"To encourage ... businesses to stay within our borders, it is time to finally slash the tax breaks for companies that ship our jobs overseas, and give those tax breaks to companies that create jobs right here in the United States of America."
What could have prompted Barack Obama to say these lines in his first State of the Union address. His falling popularity, string of losses in the elections for the democrats or the need to act on the projection that he is not any run of the mill president who wouldn’t care to act on what he promised to garner votes. Whatever be the reason, the outsourcing service providers across the globe whose bulk of business comes from America will not be able to breathe easy tonight.
A decision has been taken and the details of execution are awaited.Though Obama himself admits that this alone would not compensate for the seven million jobs lost over last 2 years,he had to do this to score well at his home front as the pressure was building up and he had to act if not deliver as per the popular sentiment.
says “Analysts say US firms could see a 50% rise in the cost of outsourcing business processes to India if the new tax proposals are implemented. Indian IT majors like Infosys, Wipro and TCS have all started ramping up their US presence and are increasingly hiring locals but this will impact their margins as employee costs are significantly higher in the US even in tier-2 cities.
Avinash Vashista, managing director, Tholons, said: "There is still going to be a 15-20% difference between low-cost US and India. That is going to be significant margin impact, especially for BPOs.So, you will see margin impact in IT as well as BPO...."
In the next few weeks, the companies and the analysts are going to rush into frenetic analysis to figure out the probable impact and the other possible implications (hope the complete burden is not passed over to the service providers).
Without an iota of doubt, this will affect the margins; companies may also start looking for more non US Business however what wouldn't be affected is the idea/concept of outsourcing. The outsourcing as a business strategy is too critical for cost effectiveness to be ignored and is here to stay forever. Period.