VIEWPOINT :: ECONOMICS

Business organizations such as NASSCOM and even the Indian government have talked up a storm about recent US protectionist moves. Indian mainstream media have also made the hike in H1B and L1 visa fees or Ohio state's ban on IT outsourcing front page news and the subject of editorials. While all admit that India's $60 billion IT industry will be largely unaffected in the near term, Professor Rupa Chanda of IIMB argues, this presents Indian IT companies and the Indian government with an opportunity to introspect and look strategically at their export markets.

The growth of the Indian IT industry has come on the back of export earnings which constitute 90% of all revenues. And 67% of these export earnings come from the United States alone. With US unemployment holding at double digits, a persistent recession and fears of a double dip, the US government is faced with hard choices both economically and politically. Domestic political compulsions drive the recent US moves. Professor Chanda recommends that we take a long- term view and address important priorities that will both make Indian IT industry more competitive and less reliant on the US market. She identifies four key actions to be taken.

Market diversification

The Indian domestic market is seeing unprecedented growth and attracts suppliers from all over the world. Yet the contribution of domestic markets to the Indian IT sector revenue is negligible. Similarly other developed markets such as Europe and markets in the Asia-Pacific region such as Australia, Japan, and Korea offer room for diversification. At a time of both slow growth in the US market and these protectionist moves, focusing on such market diversification would not only decrease the vulnerability of the IT sector but would lay the ground for growth as the global economy picks up.

Local presence

It is critical for companies to complement their offshoring model with significant local presence in the target markets. Local presence would not only result in local employment creation but would also increase the visibility of Indian IT firms as contributors in these target economies. Local presence can help evolve the image of companies as not merely exporters of jobs but as investors and job creators in these destination markets.

Commercial agreements

The Indian government has already invested in a Look East policy by signing a series of bilateral trade agreements such as the Comprehensive Economic Cooperation Agreement (CECA) with Singapore and the Comprehensive Economic Partnership Agreement (CEPA) with Korea. It is also in the process of negotiation with several other countries in the Asia-Pacific region. By supporting and investing in the shaping of such strategic commercial agreements, IT firms can also further their interests in terms of finding new markets and pre-empt potential protectionist moves in these partner countries.

Government Procurement Agreements (GPA)

Government procurement of services and technology is a growing market both in India and overseas. By becoming a signatory to the WTO's plurilateral GPA, India and Indian companies can minimize the impact of current and future restrictions on government procurement.

Conclusion

The recent US restrictions on outsourcing are an opportunity for the Indian IT industry and the Indian government to move beyond rhetorical responses. By diversifying beyond the US market into both other developed markets and the Indian domestic market, by creating visible local presence and investment in the US market, and by influencing and investing in bilateral and multilateral commercial agreements, Indian IT companies can create new opportunities for growth.

The original article India-Ohio outsourcing ban was authored by Professor Rupa Chanda of the Indian Institute of Management, Bangalore and appeared in the East Asia Forum and the YaleGlobal online magazine.