NJ law on outsourcing stirs disquiet among Indian firms

Thursday, 26 December 2002, 08:00 Hrs
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The New Jersey Senate's decision to pass a new bill that seeks to ban outsourcing of government contracts overseas, particularly to countries like India, has been received with caution by Indian IT companies.

NEW DELHI: A section of the high-profile technology industry feels the promulgation of the law would not have an impact on profitability of Indian firms as very few companies undertake outsourcing activities for public enterprises in New Jersey.

Others, however, fear it may set a precedent and spread to other U.S. states in the days ahead, casting a shadow over technology outsourcing, the trump card for India's technology sector.

"So far as the passage of the bill by New Jersey Senate is concerned, we don't see any fallout of this on the performance of the Indian companies," said Kiran Karnik, president of the National Association of Software and Service Companies (Nasscom).

"We have not come across any Indian company that is really doing any work out there. So it's really very inconsequential to us. But we will begin to have some concerns if it spreads to other states in the U.S.," Karnik told IANS.

The New Jersey Senate unanimously cleared a new bill, which prevents public enterprises in the state from outsourcing work, specifically to India, on December 16. Senator Shirley Turner had proposed the bill earlier this year.

The bill has to be cleared by the state assembly now, after which it will be sent to the governor for approval. If the governor signs it, the bill will become law.

Analysts say the bill prohibits public enterprises from shifting their call centres abroad for "cheap labour" with a view to creating more jobs for Americans as the unemployment rate in the U.S. soars.

Industry players here say other U.S. state governments may also use tough legislation in the months ahead to protect jobs, badly affecting India's booming technology outsourcing business in the long run.

"This may see many state governments in the U.S. and eventually even the federal government going in for protectionist legislation," said the marketing manager of a leading New Delhi-based technology solutions provider.

"If that happens, we will have to rewrite our business expectations. This definitely comes as a setback for the country's growing IT industry," said the official, who didn't want to be named.

India's vast pool of English-speaking and cheaper manpower, educational system and training programmes have helped transform the country into a global outsourcing superpower in the last few years.

India's software exports grew 29 percent to $7.5 billion in the past year to March 31, 2002, of which some 60 percent went to the U.S.

The country's rapidly growing business process outsourcing (BPO) industry has virtually turned it into an electronic housekeeper to the world, taking care of a host of routine activities for multinational giants.

More than a quarter of Fortune 500 companies such as General Electric, American Express, British Airways, HSBC and Citibank are shifting their back office operations to India.

The BPO industry in India depends to a large extent on the U.S. These jobs are mainly coming to India as it is much cheaper to process activities such as human resources, finance and accounting, supply chain management and customer care here.

"Any law disabling customer-service efficiencies is likely to have a fallout," said Sanjeev Aggarwal, CEO of Daksh, a BPO firm that boasts U.S. financial services firm Citigroup and online retail giant Amazon.com as two of its big-name investors.

"Besides, businesses are not run for philanthropic reasons and any law that affects a company's bottom-line will ultimately hurt the consumer that this law is trying to protect.

"I would say the law is certainly not respecting the principles of free trade. We are facilitating not only high-quality service delivery but also ensuring that the end product reaches the same consumer within their means. It would be a shame to axe the branch that they sit on," Aggarwal added.

Source: IANS

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