UK, Europe protectionist steps to make BPO pie sour

Written by Rachana Khanzode | Mumbai | Updated: Feb 16 2009, 06:35am hrs
Even as mounting job cuts, owing to the global meltdown, is pushing several countries to take a hard look at their policies, outsourcing, the obvious one, stares at policymakers in developed economies. In fact, UK and governments in European countries are expected to bring forth more stringent protectionist policies with respect to outsourcing, say industry experts. The obvious fallout: Indias outsourcing operations will face the heat with a dent in profitability.

Peter Redshaw, VP-IAS banking & investment services, Gartner Research, says, In a bid to generate local jobs, the governments in the UK and Europe are looking at adopting protectionist policies with respect to outsourcing. Expect these policies to be more stringent than the ones coming from the US.

Says Rodney A Nelsestuen, research director, cross industry research at Tower Group, Its a kind of political risk that governments are taking. Largely, the point is that the government is pumping huge sums of money in these banks and in return, banks need to generate jobs in the domestic market. This may not sound too correct in business terms, but it sounds politically correct for them.

Last week, US Senators had put forward stricter conditions on hiring on H-1B visas by firms receiving federal bailout money under the Troubled Asset Relief Program. These firms will not be able to hire workers under H1-B visas for the next two years.

Britain, like the US, has announced two tranches of bailout worth hundreds of billions of pounds, which have seen the government take major stakes in international banks like the Royal Bank of Scotland and others. More recently, the Irish government said it would invest 7 billion euros ($9 billion) in the Bank of Ireland Plc and Allied Irish Banks Plc.

At the same time, though this may hurt the onsite revenue of Indian IT companies, the increased offsite work is expected to bring better margins. Arjun Malhotra, chairman and CEO of Headstrong, says, The percentage of profit for offshore work will increase as percentage of margins from offshore will be more than that from the onsite. Therefore, the industry seems to be bullish with the offshoring work expected to come to India, he adds.