CIOs caught in middle of offshore storm

Indiana's move to restrict the offshore outsourcing of state jobs is just the latest squall in a political storm -- a storm that CIOs can't seem to escape.

You can't even spell "Indiana" without "India," but the Hoosier State would rather not be so dependent on the Asian nation.

Last month, Indiana Governor Joseph Kernan canceled a $15.4 million deal wherein the U.S. subsidiary of India's Tata Consultancy Services would handle the state's unemployment benefits. Kernan followed up the deal's termination with the announcement of "Opportunity Indiana," a program that will ensure Indiana firms have every chance to bid on state contracts.

The controversy over the Tata deal had been building. In October, it inspired Republican state senator Jeff Drozda to begin working on a bill that would restrict the ability of Indiana's public agencies to outsource IT work to foreign countries or to use vendors whose U.S. staff consists of mostly visa workers. Lawmakers are still debating the bill.

The idea, of course, is to keep jobs from leaving Indiana for India or any other destination beyond the state's borders. Kernan said that the state's current system did not allow Hoosier firms a fair shake.

It's the kind of backlash you might expect in the U.S., where the economy has sputtered for several years, particularly in the high tech industry. The "irreversible megatrend" (Gartner Inc.'s term) of IT jobs moving offshore can be a real tinderbox in a country protective of its jobs. In addition to Indiana, Michigan, New Jersey and North Carolina also have legislation pending that would curb the amount of state jobs sent overseas.

This recent news from Indianapolis stokes the political fire that offshore outsourcing has started. Kernan, a Democrat who assumed Indiana's governorship earlier this year after the death of Frank O'Bannon, is running next year for a full term in office. Killing the Tata deal certainly wouldn't hurt his chances.

But what makes for good politics may not make for good business, according to some. And CIOs are caught in an unfortunate place –- right smack in the middle.

"No one enjoys seeing jobs floating to India," said Tsvi Gal, CIO of Warner Music Group in New York. "The problem is that it's one thing to say that we want to keep the jobs in America, but it's another thing to say we're not going to pay for it." Gal said that CIOs are being told to cut budgets by 25% and not lose any service levels or features. If they can't shop around for cheaper deals, what are they supposed to do?

"You can't have American jobs at Indian rates. Choose one."

And while Kernan may have sealed some votes in Indiana, he isn't winning friends in India. The National Association of Software and Service Companies (Nasscom), an IT trade group in India, was appalled at the news. "Such moves, which inhibit free trade in this sector, are not in keeping with the increasing trend towards globalization," said Nasscom spokesperson Shweta Munjal in an e-mail to SearchCIO.com.

Munjal also said research has shown that free trade in IT services benefits all parties involved and that offshore outsourcing has actually led to substantial gains to the US economy. Munjal is referring to a study by Evalueserve in which researchers found labor shortages and immigration curbs make offshore outsourcing crucial to maintaining growth in the U.S. economy. Nasscom commissioned that study.

A free trade group based in Arlington, Va. is also alarmed. The National Foundation for American Policy (NFAP) issued a statement in which it warned of the pitfalls of "creeping protectionism." NFAP predicts Kernan's cancellation could cost Indiana taxpayers more than $8 million and result in fewer services provided for the unemployed.

Gal said that it's important to separate politically-driven, demagogic statements from the real issue -- which is cost cutting at all costs. "When push comes to shove, the pressure is to reduce costs by any means possible," he said.

Even if the public sector in the U.S. turns on offshore outsourcing, don't expect India's multi-billion dollar industry to suffer too much. "It won't make a significant dent in offshore outsourcing," said Amit Maheshwari, founder of Cambridge, Mass.-based i-Vantage Inc., a firm that helps American companies establish their own global delivery centers in India. "The private sector can make the numbers."

FOR MORE INFORMATION:

Register for our Enterprise Outsourcing Decisions conference.

Steps to Success: Know what you're getting into with offshore outsourcing

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Why do CIOs outsource? The price is right

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Ask Amit Maheshwari a question about offshore outsourcing.

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