by Beth Bacheldor

What Sways Offshoring? Politics? The Public? Nothing?

Feb 25, 2011
Enterprise Applications

A recent blog by outsourcing analyst David Rutchik gets me thinking about political and public influence.

I just wrote a blog on a study that indicates offshoring may be waning. I’m a bit skeptical. For one, there’s been plenty of money made in the last year by Indian outsourcing companies. They all posted pretty positive earnings. Secondly, outsourcing IT does make sense, especially since so many companies have been forced to trim, trim, trim and focus on core processes. But several months back, I did wonder whether political sway and the growing public sentiment against offshoring might not slow things down.

Well, David Rutchik makes a good case against political sway in this blog he wrote for Forbes. Rutchik, by the way, is a partner with outsourcing advisory firm Pace Harmon (Tim Taylor, an analyst with the firm, also contributed to the blog). Rutchik starts off noting that the offshore industry is doing well despite Congress’ efforts (in ways both rhetorical and legislative, he says) to stem offshoring.  He points to Forrester Research’s estimate that this year, global business and government spending for IT outsourcing will top $254 billion. He also adds that the Indian portion of global IT outsourcing in 2010 was nearly $64 billion, according to Nasscom, the Indian outsourcing industry trade association.

Rutchik also talks about the H1- B and L-1 visas, and how technology companies are traditionally the largest users of such visas, with the Indian-based outsourcing providers topping the list. According to recent USCIS data, the three largest Indian outsourcing providers – Infosys Technologies, Wipro, and Tata Consultancy Services – were among the top recipients of H1-B visas. These three companies, all of which trade on the U.S. exchange as ADRs (American Depositary Receipts), together account for nearly 10,000 H1-B visas annually, Rutchik reports.

All these figures clearly got government nervous, and U.S. legislators tried to slow things down. There was increasing of visa fees as part of a bill to increase U.S.-Mexico border security. The provision that increased the fees ostensibly was included to raise $640 million a year to support U.S.-Mexico border security reinforcement efforts, but it was largely perceived by the Indian IT community as a means to discriminate against outsourcing firms (I wrote about this here and here).

The anti-offshoring movement was quite high during the mid-term election. Remember the American Jobs and Closing Tax Loopholes Act (H.R. 4213) (read about that here) and the Stop Outsourcing and Create American Jobs Act of 2010 (H.R. 5622) (you can read about that here)?.

Well, Rutchik argues that the ”recent political activities have had a marginal impact on the outsourcing industry and have mostly signified a growing discontent with the inability of the U.S. government to generate enough jobs to meet the expectations of its citizens.” He goes on to say that  U.S. companies have grown too accustomed or dependent on the high-quality, low-cost technology support that these visas enable. And he points out, as I do, that the offshore outsourcing vendors revenues are growing. In fact, he cites data from the Industry Association of Outsourcing Professionals’ Global Outsourcing 100 that outsourcing service providers’ 2010 revenue grew at the fastest pace in recent years—more than 10 percent—and is expected to continue.

I think this is all very interesting, and telling. I’m interested, however, in your thoughts. What do you think, readers? Will offshoring slow? Will it grow? Can legislators have any impact, either way? What about public sentiment? In a free market, isn’t the market supposed to decide? And is it?