United States President Barack Obama’s victory may have seen the stock markets in India responding positively but the IT industry, especially the BPO sector, is concerned over his sharp criticism of US firms ‘exporting’ jobs.
The US administration’s determination to tax those firms that outsource jobs has been a constant theme of the Obama campaign. And now that ‘four more years’ is a reality experts wonder what the implications for the outsourcing industry will be.
Chennai has more than 500 small and medium-sized BPOs (business process outsourcing) and KPOs (knowledge process outsourcing), of which 20 have major operations in more than 10 countries. Experts say 70 per cent of the BPOs here depend on companies, banks and businesses in the U.S. Most BPOs in Chennai work in areas of banking, insurance, publishing and data entry.
Phaneesh Murthy, CEO, iGATE said, “Obama’s win is not the best news for India or the IT outsourcing industry. However, we need to wait and watch if the election rhetoric continues into 2013. Concern over the deficit and lack of jobs will continue and will force the economy to remain sluggish,” he said.
President Obama’s 2008 victory too, had worried India’s offshore outsourcing industry, after a campaign where he repeatedly called on the US to “stop giving tax breaks to companies that ship jobs overseas.” The theme returned this year, with Obama using the outsourcing argument against his Republican challenger, Mitt Romney.
According to industry body NASSCOM, the IT industry employs around 2 million people, a workforce that was increasing at 15 per cent every year and generating indirect employment to another 10 million people. Tamil Nadu alone has over 1,000 IT companies providing direct employment to two million. US accounts for 60 per cent of Indian IT companies’ business and Europe 28 per cent, Australia and Japan were also emerging markets.
“It used to be just about getting the job done at the lowest cost, but now, many policies govern company actions,” said Rajesh Menon, a senior official at an IT major. Companies now are looking at proximity to their base of operations as a factor too. They’re re-balancing their onshore and offshore outsourcing which can mean less business for us,” he added.
Caps on business visas and taxes on companies which seek to outsource may also affect BPOs. “Tighter regulations might also mean more competition from other countries such as Mexico, Philippines or China. Here, we have many BPOs that depend on seasonal businesses such as tourism or education, and they might be significantly affected largely,” said S. Krishnamurthy, a senior official from a reputed BPO.
Some representatives of BPO majors however said that this might merely be rhetoric and will not really affect their businesses.
Kalyani Narayanan, CEO, www.easyinsurance.com, said, “I was in the US last month and I witnessed some of Obama’s anti-outsourcing campaigns. The focus was more on China, and not India. The slump and slowed hiring in the outsourcing industry might also be because of the overall economy situation, and not due to Obama’s policies,” she said.
Small and midsized BPOs however, are the most apprehensive. “Ever since Obama spoke against outsourcing, we have lost three major North American clients. Earlier, the US administration used to outsource a lot of its back-end work to India but that has almost stopped which shows the government is very serious about curbing outsourcing,” says Deepak Chandran, of BPO Web Data services,
“Only bigger, selected projects are given now and that too, to bigger teams. Most companies abroad have started freelancing services. The project costs paid to BPOs have come down by 40 per cent,” he added.
Many BPOs have now started hiring teams of people paid on a daily basis. Some have started employing college students at low salaries to cut costs maintain salary budgets because the number of their American clients has come down significantly. Sources say in the last seven months, three major BPOs and several smaller ones have closed down in the of the city. “Running a call centre is no longer profitable as it was in early 2000s when every BPO used to have hundreds of American clients. Now the smaller BPOs have about four to five major ones and that too only on contract,” says Mr. Chandran.