A few months ago, when unemployed moms in New Jersey dialled a toll-free number to find out the status of their government cheques, their calls were answered by a call centre based in Mumbai, thousands of miles away. When US Senator Shirley Turner, a state legislator, came to know about it, she realised the bitter irony in the entire episode. Within no time, an angry Turner drafted a bill that prohibited state contracts from going overseas.
What she wanted to ensure was that government funds were used to employ people residing in the US, rather than foreign workers based in India. The move paid off as the state senate passed the bill unanimously. It will go to the upper house this week and, if cleared, will land on the governor's table for signature. That's bad news for Indian call centres and BPO (business process outsourcing) vendors, who were hoping to grab some of the $20-25 billion worth of global contracts by 2008, and create a million jobs by that year.
That looks out, but there are worse things on the horizon. The New Jersey bill appears to have sparked a trend with at least four other states considering milder versions of it. Maryland state senator E.J. Pipkin introduced a bill that seeks to establish a task force to study methods of increasing efficiency in the procurement process, including outsourcing. The Connecticut senate has a bill that wants to ensure that jobs going overseas are not landing in grimy sweatshops filled with toiling workers who enjoy no benefits. Missouri and Wisconsin too have similar bills in the pipeline.
Clearly, there's an economic and social backlash against ITES (IT-enabled services) jobs that are fast vanishing from the US—and going off to far-flung countries like India, Ireland and the Philippines. More than a quarter of Fortune 500 companies like General Electric, American Express, British Airways, HSBC and Citibank have shifted, or are in the process of shifting their back office operations to India. And a large portion of this work comes from the US.
American politicians are only too keen to give instant gratification to their voters who, apart from the loss of ITES jobs, are worried about a sluggish US economy, the high unemployment rate (5.7 per cent) and the bursting bubbles of dotcoms and stock markets. When the big macro-economic scenario is bleak, the small picture is bound to get dim. That's when lobbying to protect local jobs becomes aggressive.
The Indian biggies, caught napping by the New Jersey bill, are slowly realising the impact this could have on their businesses. It took them and their lobbyists four months to organise, strategise and begin counter-moves. Till then, no one disputed the bill's legitimacy with the senators and the Indian companies didn't get engaged in the debate. There were no opinions from the other side, says Himanshu Shukla, New Jersey resident and MD of the Antarctica Group, an IT consultant firm. He personally spoke to 15 senators to raise objections against the bill.
But now, as other states try to push through similar bills, the Indian firms and its powerful association, Nasscom, have got into the act. In the last month or so, Nasscom representatives have contacted 20 New Jersey senators. In fact, board member Jerry Rao was in the state last week to meet Senator Turner to discuss the issue. The association has also hired PR agency Hill and Knowlton to help secure appointments with both federal and state representatives and sift through the legislative web.
At a broad level, Nasscom president Kiran Karnik has criticised the bill, saying it flies in the face of good global business practices. Michael Kerr, senior analyst with the Information Technology Association of America, told Outlook, "Our members feel the trend will negatively impact our ability to compete in the global marketplace." He added that the proposed bills will only add to the already onerous list of procurement laws and contracting procedures, making those states less attractive for businesses.
In addition, Nasscom is also trying to use compelling, micro-economic logic to persuade US policymakers. According to Sunil Mehta, Nasscom V-P, the US banking and financial sector has saved $8 billion due to outsourcing in the last four years. What's better is that the entire sector has added more American jobs in the same period. So Nasscom says the logic that outsourcing leads to loss of local jobs is wrong. In New Jersey too, Indian vendors have set up offices that employ locals. "There might be short-term pain, but the process is irreversible. It's driven by strong economic benefits," says Mehta.
In the same breath, Indian ITES vendors also downplay the impact of the proposed US bills. "The states can only put a stop to outsourcing of government contracts, which don't form a significant proportion of the total business potential," explains Sanjeev Aggarwal, CEO, Daksh e-Services. Nasscom's estimates indicate that government spending forms a mere 11-12 per cent of total IT spend in the US. Currently, this vertical constitutes an even lower one per cent of India's IT exports of $7.6 billion.
But that may be a case of under-estimation. According to figures available here, the US government is the largest IT spender in the world and the proposed 2003 federal budget provides $50 billion for IT upgrades and equipment. Last year, the US federal government awarded $60 billion in IT-related contracts, of which $6.6 billion was for outsourcing, according to Input, a market intelligence firm. And the latter figure is likely to soar to $15 billion over the next four years.
So the fact is that each time tech-tracking newsletters and websites report contracts moving out of the US, the opposition increases its decibel level. For example, the pro-labour BuzzFlash.com ridiculed President George Bush last month for the Republican Party's decision to use HCLeServe, the business process outsourcing arm of Indian firm HCL Technologies, for fund-raising purposes. Under the deal, Indian telemarketers had to call people in the US to enlist support and get donations for the party. Calling the news a startling expose, the website accused the Bush cartel of rank stab-the-American-worker-in-the-back hypocrisy.
This is something the conservative flank can ill afford, ravaged as it is by news of the constant lay-offs and the high-tech job haemorrhage. Predictions by consultants like Forrester Research that 3.3 million jobs worth $136 billion in wages will flee to other countries over the next 15 years further vitiate the atmosphere. And even Indian workers in the US seem to support the bills. Talking about the New Jersey bill, Amar Veda, a US-based techie, admits candidly: "I have never been so happy, not even when I finally got my green card." Adds Rajeev Shah, a New Jersey-based technical engineer, "We are being laid off, but back in India, people are getting fantastic salaries along with three maidservants!"
For Indian companies, the apprehensions are compounded since the backlash is now crossing the Atlantic and spreading to European nations, especially the UK. Recently, the British Telecom union vociferously opposed the company's decision to locate its back office in India. In other cases, the British managements had to delay their decisions for months before they were able to convince the respective unions. Says Aggarwal, "India should be more worried about what's happening in Britain. In Europe, policymakers are also more sensitive to the demands of the unions."
Fortunately, Europe forms a minor proportion of Indian IT exports.Even in the US (despite the outcry), sentiments among federal policymakers, including the US Congress, is still moderate to even buoyant on outsourcing. Tom Davis, a Republican Congressman from Virginia who chairs the house subcommittee on IT and procurement policy, says giving contracts to overseas programmers to write non-sensitive software could be a way to save precious taxpayer dollars. He also pointed out that the contracts would only be given to US companies which, in turn, may use offshore talent.
That's a sentiment which could change as Bush declares war on Iraq. Estimated to cost trillions of dollars, the war would batter an already weakened US economy. In such a scenario, the pressures on policymakers could intensify. And the involved parties—politicians, techies, unions et al—may feel that outsourcing, and not Saddam, was the country's real enemy.
By Seema Sirohi and A.K. Sen in Washington