Obama: new tax plans are bad news for offshoring

US President Barack Obama's recently announced intention to close tax loopholes that he feels permit US firms to send jobs overseas more easily should be taken as disturbing news for contact center outsourcers that have delivery centers in offshore locations. While few observers of this industry should be surprised at the president's move, which many considered inevitable following the 2008 election campaign, how these tax laws could impact vendors' ability to do business in a cost-effective manner is of significant concern.

Should Obama's new tax plans become law in 2011 as planned, the initial impact for contact center outsourcers selling offshore delivery will be increased price points. In an era of ever-tightening margins, not only will this option be unpalatable for many prospects looking to work with an outsourcer, it could also force existing clients to examine other business models for customer-facing work.

Another possible impact of these changes is a reduction in operational flexibility. For many contact center outsourcers, offshoring some degree of agent positions has been crucial in ensuring seamless service delivery. This has been very important in terms of both labor supply, as well as finding agents with suitable language skills (especially important due to the growth of the Hispanic community in the US). Therefore, should vendors find themselves financially pressured into moving more operations back onshore in the US, it could easily have a negative impact on daily operations, given the traditionally high attrition rates associated with domestic contact center work.

A final source of concern relates to tax laws in other locations. Many observers have identified that unless other western countries follow suit, US firms will be placed at a serious disadvantage relative to competitors based in nations in which such tax provisions have not been implemented, thereby ensuring more price flexibility. This will leave US outsourcers with few options other than to find ways of offsetting their own higher taxes through internal cost-cutting or possibly relocating to more tax friendly jurisdictions.

There can be little doubt that the Obama administration is doing its best to make good on campaign promises to encourage US firms to limit offshoring as much as possible. In the case of the recent changes to the tax code, outsourcers should examine the implications for their operations prior to the 2011 implementation point, so as to determine what impact it will have on their ability to deliver high-end and cost-effective contact center services.