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The Backlash

The only thing that will make the furor over offshoring worse is hiding from it.

Stacks of Bills

Not content to wait for the outcome of the probable Bush-Kerry contest, legislators across the country have responded to the offshoring outcry by rushing to do something — anything.

According to the National Foundation for American Policy, legislators in at least 35 states have proposed more than 100 anti-outsourcing bills, with more than a dozen bills circulating at the federal level. To date, the states have not passed major anti-outsourcing restrictions, although efforts continue.

In March, the U.S. Senate approved an amendment by Sen. Chris Dodd (D­Conn.) that prohibits federal contracts from being performed overseas unless the President deems a contract to be in the interest of national security. That legislation awaits further action in both the Senate and the House of Representatives, even though observers say that measures giving U.S. companies preferential treatment violate World Trade Organization commitments made by the United States.

Likewise, proposed state laws may inadvertently violate the commerce clause of the U.S. Constitution if language intended to prevent jobs from going overseas also keeps them from going to other states, concluded a legal analysis by the National Foundation for American Policy. If passed, these laws will also impose higher costs on any company or state or federal agency currently using offshore services. That argument has already been used to kill at least two pieces of state-level anti-offshoring legislation.

Even some shareholders — a class that more typically rewards cost-saving measures like offshoring — are balking at offshoring initiatives, albeit without much success. The pension fund of the Communications Workers of America placed anti-offshoring shareholder proposals on the proxies of at least three major companies: General Electric, Sprint, and IBM. The GE and Sprint proposals sought a study on the reputational effects of offshoring, and the IBM proposal sought a study to determine if compensation programs at the company promote short-term, cost-based decisions, like offshoring. All three failed to gain shareholder approval.

Stuck in the Middle

It is the cost savings, of course, that often make the CFO a company’s chief proponent of offshoring. In fact, 42 percent of the CFOs in our survey whose companies outsource offshore reported net savings of more than 20 percent on offshored expense areas (see “Offshoring by the Numbers“).

While they report that they aren’t concerned about negative publicity from offshoring, they are far less willing to promote those savings or even talk about the topic than they were 12 months ago.

Now, in fact, some companies are actually putting offshoring plans on hold. “We’ve had a couple of clients say that because of the current political situation, they want to defer signing their contracts,” says K. Srinivasan, senior vice president and national sales director for Polaris Software Lab Ltd., an offshoring company based in India. Although the companies he works with are “very supportive” of offshoring, he says, “they want to make sure they don’t rub people the wrong way.”

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