Ohio imposes ban on outsourcing government IT projects to offshore locations

With a view to tackle with the rapid rate of unemployment, the state of Ohio in the US has imposed a ban on outsourcing of all government IT and back-office tasks to offshore sites like India, increasing apprehensions regarding implementation of similar initiatives by more states in America.

An online news report quotes an executive order issued by Ted Strickland, the Ohio governor, which says that there are persistent service problems with offshore vendors, such as dissatisfaction with the value of the services offered by them as well as the fact that the facilities are being offered from offshore.

The Indian IT industry, which is already affected by the abrupt hike in the H1B visa fees, sees this as the latest setback in doing business with the multinationals in the US. In August, the US Congress had passed a contentious legislation that hiked the visa fees to finance the Mexico Border Security program of the country. In fact, other states in the US, particularly Virginia, are currently confronted with immense repercussions against outsourcing which may further jeopardize the opportunities of the Indian tech firms in America. The backlash against outsourcing is so intense that a few days back, the West Virginia Public Workers’ Union had filed a court case against the anticipated outsourcing of IT work by the office of technology in the state.

Presently, offshoring IT and ITeS jobs to India is a mammoth business worth $50 billion. Over the last one decade, it has immensely benefitted the Indian tech firms as the US multinationals have been keen to reap the benefits of the inexpensive wages and first-rate skills in India. The Indian IT industry employs approximately three million people throughout the country and has been basically responsible for the West’s change of opinion regarding the country.

Thus far, the Indian tech firms have been depending mainly on privately owned companies for the greater part of their business, while work from the state governments have been infrequent. However, this approach has been gradually changing.

While the largest Indian IT firm Tata Consultancy Services (TCS) is the sole company from the country to operate in Ohio employing 300 professions and receiving $19 million in terms of tax credit for generating jobs locally, India’s second largest tech firm Infosys Technologies too has found the government outsourcing market to be the next major opportunity. Keeping this in view, in June 2010, Infosys has set up the Infosys Public Services, a dedicated subsidiary with Eric Paternoster in charge. On the other hand, India’s third largest software exporter Wipro currently has a nine-year outsourcing contract worth $407 million to deliver healthcare services to Missouri.

Meanwhile, industry experts are of the view that the ban imposed by the Ohio government on outsourcing only enhances the perception that contracting out jobs to offshore locations is precarious and results in severe loss of jobs locally. On the contrary, the Indian tech firms have been striving to draw attention to the fact that offshoring work only helps to augment the health and competence of the US companies and government agencies.

In fact most of the Indian tech firms have been hiring an increasing number of Americans with a view to keep most of the work in the states. However, the move initiated by Ohio proves that this does not appear to have made any difference. Experts are of the view that if other US states also take a cue from Ohio and ban outsourcing, it would denote recruiting more employees in the US. Eventually, any such move by the Indian IT firms would affect their profitability. On the other hand, such initiative may also make the Indian tech firms less alluring to award the multi-billion-dollar government outsourcing deals.