IT offshoring: Romney vs. Obama

A look at what will each candidate could do about IT offshore outsourcing

Offshore outsourcing, from the manufacturing to call center industries, has become a major issue in the 2012 presidential race.

Less clear is what these two candidates would do, if anything, about the offshoring of jobs that are among the most critical to the future of the U.S. economy -- IT positions and other highly-skilled, knowledge-based occupations.

IT offshore outsourcing has rarely been raised specifically to date by either President Barack Obama or Mitt Romney, the presumptive GOP presidential nominee.

But both presidential candidates, through their records and actions, appear to have deep knowledge about offshore outsourcing.

Here's how they stand based on their words and actions.

What did Mitt Romney know about offshore outsourcing and Boo.com during his tenure at Bain Capital?

Before Romney left Bain Capital in 1999, the financial services firm was wired into technology trends, though it didn't always see them correctly.

For instance, Bain invested in Boo.com (1998-2000), a U.K-based online fashion store that attracted more than $100 million in venture money. Boo.com perished just six months after launching its Web site, one of the biggest implosions of the dot-com era.

Bain got DoubleClick right, investing in the ad serving company in 1997, shortly after its founding.

Google paid $3.1 billion in 2007 for DoubleClick.

But the election isn't about Bain's venture capital bets. It's about, at least on the margins, whether Romney sees IT offshore outsourcing, or the transfer of high-paying jobs to low-wage countries, as an issue requiring government intervention.

The Washington Post recently reported that Bain has invested in companies that moved jobs to distant shores.

The Romney campaign is attempting to refute this, in part, by arguing some of this happened after Romney left the firm, but that reponse misses the point.

While at Bain Capital, Romney had a front row seat to many emerging technology trends, including offshoring.

In the early 1990s, Bain invested in Gartner, one of the world's top IT consulting firms, as part of a buyout.

A managing director at Bain, Stephen Pagliuca (who later became a co-owner of the Boston Celtics professional basketball team), was on Gartner's board during Romney's tenure at Bain. At that time, Gartner was certainly closely tracking the beginnings of the offshoring outsourcing industry.

A Bain connected fund, the Information Partners Capital Fund, lists Romney as a group member according to records filed in Delaware, where the fund was incorporated.

What Information Partners was involved in isn't clear, but there are clues.

Information Partners turns up in a reference to Cognizant, one of the largest offshore outsourcing companies in the world.

Venetia Kontogouris, who was on Cognizant's board during Romney's tenure at Bain, says in her bio that she was "senior vice president, venture development, at Cognizant Corporation, where she represented Cognizant in the Information Partners Capital Fund formed by Dun & Bradstreet and Bain Capital."

Kontogouris is a managing partner at Cloud Capital Partners.

New Jersey-based Cognizant, which has more than 140,000 employees, is one of largest offshore outsourcing companies in the world.

It began as a Dun & Bradstreet in-house development services business in 1994 and was split off two years later. D&B owned 51% of the total outstanding shares of Gartner and as part of its spin-off strategy transferred ownership of Gartner to Cognizant, which soon transferred its ownership to another entity.

It was Romney's his job to understand technology trends, including offshore outsourcing and to put Bain on a path to take advantage of them. There's nothing in his record to suggest he did otherwise.

What will Romney do about IT offshoring?

Romney has not yet raised IT offshoring as a campaign issue.

According to Romney's platform documents, he sees trade agreements as a means to job growth since "95% of the world's consumer live beyond our borders."

Romney is calling for a tougher U.S. response to China for "misappropriating Western technology," and for what he calls its indigenous innovation policies that are "forcing American companies to share proprietary technology as a condition of their doing business in China."

What will Obama do about IT offshoring?

President Obama wants to curb offshore outsourcing, but appears to be more focused on manufacturing than IT.

Obama says the tax code encourages offshore outsourcing, but many of his tax proposals, such as deductions for moving expenses, concern manufacturing and not knowledge-based work that travels over a network.

Democrats in Congress have also pitched laws offering relief from the employer share of Social Security payroll tax on new U.S. employees. Such laws would require that companies certify that a U.S. worker is replacing an employee who had been performing similar duties overseas.

The impact of these proposals on IT offshoring, including tax code changes, has received mixed reviews so far.

The legislation could encourage some companies to create jobs in the U.S., and thus slow their use of overseas labor. But the formula for using offshore resources is complex and tax benefits are but one consideration.

What does Obama know about the offshoring views of his advisors, and when did he know it?

Romney's investment record at Bain will get scrutiny. But it's fair to point out that some Obama advisors have have advocated or led firms that used offshore outsourcing.

For instance, the President's Council on Jobs and Competitiveness is headed by General Electric chairman and CEO Jeffrey Immelt, whose company was one of the first, in 1990s, to establish a development center in India.

In 2009, Obama appointed Diana Farrell, a former director of the McKinsey Global Institute, McKinsey & Co.'s economics research arm, to the National Economic Council as a deputy economic adviser to the president.

McKinsey has long argued that offshore outsourcing brings benefits to U.S. firms.

What would either candidate do on the H-1B visa issue?

The H-1B visa is important in offshore outsourcing because the companies need access to temporary work visas to conduct work in the U.S. As may as half to 90% of offshore outsourcing company workers have such visas.

Romney's platform is clear: "Raise visa caps for highly skilled workers."

Romney sees foreign workers as critical to U.S. innovation, and doesn't draw a distinction between H-1B or permanent residency green cards.

Obama has generally avoided talking about the H-1B visa but has voiced support for making it easier for foreign students with advanced degrees to remain in the U.S. with a green card or permanent residency.

When Obama took office, the H-1B visa had become a non-issue due to the recession. For the first time since the recession started, the available H-1B visas were exhausted at a relatively rapid pace in 2012, bringing the issue back to the political arena.

However, Congress, not the president, controls the visa cap. Former President George W. Bush supported increasing the H-1B cap, but was stymied by Congress.

Whoever is elected president in November will face the same obstacle.

Computerworld editorial projects manager Mari Keefe contributed to this story.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov, send e-mail to pthibodeau@computerworld.com or subscribe to Patrick's RSS feed .

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