Is the anti-BPO backlash for real?

Is the anti-BPO backlash more of a political issue than a trade-related one, especially as America faces presidential elections this year? Sanjeev Nair speaks to leaders in the Indian IT sector to gauge their mood on the issue.

Business process outsourcing (BPO) to India and other Asian countries has recently been in the eye of a storm, especially with a couple of states in the US having passed bills to ban this 'offshoring of American jobs'. Estimates of around 3.3 million jobs in the services sector being offshored by 2015 have given a much-needed 'momentum' to the anti-BPO 'movement'.

Despite this, there is optimism in the Indian IT sector, which expects this to be a passing phase that will wither away once the US presidential elections are over. The ban is more of a political gimmick to create an electoral agenda by prospective candidates.

The move to ban outsourcing is unfortunate and is against the ethics of trade and globalisation, opines National Association for Software and Service Companies (Nasscom) president Kiran Karnik.
"The business impact of such a bill on the Indian IT industry will not be very significant," Karnik, feels.

"The share of US federal government contracts in exports of IT software and services from India is less than 2 per cent," he says, adding that such a bill was against the spirit of free trade as envisaged by the WTO and the US.

According to Karnik, alarm over the backlash against outsourcing was unwarranted.

"The ITES-BPO sector has emerged a high-growth sector for the Indian IT industry. Over the last few years, Nasscom has made considerable efforts to position India as an attractive ITES-BPO destination and has identified this sector as a major opportunity for employment and earning foreign exchange for India," he said.
According to Nasscom's estimates, the Indian ITES-BPO industry grew by 59.1 per cent during 2002-03 and is likely to record a 54 per cent growth to reach $3.6-billion by 2003-04.

"There are reports about the suspension of Indian contracts on grounds of quality. Though there may be instances of individual companies being affected by the backlash, ultimately the country will benefit," Karnik adds.

Partha Iyengar, vice-president (research) Gartner India Research and Advisory Services Pvt Ltd, says concurs with Karnik's assessment. "The backlash is a temporary phenomenon and the phobia of losing jobs in developed countries will gradually fade and outsourcing will result in improving the financials of global economies," he said.

The rising discontent against global outsourcing and moving jobs to India will not have any impact in the short-term, while in the long-term developed nations would approve of the country's capabilities in BPO area. This would cease to be an issue by the end of 2004 or early 2005, he says, quoting a Gartner study, `Top Ten Predictions for Asia-Pacific in 2004'.

Through 2004, 80 per cent of US executive boards would have discussed global delivery options, of which a majority of the companies would seriously pursue these options, says Iyengar.

The global delivery options would include both nearshore and offshore activities and by 2005, India would be in the driver's seat with companies like TCS and Wipro Technologies leading the global outsourcing industry, he said.

India would post a strong growth in BPO sectors, both in captive and outsourced areas and the total Indian offshore BPO sector would post a 49 per cent growth by 2007, feels Iyengar.

The increasing backlash against outsourcing in the US was a matter of concern, says Phiroz Vandrevala, executive vice-president, Tata Consultancy Services (TCS). With Indiana state cancelling a $15 million-contract, citing a statutory change, TCS has reason to worry.

"Government contracts are a big market for Indian companies and a restriction would hamper our prospects in states that pass anti-outsourcing legislation," he said. Initially the impact would not be much, as TCS' and Indian IT companies' share of government contracts in the US was negligible, but in the long run, it would be something to worry about, Vandrevala added.

The cancellation of contracts, he said, was a government-related issue and "we expect our government and industry associations like Nasscom to respond to it".

Echoing Vandrevala's views, NIIT chairman R S Pawar says, "We are not worried, but we should not be complacent, either."

He said this could be seen as a structural issue, and when work starts moving from one country to another, the impact would be felt in both the countries.

"If it happens at a time when the economy is doing well, it will not be so significant. If it happens at a time when the economy is challenged then it becomes an issue," he said.

Pawar was of opinion that most Indian companies had not been impacted so far, but the industry needed to spend a lot of time educating the government and customers all about outsourcing.

According to Diana Farrell, director, Mckinsey Global Institute (MGI), BPO and Offshoring services sector, which are expected to grow to over $300 billion in the next few years, would provide an impetus to both outsourcing and globalisation, creating a win-win situation for all concerned.

Farrell said that around $300 to $400 billion in services would be moved offshore or outsourced from the US by that country, which would be beneficial for both the countries.

" The US economy is expected to see a significant decline in its share of the working population. About five per cent or 15.6 million additional workers would be needed by 2015 to maintain the revenue level of the working population in 2001," she said.

Offshore outsourcing would post a 38 per cent growth at $164 billion by 2008 from $17 billion posted in 2001, while captive offshoring would post a 26 per cent growth at $182 billion ($35 billion in 2001) in the next four years, she said.

India, which is the leading destination for BPO and offshoring, followed by Canada and Israel, would witness significant growth from the moving out of contracts from the US.

For every $1 contract received by India, the US would get 33 cents, she disclosed and added that loss of jobs due to BPO from the manufacturing segment had amounted to only around two per cent.
According to Ritika Hiranandani, Director, Atlantic Crossing, the backlash would not create any impact on the Indian IT sector in general, as the legislation is related to only government-based contracts.

Terming the law passed by US Senate as a "political BPO football game", she said that the increased outcry is as the presidential elections are just around the corner.

Though outsourcing had created a negative feeling in the US, BPO was going to continue as US companies preferred to cut costs to remain competitive. Moreover, this would also help them in concentrating on their core competencies, she added.

Infosys Technologies Ltd chief mentor and chairman N R Narayana Murthy says any ban was an act against the policies of globalisation. "The reaction is inevitable," he said, adding, this might have a long-term impact as sooner or later American companies would start earning benefits of the back-office jobs conducted in India.

Earlier, commenting on the ban in US, Chief Operating Officer, Krish Gopalakrishnan had said that the move by a US Senate to ban sub-contracting work to other countries, including India, will have no "material impact" on the company as it was not involved in government projects at this point.

"However, as an industry we have to watch the situation," Gopalakrishnan opined.

The fears relating to outsourcing are "unfounded", but if these are not resolved urgently, they might become an irritant for the industry in the long run, feels Anand Mahindra, president, Confederation of Indian Industry

"The ban on outsourcing is unfortunate and unwarranted. Such anti-liberalisation measures, when adopted by developed countries, will lead to greater protectionism in other sectors, thus impacting global trade," says Mahindra.

The fears of job losses in the US not withstanding, the country according to recent studies is slated to emerge as a gainer in the long run, offshoring is expected to continue, that too with a renewed vigour.