "Bills like these will alter the
economic and political fundamentals between the US and
India," he said.
Indeed, the moves may not even
translate into law, as optimists in India have already
started speculating, (and even if they do, the provision
may lapse by the end of the year). However, the fact
that a move like this has already been made by none
other than the US Congress itself can set an example for
others countries, which had been contemplating similar
measures. Various West European governments, for
example, already cagey about offshoring, will now find
it easy to follow the US lead.
The development
also bodes particularly ill for Indian-US ties. Already
the move has been received with "surprise" by India's
commerce and industry minister, Arun Jaitely, and is
seen as an impediment to the future of "free and fair"
global trade. "It sends out a wrong signal at a time
when India and the US are working with others to lower
trade barriers and to establish fair rules," said
Jaitely.
And the CII feels that the US has
stopped practicing what it has been preaching for long.
"The US had pressed India to accede to 'Singapore
issues' in the recent WTO [World Trade Organization]
negotiations that includes transparency in government
procurement and no special treatment to domestic
suppliers. But this latest move by the US shows a
discrepancy in its own stand," said a CII response.
Nevertheless, since the Senate ban is on US
government contracts, the ultimate losers are perhaps US
taxpayers, who will now pay more for government
services. The first voice of protest from this move has
come from business groups in the US itself. "We want to
grow the worldwide economy and create jobs. Isolating
ourselves is not the way to do it," said Tita T Freeman,
director of Business Roundtable, an association of chief
executive officers of leading US corporations with a
combined workforce of more than 10 million employees in
the US.
Meanwhile, it seems there's a spilt
developing between US politicians and companies over
outsourcing. Even as US senators were debating the
legislative steps, reports said that a group of American
company executives, in their pin stripe suits, were
sipping cognac after dinner in the elegance of New
York's Westin Hotel and discussing the very issue. These
executives were among 150 of America's corporate leaders
who had gathered in the Big Apple to promote the
opposite of what the senators were attempting. They had
paid $1,400 per head to attend a conference on how to
send US jobs to cheap overseas destinations.
According to Business Roundtable, it has already
"urged the Bush administration not to be swayed by the
public furor over the loss of American jobs overseas and
not to espouse policies that would prevent American
firms from getting jobs done cost-effectively, including
outsourcing and sub-contracting to countries like India,
China or Russia".
Nevertheless, there could be
an upside to this imbroglio; leading Indian IT
companies, most of which are sitting on huge cash piles,
will now be forced to be far more aggressive in
acquiring US and European IT companies. "We must
continue to move up the value chain and evolve such
solutions and services which are good and
cost-effective, and Indian IT companies must diversify
to other markets," said IT minister Arun Shourie.
Experts agree that Shourie's advice is the only suitable
long-term solution to combat this phenomenon. "Now they
have to aggressively become truly global players instead
of thinking in terms of exports from India," said
Vaibhav Parikh, a BPO and intellectual property expert.
(Copyright 2004 Asia Times Online Ltd. All
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