Part-1: Why offshore outsourcing is good for the US

The media in the US, sensing the public mood, has latched on to the offshore backlash story.

Like media anywhere, they thrive on individual stories of misery caused by offshore outsourcing. Unfortunately, there are enough of them to choose from.

While the business newspapers and periodicals in general give a balanced view of the issues, most local newspapers and television shows have already painted it black.

What should Indian companies do?

It's easy to hunker down and hope that it blows over quickly. But this is not going to go away soon. Avoiding the issue is not the answer.

I believe leading Indian companies are taking the right approach. We have a message -- Offshore outsourcing makes US companies globally competitive.

That message is powerful and real. There are many companies where offshore outsourcing saved the company from going in for deep cuts and layoffs. There are some companies who probably survived the downturn because of this.

Offshore outsourcing is a new business model -- a new way of doing things. Like the introduction of a new technology, it can often be disruptive. In pockets, people can lose their jobs. That doesn't mean that we should stop the march of progress.

We haven't been shy about taking this message to the media. And that is the right approach. Some of the favourable balanced reporting in business magazines is perhaps a result of this consistent message.

The US government, though, is a different kettle of fish.

Next year is the Presidential election. Given electoral politics it is widely expected that the government will attempt some legislation to address the bogey of offshore outsourcing.

Whether they become laws or not and what the impact of such laws will be, is a matter of debate. Like in the case of steel tariffs, this legislation may be economically unsound, but politically expedient.

There already are some bills in Congress. More are expected. Unlike steel, none of these are going to raise tariffs. Instead, they will introduce what is called non-tariff barriers against offshore outsourcing. The ones I have heard of come in three varieties:

Restrictions on visas: Caps on H1 visas, defined use of L1 visas, comparative wage requirements, et cetera.

Information privacy laws: In healthcare and financial services industries, customer and patient data privacy is governed by strict laws.

Today these laws focus on the company's legal responsibility to protect the privacy of its customers' or patients' health or financial data. If the laws are changed to restrict access to this data to US citizens or US residents, as some people are asking for, working with healthcare or financial services companies will become difficult.

State government initiatives: New Jersey has a bill that will require call center agents to identify the country they are calling from -- to make it difficult for companies to offshore operations. Some states have introduced bills that bar state government work from being sent offshore.

By the time we are done with this, the list will be much longer.

So is there a risk that one of these bills will deal a crushing blow to the offshore outsourcing industry in India? Or, perhaps, many small niggling laws that make operations costlier and more difficult for Indian companies? Death by a thousand cuts, as it were.

In the short term, I do not think new laws will amount to more than minor irritants.

Many of these bills will not go through Congress. US businesses know that they need to use offshore outsourcing to be globally competitive.

Today as many as 40 per cent of the Fortune 1000 use offshore outsourcing. They have a stake in the success and continuity of their offshore operations.

When it comes to visas, we also have a powerful ally in the tech industry in the US, which hires a large percentage of the H1 visa holders. And after all, if some of these bills get through Congress, they could end up in court if they are unfairly restrictive.

In the long term, it's harder to tell. I take solace from the way the steel tariff was ended by President Bush. The steel tariff raised the cost of steel to the Detroit auto makers, making them less competitive on cost when they were anyway having trouble competing with Japanese and European auto manufacturers.

They put a lot of pressure on Washington to take the tariffs away. Plus there was the looming threat of counter-tariffs from the European Union on a slew of American products which caused the US to retreat.

US corporations that use our services or have their own setups in India are our natural allies. They will lobby against any move to introduce non-tariff barriers against offshore outsourcing.

NASSCOM has a very important leadership role to play as well in educating legislators and key influencers. But the most important player in this crusade should be the government of India.

India is recognized as the leader in offshore outsourcing. The Indian government must step up to the plate and play a larger role.

Although, India doesn't have the kind of clout that the EU has with the US as a major trading partner, there are ways in which it can exercise its influence. After all, at the prodding of the West, we have been gradually opening up our economy to foreign investment.

US corporations are some of the major beneficiaries in industries where FDI has been opened up.

Globalization is a two-way street. There is enough here to make a persuasive pitch. I don't know if anyone is making that pitch today.

It is up to our government to open official channels of communication between the two governments. For the US, this is not yet a big issue say compared to China manufacturing.

Services exports from India at roughly $12 billion are less than a tenth of Chinese manufacturing exports to the US.

But by not opening a dialogue on this, we are allowing the backlash to form opinion in Washington, uncontested by our point of view.

The need for dialogue through official channels has never been greater. This is not just about protecting our industry from detrimental legislation. We should educate the US policymakers on the needs of our industry and influence changes to make it easier for offshore outsourcing to thrive.

Today's visa regime in the US, for instance, was not put in place with the offshore services industry in mind. Industry leaders have proposed a new kind of visa called the professional services visa.

Similarly, today's privacy laws or IP laws could all do with makeovers that make it easier for offshore outsourcing while protecting the interests of US consumers or businesses.

The US is our major trading partner for offshore outsourcing. There is much work to be done to secure the future of our industry.

And then we must turn our attention to Europe. Europe, as the Americans would say, is whole new ball of wax.