The bullets:

1. U.S citizens are under skilled for certain jobs

2. There is a clear shortage of eligible man-power needed for the jobs outsourced

3. Cost arbitrage

There were 2 important announcements that came out from mid April to early May’09. 

The more popular was what I call Obama’s ‘Bangalore-Buffalo doctrine‘. While this created more news in the US for the mention of Buffalo than Bangalore it is more a taxation restructure as a disincentive to American companies creating jobs abroad. This is not seen as a big threat by people who are in the industry. The cost advantage despite this will still stay an advantage. It is a step to discourage movement of jobs out of the country. It is not long ago that Obama preached improvement of education in US for the American kids to compete with Asians. I appreciated him for it as that will be the correct approach for a permanent solution to abridge the domestic demand-supply gap. Now, I believe the economic pressure he is in has forced him to try such band-aid measures.

The other one is the prevention of companies that received money from the Troubled Asset Relief Program (TARP) from hiring any of the foreign workers under the H1B visa program. It is again suicidal. If you cannot get the right skills, you cannot implement your solutions effectively and cannot improve your performance and so cannot repay tax-payers money. This is now looking to be easened from ‘prevention‘ to ‘difficult’ level. A flavor of it is stopping companies hire more H1B if they already have 50% of employees through this. I think this will hurt Indian IT(ES) companies more than the former. As of 2006 data Infosys, Wipro, TCS, Satyam used over 15,000 H1B and inclduing other Indian companies the numbers would cross 20K.

So putting these together, it is a potential pinch to countries who took the H1B advantage but the government will face stiff resistance and strong lobbying from the US companies affected and Republicans. It is to be understood that it is free market economy we are in, a theory practiced and preached by US as long as it worked for them. It has become a part of the DNA of entrepreneurs of US. Such socialistic protectionism ideas will not be welcome by the stakeholders who look at the bottom line. 

Between GE, Citibank and IBM alone there are close to 100,000 employees in India and they will not walk away from such huge investments just for the change in tax structure. Countries like India and China too will work on counter measures by offering more incentives for the companies to stay and continue providing employment. They could also resort to favoritism (which I hope they don’t) by preferring domestic IT companies over US companies to bid for their public sector projects which would be a big $ billion business.

However, this is a good wake-up call to the majority of the companies in India and China who’ve been enjoying the highly paid lesser value jobs outsourced for cost reasons. It is already a bit late to move up the value chain and if they don’t work now on it, it will be a missed bus that could next choose to stop at Vietnam or Bangladesh. It is then that these countries would understand the emotions of people who loose their jobs to foreigners.

I am confident that Obama and his team will try all possible approaches to advantage US and bring a quick economic recovery to the country and indirectly to the world. These policies are a part of these attempts. We need to wait and watch if they really help.