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Dear Congress, do we really need an anti-offshore legislation?

The implications that an anti offshore legislation will bring are enormous for the outsourcing industry and influence not only the United States, but also foreign nations. Offshoring has contributed to overall global economic interdependence and growth. In parallel, nations have entered into international trade agreements that seek to eliminate barriers to providing services across national borders. In recent years, the phenomenon of offshoring of relatively high-wage professional-service positions has emerged and has become fairly widespread. The affected industries include: software development, banking and brokerage, medical and legal services. The expansion of offshoring professional services has raised a variety of concerns, among them being domestic job loss. The resulting changes to local economies and public policy concerns have led to significant opposition to offshoring.

That’s why offshoring remains a relevant political issue, as political representatives have publicly denounced and proposed restrictive measures against the practice in recent years. Such measures may come in many forms, like restrictions on the export of personal data to changes in tax law, grants and incentive programs, to various reporting requirements about where work is being done and by whom. Still it’s not yet sure whether if any future U.S. jobs bills will contain anti-offshoring measures.

An analysis of foreign investment and employment trends indicates that there is no direct cause-and-effect relationship between the economic downturn and the outsourcing activities. For example, the U.S. economic downturn between 2002 and 2004 was symptomatic of a reduction of workforces on a global scale rather than any action on the part of U.S. businesses. A comparison between the average numbers of jobs created each year by the U.S. economy and by foreign affiliates of U.S. parent companies also undermines any causal relationship, as indicated in the following data compiled by the U.S. Department of Commerce. A 2004 report by Forrester Research estimated that 3.3 m American jobs would have gone offshore by 2015.

While outsourcing may not necessarily be the cause for domestic layoffs, it can be viewed as being part of an economic globalization process that does result in temporary and long-term displacement of certain groups of workers. Recent official statistics inform that America's economic output has grown at a solid 3.3% annual rate since 2003, a period when imports from low-cost countries have soared. In conclusion moving jobs overseas hasn't hurt the economy. This can be also proven by a measure token in New Jersey in order to stop Indian workers from performing unemployment call center services, which created 12 jobs in the state but wound up costing $900,000 more than offshoring the center.

But opponents of offshoring have also expressed public policy concerns, such as protection of privacy. Because the relocation of professional-services work in certain industries requires the transfer of a consumer’s medical, personal, or financial information, some critics fear that such data may be misused or stolen. Numerous states have pending legislation that would simply set up commissions to study the effects of offshoring. But assessing statistics is difficult, policy analysts both for and against offshoring note, because many companies don't say what effect offshoring has on layoffs or provide a full picture of which jobs are being handled outside of the United States.

Today the use of non-local or “offshore” outsourcing is increasing and will continue to grow across Western Europe. Countries like Germany are announced to develop a great number of offshore projects in the future. About 60 percent of the German companies with more than 1000 employees decided to outsource in the near future. Financial Services organizations in the UK are much further ahead of the other European regions in terms of adopting offshore outsourcing (86 percent of the financial organizations currently use off- or nearshore capabilities), while the financial organizations in the BeLux lag the furthest behind with just 44 percent of the financial organizations currently using off or nearshore capabilities (EquaTerra research). The US healthcare costs have dropped by 30% since all the data is processed in low-cost locations. Also, companies that choose offshoring services are closer to the global demands, because they can provide appropriate offerings to the regional clients and ensure a rapid response to their needs. These facts strengthen that offshoring is a win-win situation. First of all, companies using offshoring increase their competitiveness and are be able to expand their activities and employee pools, both domestically and abroad. The country that sends the work abroad gains from lower costs, and the country that gains the work gets extra jobs. The profits are mostly reinvested in R&D and in creating new service lines, as well in creating new, high level and high added-value jobs (offshore project Directors based in the client's country, Quality, Assurance engineers). So do we really need an anti offshore legislation?

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Tags: USA, anti, legislation, offshore, outsourcing

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Comment by Vikram Prasad on April 2, 2010 at 1:34am
Some very valid points raised. I think the opposition is mainly due to the popular sentiment rather than any sound business analysis.. Also the western media has remained biased while reporting the outsourcing related news etc.there by adding fuel to fire..

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