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'Offshoring' meets its enemies
The president has signed a bill restricting offshore outsourcing, and the states are following suit.
January 28, 2004: 1:47 PM EST
By Eric Hellweg, CNN/Money contributing columnist

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NEW YORK (CNN/Money) - Opponents of offshore outsourcing enjoyed a small victory on Jan. 23, when President Bush signed the Omnibus Appropriations Bill into law. Tucked inside the complicated legislation was the Thomas-Voinovich amendment, which forbids certain segments of the government to use foreign companies when outsourcing some government work.

The amendment is limited in scope and duration (it sunsets after a year), but already factions on both sides of the contentious offshore outsourcing debate are girding for battle.

As I warned last year, offshore outsourcing will snowball into a major election issue this year.

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At least 13 bills that would ban offshore outsourcing are now wending their way through various state legislatures. In a recent New York Times editorial, Bob Herbert warned readers to bone up on the subject.

The Washington Alliance of Technology Workers plans to rally its troops against offshore outsourcing during the presidential campaign, according to News.com.

And the Information Technology Association of America and TechNet -- two influential Washington, D.C., tech lobbying groups -- have come out in opposition to the Thomas-Voinovich amendment. "The president signed the bill quietly, without ceremony, on Friday," says Olga Grkavac, a spokeswoman for the ITAA. "It sets an unfortunate precedent."

The impact on stocks

Tech investors need to assess their own positions on offshore outsourcing, check their portfolio companies, and monitor the news for developments.

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Some companies, such as Dell, took a hit last year when quality-control issues arose from their offshore outsourcing, but Wall Street in general is very bullish on the topic, rewarding companies that announce offshore outsourcing plans.

The three leading Indian firms that benefit from U.S. outsourcing, Infosys, Wipro, and Satyam, have not yet seen their stock prices suffer as a result of Thomas-Voinovich or the building political opposition to offshoring. Both Infosys and Wipro, in fact, are trading near their 52-week highs.

So what do I think of the various anti-offshoring bills? When data-security issues are involved, I think keeping a task in the United States makes sense.

However, what we're seeing in these bills is largely a reaction to job loss. It's a sticky subject, for sure, not least because we're talking about sending white-collar -- not manufacturing and blue-collar -- jobs overseas.

So far, the politicians don't know quite how to handle the subject. Not to pick on him, but the approach taken thus far by Sen. John Kerry, the only Democratic candidate who's really spoken on the issue, is just plain silly.

 

In November, Kerry introduced the Call Center Consumer's Right to Know Act, which would require a call center to identify its location at the commencement of a call. As if someone needing emergency tech support would hang up if the service technician said she was sitting in Bangalore!

I see offshoring continuing to build momentum, and I think that, as a country, we need to respond in the way we always have: by innovating at the top end of the chain, not by drafting reactionary protectionist legislation.

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"Whether it's the cotton gin or the Internet, we've added value by innovating," says Rick White, CEO of TechNet. "Innovation and free trade have served us very well."

The trouble arises on two fronts: First, there's not enough room left on the chain for us to ascend much further. And second, we're failing in the educational effort needed to train our future generations of workers.

What do you think? Drop me a line at ehellweg@hotmail.com and maybe I'll use your response in a future column.


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