Although we don’t think the host of Comedy Central’s hugely popular “The Daily Show” is against offshoring, Jon Stewart’s relentless championing for legislation to support 9-11 first responders has led to more barriers to offshore services in particular and U.S. trade in general.
On December 22, the U.S. Congress passed a bill that would provide $4.2 billion toward healthcare for those suffering from illnesses resulting from exposure after the 9-11 attacks. Definitely a patriotic and appropriate move, the bill is being dubbed a “Christmas miracle” – it was deemed dead and in a brief period of two weeks, miraculously revived and unanimously cleared by the Senate. At least some of the impetus for this turnaround was Stewart’s scathing criticism of the slow action on the issue and his devoting a significant segment of his December 16 season finale to the topic.
What does this have to do with offshoring and global services? The funding for the bill will come from two sources:
• Extending the H1B fee hikes for visa-dependent employers, primarily targeted at the large Indian service providers
• A new two percent tax on goods and services bought by the U.S. government that were manufactured or produced in countries that don’t have an international procurement agreement with the U.S. (e.g., India, China, Brazil, and Malaysia)
In other words, support for the 9-11 patriots is being unanimously and non-controversially funded by creating more trade barriers!
The direct impact of both these factors on the global services industry is unlikely to be significant. The visa fee hikes have only been extended for one additional year into 2015, against the originally proposed seven years. This prolongs the financial burden for service providers, but the additional costs are a blip on margins (10-15 basis points). Further, service providers have had four months now to absorb the impact of the fee hike (originally introduced in August), and they are not modifying or changing operating models (see recent Computerworld article). The new two percent tax is not likely to have much impact either, given that public sector share of revenue for the Indian majors is small, and much of this work would likely be performed onshore anyway.
However, these new barriers to trade may extend the anemic economic recovery, which may result in ripple effects on global services. Extended cost pressures may boost demand for global services, although weak corporate performance may stunt funding for such initiatives – a potential double-edged sword.
As we all watch how this plays out, we should keep an eye on whether service providers start to implement any changes to their operating models (perhaps even leaner transitions?), how global services demand evolves in the next 12 months, and whether Jon Stewart actively pitches the use of global services as a competitiveness lever (a possible sure-shot way of boosting global services demand!).
With input from Jeff Lande, co-founder J2 Public Strategies (www.j2publicstrategies.com)
