Five reasons why legislation to limit outsourcing fails

Outsourcers can adapt to laws looking to cut H-1B use; trade and exports are key economic issues for state, federal leaders

Congress headed home this week to focus on midterm election campaigns, and offshore outsourcing is certain to be a topic of interest to many voters.

A just-released NBC News/Wall Street Journal Poll of 1,000 people illustrates the strong interest in offshore outsourcing issues this year.

For instance, the poll asked whether respondents agreed with the statement, "U.S. companies are outsourcing much of their production and manufacturing work to foreign countries where wages are lower." The result: 68% strongly agreed, 18% somewhat agreed, 12% disagreed, and 2% were unsure.

But despite the growing public anger and calls for action in Washington, few bills that impact IT offshoring are ever passed by Congress, and those few that are generally accomplish little.

Here are five reasons why such proposals and legislation do little to change the status quo.

1. Offshore firms can manage the risk of new laws.

Congress recently approved a bill that raises H-1B application fees by $2,000 for companies where visa holders make up at least half of the total workforce.

U.S. Sen. Chuck Schumer (D-N.Y.) said the H-1B fee increase is aimed primarily at "a handful of foreign-controlled companies," including Wipro Technologies, Tata Consultancy Services and Infosys Technologies.

Indian officials denounced the bill and called it protectionist. But it isn't likely to change the H-1B strategies of the targeted Indian companies.

Infosys CFO V. Balakrishnan may have summed up the offshore industry's view when he told investors that the visa fee increase, which could cost his company between $15 million and $20 million annually, "is manageable." Infosys is one of the largest users of H-1B visas: In 2008, it was approved for about 4,500 visas, up from 440 a year earlier.

2. Congress hasn't acted, and isn't expected to act soon, on the bill offshore outsourcers fear most.

The legislation most feared overseas is a bipartisan proposal from U.S. Sens. Chuck Grassley (R-Iowa) and Dick Durbin (D-Ill.) that includes a so-called 50-50 rule that would limit the number of workers on H-1B or L-1 visas to half of a firm's total U.S. head count.

Democratic leaders, so far, haven't pushed this bill, which remains in limbo.

Visa proponents in the U.S. and in India argue that the 50-50 restriction would prompt companies to send more work offshore, not less, though some offshore vendors are telling investors something different.

Wipro recently said that it plans to increase the percentage of locals in its U.S. workforce to 50% in the next two years. The company's Atlanta Development Center now has 500 employees. The new strategy would "reduce the overall dependence" on visas, Sabbudha Deb, Wirpo's chief global delivery officer, said in a recent conference call with investors.

Moreover, Wipro officials believe that hiring local workers could cut costs, because it eliminates the transportation, visa and other expenses associated with hiring Indian workers holding H-1B visas.

Infosys' Balakrishnan called the 50-50 rule a "worst-case option. If you don't have more than 50% locals, then you won't get any new visas," he told investors. Passage of the bill would probably lead the firm "to look at accelerating our local hiring," said Balakrishnan.

3. Exports and trade matter to state and federal government officials.

Ohio's Gov. Ted Strickland is a study in contrasts.

In July, the Ohio governor signed an agreement with Exhibitions India Group for up to $108,000 to promote the state "as a premier location" for direct investment and "an excellent place to do business," according to the contract provided to Computerworld by state development officials.

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