First of many? Ohio bans outsourcing

Unrelenting economic woes in an election season-populist measures. The state of Ohio, whose Democratic governor Ted Strickland is seeking reelection later this year, is the latest American politician to take this low road by banning outsourcing of government IT and back office projects to offshore locations.

Although Strickland’s order is not India-specific and arises from a flap relating to a call centre in El Salvador, the development is expected to hurt Indian companies such as Infosys, Wipro, and Patni, which routinely win multimillion dollar state-level government contracts. Sharp reactions to Strickland’s move from Infosys and India’s IT lobbying group Nasscom suggested Ohio had struck India Inc where it hurt, and there is concern about whether other states will follow suit.

In the executive order issued last month, Strickland cited “pervasive service delivery problems with offshore providers, including dissatisfaction with quality of their services and...that services are being provided offshore”. The ban came after it was discovered that Parago Inc, a Texasbased company hired by Ohio Department of Development to monitor a rebate program for new energy-efficient appliances, used call centre workers in El Salvador.

Ohio is not the first state to go down this route. California tried this approach as far back as 2004, and legislators in Connecticut, Florida, Hawaii, Indiana, Maryland, Mississippi, New Jersey, North Carolina, South Carolina, Washington, and Missouri also have introduced anti-outsourcing bills at various points in time, according to the Washington Alliance of Technology Workers, a labour organization based in Seattle. The legislations typically come during election season when lawmakers face a hostile electorate hurting from economic woes.

Ohio’s move though comes in the form of an executive order at a time Indian companies are already hurting from what New Delhi regards as other discriminatory practices such as hiking visa fees for the H1-B and L1 categories, which are used in large numbers by Indian firms. Indian trade bodies are chafing at the US action and there is growing pressure in India for retaliatory measures against American enterprises seeking business in India.

“Ohio’s ban on outsourcing can only be viewed as counterproductive to the US government thrust on reducing public deficit... It only reinforces our stand on discrimination,” Nasscom said in a statement, adding that it was studying the legality of the state government order. Nasscom also said it would not be surprised if more such “electoral rhetoric” follows in the run-up to the November elections to the US Congress and Ohio Governorship.

The White House said Obama will “update the American people on the state of the economy, talk about the progress we have made, and discuss some targeted proposals to keep the economy growing including extending tax cuts for the middle class.”

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