Five reasons why legislation to limit outsourcing fails

Outsourcers can adapt to laws looking to cut H-1B use; trade and exports are key economic issues for state, federal leaders

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In August, Strickland banned offshore outsourcing by state agencies and received a mountain of bad press in India for his trouble.

It's worth pointing out that Strickland's hiring of an offshore firm to promote Ohio was exempted from his executive order.

When asked by U.S. Trade Representative Ron Kirk to explain Ohio's position, Strickland said in a letter that "we are very well aware of the importance of trade and we highly value our trading partners. Ohio firms sold $381 million in goods, principally machinery, aircraft, and medical equipment, to Indian markets last year."

Nonetheless, Strickland is also taking on outsourcers during a difficult re-election campaign against Republican challenger John Kasich. Strickland has accused his opponent of being too close to Wall Street and a supporter of outsourcing.

4. No legislation is likely to change the overall trend toward outsourcing.

The offshore industry generally adapts well to legislative changes that raise their costs. For example, some respond by increasing the hiring of workers in less costly countries, as well as in cities in India.

At the same time, the big offshore firms continue to grow at a phenomenal rate.

Tata Consultancy Services' latest plan calls for adding some 40,000 new employees during its current fiscal year -- 10,000 more than in its previous estimate. Tata, which now employs about 160,000 workers, said its revenues in the June 2010 quarter increased by 6.4% sequentially and 21.2% year-to-year. Rival Infosys reported that its revenues in the same period grew by 4.8% sequentially and 21% year-to-year.

Outsourcing firms in the U.S., such as Teaneck, N.J.-based Cognizant Technology Solutions, which uses offshore labor, are also doing well. In August, Cognizant reported second-quarter revenue that was up 15% sequentially and 42% from the year-ago quarter.

5. As Congress debates laws, federal government officials work on trade agreements.

Indian and U.S. negotiators have been meeting in advance of President Obama's visit to India, which is scheduled for right after the November elections.

The negotiating teams are working toward a totalization agreement, which would exempt Indian firms from having to pay Social Security and Medicare taxes on temporary visa workers. H-1B visas workers who pay these taxes will never receive any benefit from them unless they become permanent residents. Such a law could cut the firms' H-1B labor costs by up to 14%

The U.S. has similar totalization agreements with other countries, mostly in Europe. The Indian government has also reached agreements with European nations and expects to sign one soon with Canada. If a similar tax-break agreement is reached with the U.S., the overall benefit from this program may more than offset the cost of any increase in H-1B visas fees.

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, or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com.

Copyright © 2010 IDG Communications, Inc.

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