Schumer Anti-Offshoring Bill May Do Little In Bringing American Jobs Back Home

Jacob Cherian June 07, 2010

An anti-offshore outsourcing bill has been put forward by U.S. Senator Charles Schumer. In essence, it would put excise tax on companies that send American domestic customer service calls to centers in other destinations overseas.

Although this sounds good in terms of scoring political points amid harsh economic times in the U.S., in reality it could prove to be difficult to enforce these proposed laws and worse lead to other offshore outsourcing destinations being created.

First and foremost, skeptics of the measure say that enforcement costs are likely to easily outweigh the revenues brought by implementing the tax. The bill presumable is expected to impose a $0.25 tax on a single phone call placed to an offshore facility for customer support. Secondly, the law also states that customers would be told to which country their calls were sent. In addition, outsourcing firms would need to place on record quarterly and annual figures that show the number of phone-based customer support was received and what percent of it was offshored. It all sounds fairly complicated.

The intent of the bill is clear – to bring back American jobs by putting American companies through the hassle of reporting phone calls and by placing a small tax on them, which they can probably afford.

One of the harsh realities of this proposed bill is that it would take a lot more than the $0.25 per phone call to tap into phone traffic to offshore contact centers. Under these circumstances, business could easily outsource its customer service interactions offshore. And the number of companies that fall under this category of outsourcing runs into the billions from technical support to ordering fast food at a drive through.

More than that, contact centers are just a fraction of the work that is offshored to top outsourcing countries, including outsourcing to India, and outsourcing to Philippines.

Other likely consequences from this bill would be to pass on the cost of the phone support to the customer rather than shipping the phone support offshore. Although outsourcing is commonly done for labor arbitrage, most companies do not feel that high-volume customer support falls under the category of core competency.

According to Ovum, the addition of a trivial excise tax should not deter companies from off shoring. This is likely to be true for more expensive options such as outsourcing to India or South Africa. Yet another option that is available to companies that offshore to India or the Philippines, is to set up outsourcing locations at nearshore destinations like Central and South America, since these are likely to be even less expensive. Hence, the ultimate effect would be to drive companies from one offshoring location to another one, which would not solve the problem at all. In places like Africa, where the dollar is in huge demand, the $0.25 tax might not be a burden and in effect would create a burgeoning outsourcing market.

Perhaps the worst effect of protectionist policies like the one proposed by Senator Schumer might be protectionist retaliation. For instance, the passage of this bill might hurt India’s IT development as it is scurrying to move forward in the wake of a looming recovery. In return, the Indian government could easily change its trade policies that would leave the U.S. with far more than a sting of $0.25 per phone call – in particular, it could harm the aerospace industry or the medical devices industry in the U.S. that is a vital part of the U.S. economy.