Is Obama against outsourcing?

Source: Asia Legal Business Online

By Rashida Yosufzai

What does Barack Obama's presidential victory mean for the future of legal process outsourcing?

This has been the foremost issue for many in the outsourcing business. Law firms and in-house counsel could be affected by the potential implications of an Obama policy that will seek to curb tax breaks on companies that outsource, but mostly it could affect relations with India, which is one of the world's biggest sources of LPO services.

"I will stop giving tax breaks to companies that ship jobs overseas, and I will start giving them to companies that create good jobs right here in America," said Obama in a speech in August.

As yet, what the future president will do remains uncertain, and the outsourcing industry remains positive.

"We don't know whether President-Elect Obama is against outsourcing or not," said Ben Trowbridge, CEO of outsourcing firm Alsbridge, which handles LPO services. "What he is against, and the position he took during his campaign, is American companies 'shipping jobs overseas'."

This could potentially implicate American law firms and in-house counsel outsourcing work to countries such as India. But Obama's stance is not set in stone, says Trowbridge.

"Comments like this made during election campaigns are often forgotten quickly after the election," said Trowbridge. "Going forward, a Democrat-controlled White House and Congress could conceivably play a role in slowing the trend down, but not stopping it, as it is fundamentally against our free enterprise system to prevent companies from sourcing from the most effective location."

The policy could also prove unpopular during the current financial crisis, which has been compelling firms (as reported in ALB last month) and in-house counsel from major companies to outsource work as a cost-cutting exercise.

"The current economic climate is forcing companies to find more ways to manage spending, and outsourcing is a time-tested and appropriate decision," said Trowbridge. "It is a catalyst for review of spending, organisation and use of capital. For every company that chooses to keep business functions in-house because of social backlash or political threats, there is another one who finds that the financial and organizational benefits are compelling enough to move non-core functions out of their company and offshore. The disparity between wage costs in the US and in leading offshore countries for similar jobs, output and quality is far too great to simply dismiss, especially when American CEOs have a fiduciary responsibility to shareholders."

Some of the major law firms to have invested in the outsourcing industry in India include Clifford Chance and Eversheds. According to research firm ValueNotes, LPO is growing at a rate of over 40% every year. Law firms are not the only ones to be seeking outsourcing services. LPO companies are reporting that most of their client base consists of in-house legal departments in major corporations.

In-house departments can breathe a sigh of relief as, according to the president of outsourcing trade body Nasscom Ganesh Natarajan, there are no specific tax breaks afforded to American companies offshoring work, which means Obama could only as much provide incentives to firms that invest in jobs locally. Despite Obama's 'anti-outsourcing stance', Trowbridge says that the future of LPO will be unimpeded, simply due to the workings of capitalism.

"...As long as there are countries capable of providing labour to produce that output at a lower cost than high-wage American workers, the use of offshore outsourcing will continue unabated," said Trowbridge. "Clients will always be evaluating and sourcing in the latest most effective locations worldwide."