US President Barack Obama has climbed back on to the anti-outsourcing flywheel. Every year, he seems to let out a war cry against US companies which outsource jobs and functions to more economical destinations. This time too he has not missed out. During his final State of the Union speech in the run-up to the elections, Obama has said that companies creating jobs would be incentivised while those moving jobs overseas would not get tax deductions. Obama has said the same in the past, so back in India industry watchers are only viewing it as election rhetoric. While he primarily referred to manufacturing jobs, he had a jab at technology stating that its increasing adoption had led to employment erosion.
?We will not go back to an economy weakened by outsourcing, bad debt, and phoney financial profits. Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that?s built to last?an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values,? the US President said.
Nasscom has chosen not to over react. ?Nasscom understands that the US is in the midst of a highly competitive election cycle and Nasscom is heavily engaged in the political debates in the US and around the world,? the industry body said in a statement. ?Our focus is to build open markets, global trade and we work with key stakeholders to highlighting the benefits of the information technology industry.?
It is increasingly becoming clear that the world cannot do without outsourcing and expansion into emerging markets. Businesses worldwide are having a tough time battling the slowdown, and for most any move that can bring down costs is welcome. US companies can ill afford to run their businesses at sky high costs, though admittedly the cost of business in countries like India too is rising.
Hence, Obama?s barrage of verbal volleys on outsourcing look a little jaded. His fear of being ?Bangalored? does not seem to stem from any real concerns about India stealing America?s technology thunder, but merely an attempt at trying to keep him floating high on popularity charts. For all the outsourcing bashing that Obama loves to do, there is very little that he can do to curb the phenomenon, as it is simply a very lucrative and cost-saving option for American companies.
Having said that, Obama refuses to take his foot off the pedal. He is pushing his arguments forward at every opportunity. Obama has constantly urged the Senate to approve new laws to close international tax loopholes, which could produce $210 billion in tax revenues over the next 10 years for the US. But the reality is that it is still cheaper to outsource. The on-site or onshore cost of a junior engineer in an IT company in America is about $60 an hour. The corresponding cost for work done offshore either in India or China works out to around $25-30 an hour. If the US disallows offshore payments as expenses, then the cost of offshoring will go up considerably. Hence, any anti-outsourcing move is likely to hit American companies as hard as it will hit the Indian IT sector, which earns over half of its revenue from the US.
Here is Nasscom?s pitch. ?The Indian IT industry consists of companies that are world class, running operations and making investments all over the world including the US, and contributing substantially to build innovation and competitiveness in the American economy. We are hopeful that the positive moves towards rebuilding America will bring in the desired results.? The truth is that India IT companies are a boon for American businesses. Maybe, Obama too has realised this and is now willing attack outsourcing of manufacturing more than software outsourcing.
In any case, Obama cannot hope to build a robust economy in the US by reducing competitiveness of American companies ?and therein lies India?s IT advantage.