‘Tax saving is a very minor issue when one considers offshoring’

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: The debate about offshoring may have taken a political turn in the US, but it does not make business sense. US-based business strategist Robert E Kennedy believes that offshoring allows companies to be proactive in shaping their future. Kennedy is Tom Lantos Professor of Business Administration at University of Michigan’s Ross School of Management. He has also spent eight years at Harvard Business School researching global strategy. His latest book Services Shift — Seizing the ultimate offshore opportunity shows how managers should prepare for the globalisation of services. In an interview to fe’s Saikat Neogi, he talks about opportunities and challenges for the Indian IT industry. Excerpts:

If the proposed changes on ending tax breaks to American companies shipping out jobs come into effect, how will the offshoring work to India be affected?

The announcement was focused on Part D of the IRS code, which regulates how US multinationals must account for their overseas earnings. At present, they can defer US taxes until the money is repatriated. It also regulates the use of offshore tax havens. While President Obama mentioned moving jobs offshore, this really has very little to do with offshoring. The proposed changes will make it slightly less attractive for US firms to operate abroad, and it will put US firms at a disadvantage relative to non-US firms. But tax saving is a very, very minor issue when one considers offshoring. So, I don’t expect any effect.

Will US companies find a way out to still offshore to save their margins?

The major reasons for going offshore include labour cost savings, access to better skills, access to advanced delivery platforms etc. Tax treatment doesn’t even make to the top ten reasons. So, offshoring will continue and these proposed changes will have little or no effect.

It has been reported that US companies that offshore R&D work will not be affected. Will it lead to a new wave of R&D offshoring to India?

R&D is generally treated as a cost centre, so there are no profits associated with it. There has been a growing interest in moving R&D to India, primarily to access a deep talent pool. I expect the trend to continue.

How can offshoring present a compelling opportunity to improve a company’s competitive position?