$884 billion…

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 offshoringÂ
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

The Protectionist’s Saga>>>>>>

October 2001:
President George W Bush signs the USA
Patriot Act, which, among other things, establishes new guidelines for
monitoring international students and migrants. Allows foreigners to be detained
for a week before the government decides what to do with them.

November 2001: Guy Santiglia, former Sun Micro
employee, files a complaint with the Labor Department accusing Sun of replacing
US workers with H-1B non-immigrant workers. Says Sun discriminated in favor of
H1Bs, even hiring them for ‘non-speciality occupations’.

December 2002: The New Jersey State Senate unanimously
passes bill to prevent the government from outsourcing IT jobs outside the US.
Bill sent to the NJ State Assembly for consideration. Other states like
Connecticut, Missouri, Maryland and Wisconsin considering similar bills.

March 2003: Though the Santiglia case is thrown out,
Walter Kruz, another former Sun employee files a class-action suit claiming the
company violated age and race discrimination laws by keeping younger Indian
workers while firing him and other American workers. The suit sought class
action status on behalf of all "non-East Indian" employees that were
affected by Sun’s work force reduction policies-an estimated 2,400 or them.

April 2003: A New Jersey government department
renegotiates its contract with a private company eFunds. Forces it to move its
customer call center from Mumbai to Camden in New Jersey.

May 2003: State department officials propose
face-to-face interviews for all Visa applicants and fingerprinting of all
entrants to the US.

Florida Congressman John Mica introduces a Bill in the House
of Representatives to stop perceived abuse of L1 visas by Indian IT services
companies. His contention-L1s are a backdoor to cheap labor, because of which
‘Americans have found themselves in the unemployment line.’

November 2003: A $15.2-million contract between a
subsidiary of India-based Tata Consultancy Services and an American state agency
has been cancelled.

He Moved the Cheese>>>>>

Meet George V Voinovich, the man who originally sponsored the legal measures
that bars doling out subcontracting of Federal US government contracts to any
other country by an American company. Starting his political career in 1967,
this Doctorate of Law, was also instrumental in creating the ‘do-not-call list’,
which has already hit few Indian BPOs.

Besides the Clear Skies Act of 2003 (Introduced in Senate) Voinovich is also
credited for the ratification in the ‘do-not-call’ registry provision of the
Telemarketing Sales Rule, as amended by the Federal Trade Commission with effect
from March 31, 2003. He has also worked on the antidumping or countervailing
duty orders. A senator since 1999, the recent bill is being seen as one of the
best move in his political career.

Strangely, the Republican Senator from Ohio who throughout his political
career strived to make government ‘work harder and smarter and do more with
less’ has allowed himself to be swayed by a very simple reasoning while
pushing for the bill. While it is a well-known fact outsourcing has helped the
US business recover from the economic downturn by providing them with low cost,
efficient services which helped them restructure and made them competitive–saving
time and an estimated $11 billion so far.

According to his Press Secretary Marcie Ridgway, "The Senator’s
reasoning is simple: jobs that were previously done by American citizens for
American taxpayers should not be shipped overseas to be done by people in other
countries."

Perhaps, in an election year it pays to be more political savvy than going by
pure economic sense.

And the Saga Continues...

It might be the first Federal law against outsourcing, but protectionism has
always been part of US government policy for the sector. Even before the
President George W Bush signed the omnibus spending Bill on January 27, 2004
making it a law, federal projects were not offshored to India in a major way as
governed by the ‘buy American’ provision that sets minimum levels for
domestic content in products bought by the US government. Besides, several other
similar bills are pending with the judiciary committees of the Senate and the
House of Representatives for several months now:

• The Truthfulness, Responsibility and Accountability in Contracting Act of
  2003 (TRAC Act), introduced in the US Senate last year, aims at banning
  outsourcing by the entire federal government. The objective of the TRAC Act
  is ‘to ensure that the business of the federal government is conducted in
  the public interest and in a manner that provides for public accountability,
  efficient delivery of services, reasonable cost savings, and prevention of
  unwarranted government expenses, and for other purposes’.
• The bill sponsored by Senator John Kerry, a Democratic presidential
  aspirant targets foreign call centres handling customer support work for
  many US companies. Kerry wants the call centre operators to identify
  themselves and their location, a move that could exacerbate the backlash
  against outsourcing.
• While the US slashed the number of H-1B visas from 195,000 to 45,000 a
  year last October, another Bill by Tom Tancredo seeks outright abolition of
  H-1B visas.
• Then there is Congresswoman Rosa L. DeLauro’s bill, which proposes
  strict curbs on L-1 visas. Co-sponsored by eight other members, the bill has
  proposed a cap of 35,000 L-1 visas annually and payment of prevailing US
  wages to L-1 workers so as to discourage displacement of American workers.