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Outsourcing and its discontents

Zafar Anjum | May 8, 2009
President Barack Obamas new tax plan aims to discourage outsourcing. Will it?

Recently, US president Barack Obama announced his tax overhaul plan. In simple terms, Obama prohibits companies from claiming deductions in the US for expenses on overseas investments until they have paid domestic taxes on the profits from those investments.

As correctly observed by a Singapore daily, this would end a practice whereby companies create foreign subsidiaries to shift income in ways that avoid taxes including the top rate of 35 per cent.

Also, the proposal aims to discourage outsourcing. But will it?

American reaction

The industryfrom corporate houses to outsourcing companiesreacted ferociously to Obamas proposals. The new tax plan will reduce Americas competitiveness, some of them argued.

Really? Will it reduce Americas competitiveness or will it reduce American corporations competitiveness?

In other words, is the national interest of American corporations one and the same with that of its citizens?

If your answer is yes, try telling it to an American whose job has been bangalored. And you will find many of them in the US these days where the unemployment rate hovers over eight per cent, the worst since 1983.

Indian reaction

On the other hand, Indian techies hope their jobs will remain intact.

For them, Obamas tax announcement comes at an inopportune time. As everywhere else, the IT companies in India are also fighting global recession.

Indias BPO sector has been at the receiving end of some bad news in recent weeks and months. First came the Satyam scandal that created unprecedented ripples in the calm waters of Indian outsourcing industry. It was followed by slurs. The US commentator Rush Limbaugh, though known for making controversial statements, called Indian techies slumdogs. Soon after, USs Delta Air Lines announced it would stop using Indian call centres to handle sales and reservations.

Apparently, stated a Wall Street Journal report, Delta felt that the backlash from its consumers outweighed the cost benefit of outsourcing to India.

In this light, should outsourcing companies in India and other places be worried of a consumer backlash? Will there be more companies going the Delta way?

It looks difficult, simply because of the benefits that outsourcing offers to the firms bottom line.

American firms could see a 50 per cent rise in the cost of outsourcing business processes to India if President Barack Obamas new tax proposals are accepted, said a Times of India report, quoting industry sources.

Aparup Sengupta, chief executive officer of BPO company Aegis, told the newspaper that American companies save 60 per cent to 75 per cent by outsourcing their back office operations to countries such as India.

Therefore, the math still works out in favour of outsourcing. So even if Obama goes ahead with his tax changes and American citizens become angrier at losing their jobs, outsourcing is not going to stop. Techies in India and elsewhere can sleep tight for now!

Zafar Anjum is the online editor of MIS Asia portal.

 

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