The benefits of global sourcing to the US economy are many. Global sourcing leads to increased global competitiveness of US-based firms, resulting from the combination of a lower cost structure, increased flexibility and the ability to tap a large talent pool of global resources. The utilization of offshore firms and the resulting growth of their local economies, leads to the expansion of global markets for the goods and services of US-based firms. In addition to these benefits, global sourcing provides a talented pool of resources to address the anticipated US labor gap created by the expected growth of the US economy. By including the George V Voinovich provision in the $328-billion dollar spending Bill, the Senate might just have committed hara-kiri.

"An activity or function of an executive agency that is converted to contractor performance under Office of Management and Budget Circular A-76 may not be performed by the contractor at a location outside the United States except to the extent that such activity or function was previously performed by Federal Government employees outside the United States," says the latest law in the United States of America that now prevents any offshore outsourcing by the US federal government to any other part of the world.

Dictated by federal employee unions and industry associations, the ‘A-76 changes’ are part of the initiatives to update and streamline the OMB Circular A-76 that was released by the White House last summer. The objective: To be used by government agencies when deciding whether work performed by government employees could be provided more cheaply by private companies.  The stated goal: To eventually shift 425,000 out of 1.8 million federal government jobs to private firms under government contract.

While the law in the omnibus bill was related to implementation of this process and not government contracts in general, the Bill sponsored by Republican Senator from Ohio George V Voinovich and others says that no jobs shifted to private companies under this process could be filled by people working overseas if the jobs previously were filled by people working in the US. Fortunately enough, the Bill that was originally going to apply to the entire government was finally scaled down significantly to only apply to transportation, treasury and independent agencies. The government contracts in general already operate under a ‘buy American provision’.

Hold on if you thought that  was all. The revised circular also says, "That in all public and private sector competition for more than 10 positions, a private sector offer would have to be 10% or $10 million less than the government offer to be considered." In a nutshell, it means that if a private sector company bidding for a project decides to cut cost by offshoring  thereby affecting more than 10 employee positions, then the private sector offer would have to be 10% less than the government offer."

Should India Worry About It
Knee-jerk reactions and the media uproar aside, is this a real case to worry about? The answer is both no and yes. While Nasscom has been quick to reassure that the impact on India is ‘very little’. It points out that the bill has a limited life, concerns only few government departments and constitutes barely 2% of India’s export of IT and software services of $9.5b in 2002-03. However, the fact remains that India will lose out to this ‘small’ but multi-billion dollar opportunity.

Also, while many in the industry feel that it is just a clause in the $328-billion federal spending bill, valid only till September 2004, many others suggest it might just prove to be the first step towards what the 10 US states—California, Connecticut, Florida, Indiana, New Jersey, Michigan, New York, North Carolina, Wisconsin and Washington—have been trying to do for many months now.

In fact the timing of the Bill—presidential elections in the US—is another factor that is worrying experts who feel the Federal government’s move may just be a trigger to similar populist moves by the states. Experts also feel that the move could lead to an instability of sorts inducing even the private companies to pull back from outsourcing to India. However, in the long run economics will prevail. Only that, the damage caused may take another long run to reverse.

The counter view: "The scaled-down version of the Bill is a very well-thought out strategy that meets two certain objectives. While the pro-natives move would help the government improve its image, it would also help the corporates continue with outsourcing, as the Bill is limited just to two government sectors," said an industry veteran on condition of anonymity.

Will Banning Really Help
Certainly not and there are numerous reports and statistics to prove this. According to Union Information Technology Minister Arun Shourie, this was not the way Washington could advance in the backdrop of multilateral trade negotiations. "I feel this would worsen prospects of multilateral negotiations in trade."

But does the US really care? Well it does, or else business groups in America would not have lodged their strong protest against the measure. "We want to grow the worldwide economy and create jobs. Isolating ourselves is not the way to do it," Tita Freeman, director of communications from Business Roundtable, is reported to have said. Business Roundtable is an association of CEOs of the biggest firms in the US and it recently 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 subcontracting to countries like India, China or Russia.

Reports also suggest that US
companies are expected to lobby against some of the provisions in the bill that affect their operations. Indian-American companies in the tech field, who win substantial amounts of government contracts, often under special schemes for minority businesses, are not affected by the legislation, except where they might be sub-contracting the work to an Indian subsidiary. In India, at best only a few call center businesses that have state government contracts may be affected.

Observers also feel that US lawmakers are being shortsighted and populist in bringing about such legislation and will be brought to their senses when enough qualified people are not found to do the job.

Given the election year in the USA, it not hard to figures why candidates are actively taking up the outsourcing issue. We have seen enough of such stunts in India and expecting rational business sense would be far fetched at such times. However policy makers have to realize that setting up trade barriers today will hurt the USA more than any other.

Observers also feel that US lawmakers are being shortsighted and populist in bringing about such legislation and will be brought to their senses when enough qualified people are not found to do the job. US policy makers need to give more thought on how to bridge up the huge demand-supply gap looming large in the next few year. Rather than trying to ban offshoring and passing bills, they need to analyze on how to stop the potentially huge $884 billion cumulative GDP loss. One hopes that sane sense prevails, but then its election time. Let us hope that US policy makers who want their voters to see the light at the end of the tunnel are not mistaking it for an approaching train in the long run.

Shubhendu Parth CyberMedia News Service in New Delhi With inputs from Nandita Singh in Hyderabad and Shweta Khanna in New Delhi

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