Anti Offshoring Laws to impact business?

March 28, 2010

Ever since Obama expressed his reservations about the wisdom of outsourcing to countries outside the United States, there has been endless speculation about the direction the world outsourcing industry would take. There is added urgency to come up with an effective strategy to deal with aftermath of any protectionist legislations, as indeed suggested by him.

The threat of legislation emanates not just from the Federal government, but also from several states that are seriously contemplating enacting laws to curtail offshoring. As a matter of fact some of them already have such laws in place.

stop offshoring
Regulation can take several forms ranging from restrictions placed on export of personal data-a favorite bug-bear to alteration of tax laws, incentives and grants as well as in reporting requirements pertaining to the whereabouts of the business. Till now these state laws have remained confined to government sourcing, but there is no saying when they may be extended to private players as well.

Outsourcing Vendors are being advised to modify their provision pertaining to ‘change in laws’, which form part of their contract. This could envisage coming up with a process of consultation and negotiation which might go some way in modifying the terms and conditions to ensure continuance of business.

It is important to note that none of the proposed legislation plans to actually outlaw outsourcing, the attempt being only to create hurdles, so as to discourage the process. Moreover the real impact of the proposed legislation on outsourcing will only become clear when the proposed legislation become law.

In India though there is real fear that bills such as the one carrying the “50/50” provision, introduced by Senators Dick Durbin and Charles Grassley, that seeks to ban further recruitment of foreign workers with H-1B and L1 visas, in firms who employ more than 50 US employees and currently employ 50 or more such expatriate workers, will impact the businesses of leading IT firms such as Wipro, TCS and Infosys.

While the Indian IT industry acknowledges that some of the elements of the proposed legislation are meritorious – preventing visa fraud for instance, but in its entirety it is highly misguided and dangerous and has the potential to disrupt the work of all major Indian outsourcing firms carrying out critical functions for their American clients and in the process negatively impact both the Indian and American economies.

In particular the Indian economy would be impacted in a huge way considering that the IT /ITESS sector comprises for 25% of the nation’s economy. The government of India would likely act to safe guard the interests of this vital part of Indian economy and is expected to take this up vigorously with the US government.

Thus we see that there is a lot of genuine dismay at the proposed legislation. At present the industry is watching and waiting for these legislation to be made into law. The shape in which they finally come out, and impact the way the outsourcing business will be carried out is crucial to the future of this multi-billion dollar industry.


5 Responses to “Anti Offshoring Laws to impact business?”

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  2. Vipin on April 3rd, 2010 8:31 am

    Though the laws may affect in the short-term it will not stop the globalization in the long-term.

  3. Sanket Purani on May 5th, 2010 10:33 pm

    I agree with Vipin that this will create some hardships but the underlying forces at play here will not stop outsourcing over the long term.

    It is however a very prudent idea for every outsourcing organization to create a plan to fall back on if such measures were put into place. In the process some new strategies may even come to light that may not have been even imagined without going through such an exercise.

    Great article.

  4. Karen Limbo on June 8th, 2010 4:28 pm

    Anti-offshoring law is unfair in lieu of FREE TRADE. When the Americans benifited from it they were expanding it and using other nation’s resources, now they cannot face the collapse of their own making?

    No one will benefit from this in the long run…

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