BANGALORE, India The cancellation of a software development contract that the State of Indiana had awarded to an outsourcing firm in India has this country's software industry wondering whether the heated political climate of a U.S. presidential election year will dampen outsourcing to India.
Many here think the U.S. media has overplayed stories about offshore outsourcing and U.S. job losses, and they fear politicians' penchant for considering personal political mileage when making decisions may result in some steps against outsourcing.
"There are concerns that Congress will make hasty decisions and during the election campaigns will play along with hype the media has created," said Avinash Vashistha, co-founder and managing partner of neoIT Solutions, an organization that handles outsourcing to India. "However, many companies, and the ITAA [the Information Technology Association of America] are working hard to educate Congress on the economic benefits of offshore outsourcing.
"We are also currently working with Columbia University on a research project that will strengthen the argument for offshoring," Vashistha said.
At the end of November, the new administration of Indiana under Governor Joe Kernan cancelled a $15 million contract awarded to the U.S. subsidiary of Tata Consultancy Services (TCS), India's largest software export organization. The four-year contract, ironically enough, involved an upgrade to the state's processing of unemployment claims. The contract had been awarded to TCS by Kernan's predecessor, Frank O'Bannon, who died in September after suffering a massive stroke.
Industry here considers the cancellation a sign of creeping protectionism against software development outsourcing. That view was strengthened after Gov. Kernan said the cancellation was not a reflection on TCS' ability to handle the job.
"We are dismayed at the news of cancellation of a contract to an Indian IT company by the new administration of the State of Indiana," stated the National Association of Software and Service Companies (Nasscom), which represents India's software industry.
"Such moves, which inhibit free trade in this sector, are not in keeping with the increasing trend toward globalization," a Nasscom spokesman said. "Research has already established that free trade in IT services is of mutual benefit to all parties and that offshoring has led to substantial gains to the U.S. economy."
Nasscom, the ITAA and other trade associations in the United States have engaged U.S. policymakers in a dialog in recent months to emphasize the mutual benefits of outsourcing. Nasscom contends that U.S. companies have gained financially by outsourcing work to India; that gain, in turn, has allowed the companies to increase their payrolls, according to Nasscom.
Gary Endelman, an analyst with BP America Inc., said India's software industry is worried that Congress may make decisions against outsourcing before it sees a report by the U.S. President's Council of Advisers on Science and Technology on how America can maintain its high-tech leadership. That report is due by year's end. "Decisions on immigration policy will come before next spring, when the General Accounting Office the investigative arm of Congress will tell us what the impact of offshore outsourcing of technology jobs is on the domestic job market," Endelman said.
ITAA president Harris Miller, who attended the second meeting last month of an India-U.S. high-tech cooperation group, said that no more than 7 to 9 percent of all IT jobs will move out of the U.S. during the next 10 to 15 years. The high-tech jobs market "cannot move [entirely] outside the U.S., because there are many issues for it," said Miller, who has asked India's government and IT associations to present India not just as a software service provider but also as a potential market for U.S. suppliers.
Estimates of the number of jobs moving out of the United States because of outsourcing vary. John C. McCarthy, group director of Forrester Research Inc., projects that the number will increase from 600,000 in 2005 to 1.6 million in 2015. But that would not represent that large a shift in jobs, McCarthy argued, considering the time span over which the shift will occur.
Such estimates do little to allay worries here. TCS said it will take Indiana's cancellation of its contract in stride, but warned of its possible future impact.
A spokesman for IT service provider Wipro Technologies said India's industry "cannot underestimate the problems arising from protectionism [during an election year]. U.S. corporations have no choice but to outsource; whether governments in the U.S. will act against outsourcing, as in the TCS case, is not known."
Kiran Karnik, Nasscom's president, called outsourcing "a natural, evolutionary process, rather than something that takes away jobs from U.S. professionals." He hopes U.S. politicians see it that way too, he added.