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Ohio Ban on Off-shoring Government IT Projects: Paving the Way for a Dangerous Precedent?

Posted on September 11, 2010 in Business and Economy

By Pradyut Hande:

The Story:

At a time when the Indian IT-BPO industry is again beginning to take rapid strides on the tortuous path towards increased profitability and global recognition, the American state of Ohio has seemingly thrown a major spanner in its wheels. The matter of contention being Ohio’s decision to ban the outsourcing of Government IT and major back-office projects to offshore regions; such as India. The contentious move may have taken many by surprise; but industry watchers and experts alike remain unfazed, having anticipated a move along these lines. Ohio’s latest move to counter rising unemployment levels of almost 11% (compared to the prevalent unemployment rate of 9.6% across the USA) and create greater job opportunities for the local populace may just set a similar precedent – one that may prompt other states, grappling with high unemployment rates and negative public sentiment towards outsourcing scores of jobs, to adopt a similar move.

Viewpoint 1: The State of Ohio –

By banning the outsourcing of government related IT projects to offshore locations like India; purportedly the World’s Outsourcing Hub; the “Ohio think-tank” believes they can address the burning issue of unemployment that presently plagues the world’s oldest democracy. The Ohio Governor, Ted Strickland, a Democrat, is supposedly the brains behind the aforementioned decision. In an executive order passed last month, Strickland says, “There are pervasive service delivery problems with offshore providers, including dissatisfaction with the quality of their services and with the fact that services are provided offshore“.

Governor Strickland’s statement ought to be viewed through a more discerning lens. Granted the fact that there do exist anomalies and shortcomings with regards to offshore service providers that may have caused a certain degree of consternation in Government circles; however, taking away those very jobs/contracts from “initially worthy” offshore providers and handing them to local service providers is not guaranteed to do away with such service delivery impediments. In fact, the very reason such services are outsourced to locations such as India, China and Brazil is to tap the high service quality, delivery proffered by IT-BPO firms at low costs. Hence, Governor Strickland’s decision maybe by viewed as a grossly populist and myopic measure by some quarters, pandering to a growing sense of public discontent and criticism over the entire outsourcing policy.

One must also point out that Governor Strickland is a Democrat. With the impending elections in November round the corner, politicians are liable to unveil any policy/measure that may temporarily alleviate the scourge of unemployment. According to reliable sources, the Democrats are marginally behind at this stage, hence, any move to whip up positive public sentiment is more than welcome – another fact that adds fuel to Governor Strickland’s “populist measure theory”. The move will also pinch the Government’s wallets that would have to shell out a lot more for the same work that would ordinarily have been outsourced to more competent offshore firms. This also begs the question as to how many jobs the Government of Ohio hopes to create through this decision. The jury is definitely out on that one. Only time will tell whether this move actually benefits the common American in any way… whether it actually brings down the alarming unemployment rate to more manageable levels.

Viewpoint 2: The Indian IT-BPO Sector –

India’s IT-BPO exports business accounts for almost $60 billion of the revenues of the sector and the share of the USA in our IT-BPO exports business is a whopping 61%. These are figures that are going to take a serious beating if other American states were to follow in the footsteps of Ohio by banning the outsourcing of Government IT and backoffice projects to offshore locations.

Now one would say that major Indian IT firms like TCS, Wipro and Infosys get a majority of their business from private US-based companies, but off late State Governments have also been outsourcing major projects in order to cut costs, improve margins, efficiency and minimize reliability issues. Hence, Ohio’s move may prove detrimental as it has further fortified the notion that “outsourcing is risky and involves serious loss of jobs”. Job loss to a certain degree is bound to occur when a company undertakes an outsourcing operation – a notable pitfall. TCS is the only Indian IT firm operating in Ohio at present. They along with other Indian firms have continually emphasized on the fact that off-shoring work actually improves company health and efficiency. But evidently, Governor Strickland thinks otherwise.

This latest move coupled with the prospect of facing higher visa costs (reportedly to fund the USA’s Mexico Border Security program) comes as a major blow to the Indian IT-BPO sector; one it would soon have to come to grips with.

One would have to wait and watch to see whether Ohio’s move actually pays off by reducing the levels of unemployment or if they have just shot themselves in the foot. It would also be interesting to note how the Indian firms counter such moves in the future to safeguard their business interests.