Planning for anti-offshoring legislation

In his State of the Union address this year, President Obama reiterated his position against offshoring: “…it is time to finally slash the tax breaks for companies that ship our jobs overseas, and give those tax breaks to companies that create jobs right here in the United States of America.”

It isn’t known whether Congress will pass this kind of legislation, but an article yesterday by Stephanie Overby on cio.com advised companies to prepare now for the possibility of anti-offshoring legislation. Overby says:

“Such regulations may come in many forms—from restrictions on the export of personal data to changes in tax law, grants and incentive programs, to various reporting requirements about where work is being done and by whom.”

Suggestions offered to mitigate risk

1. Modify the “change in laws” provision. George Kimball, an attorney in the San Diego office of Baker and McKenzie, says the clause should “…provide for a process of consultation and adjustment that might lead to relocation of operations, equitable adjustment of charges, or in extreme situations, termination if future legislation prohibits, restricts or taxes offshore operations so severely that they cannot practically or economically continue.”

This clause leaves the question of what the company would actually do up in the air and offers no strategic solutions. The existing contract would essentially need to be renegotiated, a lengthy and expensive process. Companies could lose significant money while scrambling to come up with a plan.

2. A benchmark clause in the outsourcing agreement to cover changes in cost and service as a result of legislation.

Of course, benchmarking is expensive, needs to be conducted every year and takes months to complete.http://www.cio.com/article/29102/Outsourcer_Benchmarking_The_Sanity_Clause

3. Choose providers with a large US presence in case operations are forced onshore. “It’s important to remember that this will not be just about price, but also about migration risk,” says Edward J. Hansen, a partner in Morgan Lewis and Brockius’s business and finance practice. “It may be preferable to pay a little more for a domestic provider to re-solution than to have to migrate [to a new vendor].”

Though this solution is the most proactive, it still gambles against legislation and puts the financial and logistical impact in the future.

A better idea?

Complement your global sourcing strategies with an ‘Inshore’ operation. Including Systems in Motion’s domestic service delivery alternative as a part of your strategic sourcing options ensures the ability to dynamically rationalize operations with changes in market conditions – whether driven by politics, policy, or market drivers like escalating costs and attrition in the global arena.

Systems In Motion’s Inshoring model is a scalable and flexible model for developing an agile, highly trained domestic resource pool that can be more productive—at a sustainably competitive price point— than a globally distributed team.

An added advantage? Investing in workforce development in the US today creates a greater sense of community, re-builds a local consumer base, and establishes the foundation for identifying and growing the future IT leaders needed to retain America’s technology advantage.

http://www.cio.com/article/582863/Outsourcing_Prepare_Now_for_Anti_Offshoring_Legislation

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