Ohio attempts to ban offshore outsourcing

October 11, 2010

Last August, Ohio governor Ted Strickland issued an executive order to ban the offshore outsourcing of state government work. This is after he recently objected to Parago, a Texas based company that administers Ohio’s US$11 million appliance rebate programme, from offshoring certain tasks such as the processing of applications and the answering customer calls to a call center based in El Salvador. And in a follow-up letter to US Trade Representative Ron Kirk, Strickland wrote that while Indian officials have objected to his actions, he further pointed out that Indian officials have also admitted that they do not have a case in the World Trade Organization (WTO) because the Ohio executive order does not violate any trade agreement the US has with India.

Nevertheless, Indian officials have expressed concerns. The Financial Chronicle has reported that India’s National Association of Software and Service Companies (Nasscom) is calling the ban on offshore outsourcing as discrimination against Indian outsourcers while Businessworld has recently reported that commerce and industry minister Anand Sharma has taken the message a step further to point out that Airtel has placed US$3.5 billion in orders with IBM and that India also has large orders for aircraft with Boeing. 

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However, the ban is likely a mote point as Ravi Menon noted in the Financial Chronicle, Indian companies still do not have a significant share of the US$100-billion in IT spending done by US government and public sector projects in the US. And since only a fraction of the total government IT spend goes to Indian companies who are not doing that many government projects in the first place, the ban’s impact on Indian IT services and outsourcing firms should be minimal. On the other hand, blogger Sekhar has pointed out on his blogcritics.org blog that American MNC’s like IBM and Accenture are probably more exposed to the negative impact of the ban than Indian IT services or outsourcing firms are.

Meanwhile, the Economic Times noted that there’s no reason for India to be paranoid because the economics of outsourcing are just to compelling. Moreover, the Economic Times quoted Ross Tisnovsky, the VP of research for consulting firm Everest, as saying that there is very little that the government can do to stop the outsourcing of professional services as its not like closing a factory in the USA and reopening one in Mexico because its nearly impossible to track where a code has been developed or where a specific professional service has been delivered from.

Nevertheless, its an election year in Ohio and governor Strickland is facing a touch re-election campaign against former Republican Representative and investment banker John Kasich. In fact, the latest Rasmussen poll has Kasich leading Strickland by 50% to 43% and gives Strickland a 39% favorable and a 55% unfavorable rating while Kasich has a 50% favorable and a 37% unfavorable rating.

Hence, we want to ask what you our readers think: Will Ohio’s ban on outsourcing and any subsequent bans by other states have much of an impact on the Indian IT services and outsourcing industries or is this just another election year gimmick issued by a politician down in the polls? Will we see more such bans after the elections are over with or are such bans a new trend – especially when unemployment remains stubbornly high in the USA? Tell us what you think.


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