Real-time Stock quotes, portfolio, LIVE TV and more.
Jul 12, 2012, 08.23 AM IST
According to experts, the US government's decision to opt for onshoring contracts will only serve to hurt US corporations and Indian I-T companies.
In an interview to CNBC-TV18, president of NASSCOM Som Mittal says that this change in trend does not necessarily have a huge adverse impact on Indian I-T companies.
“Many states in the US do not want work to go offshore, but that does not mean business is denied,” he said. He further says that there is a severe shortage of higly skilled people in the US, and that stopping work from going offshore is restrictive.
Meanwhile, CEO of Offshore Insights Sudin Apte says that the current change in policy from the US government is due to the upcoming Presidential elections. He points out that most I-T players have stopped doing business with the US government, and that the ‘bring jobs home’ attitude will hurt companies.
“We may see some posturing from US corporations, where they ‘show’ the work going back to the US because of this Act,” he added.
Below is an edited transcript of their interview with Shereen Bhan. Also watch the accompanying video.
Q: Are you surprised by the fact that the US government is now going to give out contracts with a mandatory no offshore clause, was it just waiting to happen?
Mittal: At the state level, this was happening for sometime now. Many states said that they won't let anyone go offshore which doesn't mean that business is denied, it means that we would service customers from within the state.
On the other hand, I think it will be competitive as everybody else will do the same. The federal government, anyways, has many restrictions regarding the type of work they give as it is only limited to people of US origin. So, I don't think will have a big impact, but it is a condition where India on the other hand has opened up business to foreign firms, it shouldn't be seen as a restrictive practice.
Q: What percenatage of contracts have this mandatory no offshore clauses inserted?
Mittal: In the previous election it started by Ohio state. There were many bills in different states which didn't go through. I haven't seen the recent bills that are out. However, it will not have much impact because all vendors who are there, they are entitled to get that business except the point that they have to deliver it from the same place.
Q: What is your view on this off shore issue? Will it have a significant impact on margins as the offshore model will now turn to an onshore model?
Apte: If you think that the model has changed then it will have a substantial impact, it's altogether a different business, but that's not the point.
In the first place, I think many Indian companies are not interested in state, provincial and federal government businesses. If you analyze, expect for TCS or couple of large players, the business that goes to the government is not big. Not many players are serving the government. Maybe some opportunities companies would like to tap into that segment.
Percentage wise, when put together a maximum 3% of the total exports comes from state, provincial or federal government. So, it will have an impact on small part of that as the rule does not apply to every provincial, federal and state government business.
Q: Bring jobs home back act which hopes to incentivize people moving jobs back to America as oppose to companies that are offshoring jobs involving the private sector. Do you believe its going to go beyond being election rhetoric?
Apte: I think election is a trigger. Suppose a law or a rule gets passed it doesn't go away once the President gets elected. So, the fall out goes on a longer run.
I think there will be some tokenism or public posturing by most US corporations, who would show some, quote, unquote work being brought back. In some such situations there will be challenge for Indian companies.
When you compare the cost of a FTE in the US verses cost of a FTE they pay for Indian suppliers, after calculating all the cost they will still able to save 15-18%, which is good.
We also need to the check the feasibility of this happening. Institution like Citi or GE who have 75000-80000 people working for their US operations out of India, can they find those many people there. So, feasibility of the law or 100% execution is also another thing. We are going to see some posturing and some impact.
Q: Are you concerned at this point in time on the basis of what you have heard so far?
Mittal: This is election time and we see many Congress members introducing various bills, which sound good. Countries like India, China and Philippine introduces incentives to cerate jobs within their country which they are entitle to do. But, we have see that a very large number of bills get introduced in the House but they do not get the support.
In this case, how will you judge what jobs are brought back? Every time we hear about jobs we feel it is related to hi-end work that we do. I think there is large number of jobs that got lost in the US, which were in manufacturing and many schemes.
Q: Are we going to see some big-ticket lobbying as far as this particular jobs act is concerned?
Mittal: We would do what it takes to be doing and we are doing it, but I think it's very important to see that there is another bill, which is in the going, which is about changing the quota system so, that ex-foreign students and foreigners can get green cards. They are doing this because there is a shortage of highly skilled people. Today, unemployment amongst skilled people is less than 4%. So, even if you get the jobs back you will have to take people back there to do the jobs in the US.
May 22 2013, 13:11
- in MARKET OUTLOOK
May 22 2013, 10:44
- in Economy