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The O In Obama And Outsourcing

  • The O In Obama And Outsourcing

History was created on 20th January 2009 as Barrack Obama took oath as the 44th President of the United States of America. The first Afro-American President took office on the same day as the birthday of Martin Luther King Jr, the civil right activist who championed the cause of equality between the races in America almost half a century ago!

The entire world watched in awe, inspiration and hope as Mr. Obama became the Chief-Commander of the most powerful nation on the earth and hoped that with him will come a new era of peace, progress and prosperity.

Obama’s views on most things have been very balanced, practical and hope-giving and he is hailed as a rational and practical statesman, yet the outsourcing industry is still trying to asses his complete standpoint on the big “O” of Outsourcing!

Under “OBAMANOMICS” (as journalist call Obama’s take on most economic issues), his views are not completely clear.
On one hand he has said that outsourcing as a business and economic trend cannot be “reversed” yet on the other hand he has brought in The Patriot Employer Act of 2007, that states,

  • All US business would have to maintain its headquarters in the US only
  • 60% of each employee’s health care must be paid by the company
  • The business must pay a minimum wage as per the Federal poverty level
  • The business must match roughly 5% of each employee’s salary in retirement benefits

What affects the this industry is this clause

  • The business must maintain or increase its percentage of domestic employment in comparison to offshore employment to be specified as a “Patriot” employer.
    This guarantees him a 1% tax waiver.

In order to finance this tax break, US companies with subsidiaries abroad will have to pay corporate tax on profits earned abroad in USA and not in the country it is earned.

This has two implications;
One, it means that businesses will think twice before off shoring because that will make them miss the 1% tax benefit.
Secondly, the profitability of US firms will go down as the tax structure in US is more than those in China, Hong Kong, India etc resulting in greater tax outflows.

Next in line is Secretary of Commerce, Bill Richardson, who again strongly stands against American businesses getting attracted to the offshoring business. He is quoted as saying, “Outsourcing is a problem and most of it is technical. To fight it we need to upgrade our science and math standards in our school. It is education that will help us keep those jobs here”.

Although the President himself is a very tech-savvy man himself and does understand the great economic benefits of offshoring for US firms yet he cannot in any way underplay the politics as during this recessionary mode, more and more people are looking at him to provide some magical relief from the financial crunch and the President will have to deliver. We are “Hopeful” as President Obama always says; and so is the outsourcing industry in India and the rest of Asia!