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On Legislations Set to Limit Outsourcing

by: Karen Cayamanda

Thursday, October 7, 2010 |

US Putting an end to Outsourcing?

There have been proposals raised within the US Congress that are aimed at controlling the advancement of offshoring because of its purported negative effects on the local economy. As the midterm election campaigns are coming up, it has been revealed that action plans on offshore outsourcing is an important issue to voters. According to the NBC News and Wall Street Journal Poll, 68% of the population think that most US companies outsource business to lower-wage countries.

Even with the public view on outsourcing and its vast influence as a disputed business trend, the bills that seek to limit offshoring are hardly ever successful in changing the way the industry stands. Patrick Thibodeau of Computerworld enumerates the primary reasons:

1.    Offshore teams can work their way around new laws. A bill that caused a $2,000 increase in the application fees of H-1B visas was recently approved. This increase applies for companies with visa holders comprising half of the total manpower pool. An Indian company denounced the bill and said that this mandate will not change their strategic plans, despite the additional expenses. The higher visa fees will cost the said company approximately $15-20 million and its management said that this expense is “manageable”.

2.     Congress is not expected to enforce the “50-50 rule”. The bill that offshoring companies fear the most is the bipartisan proposal from US Senators Grassley and Durbin. This legislation proposes that the H-1B or L-1 visa holders in a company should make up half the total number of employees in that company. Outsourcing firms take different sides on this issue - while some think that this will not affect offshoring activities, some companies expect to hire less employees from offshore locations. A number of firms see this mandate as an opportunity to increase the scale of hiring locally because of the cost savings on visa application, allowance, and transportation costs.

3.    Exports and trade matter. Ohio Governor Ted Strickland recently signed an agreement that would encourage the influx of offshoring firms and employment opportunities for non-locals. This agreement with an Indian firm is valued at $108,000 and promotes Ohio as a prime destination for foreign direct investment, according to the source of Computerworld. Strickland seems to be continuously shifting sides when it comes to his stand on offshoring, but when asked about his position on the matter, he said, “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."

4.    The outsourcing trend is not likely to be changed by any legislation. A lot of offshoring companies are rapidly expanding in operational scale, boasting of double digit growth rates and continuous employment activities. It is safe to say that the trend on offshoring will not dwindle any time soon because the industry will always find a way to strategically adapt to legislations that causes a rise in its costs.

5.    Trade agreements are being worked out by the federal government. US and Indian negotiators are conceptualizing a totalization agreement that would exempt Indian firms from paying Social Security and Medicare taxes for temporary visa workers. This would reduce the expenses of H-1B workers by 14%. Any increase in the application fees of H-1B visas can be neutralized by this law that brings down the total cost of hiring offshore.


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