The USA: outsourcing heartland

Selective protectionism?

Opinion The schizophrenic attitude of the US towards outsourcing continues to manifest itself, writes Bloor Research analyst Bob McDowall.

US-headquartered organisations continue to be the major providers of outsourcing services, both in contract value and contract size. The major international outsourcing companies - IBM, EDS, Accenture, CSC and HP - are all US-based organisations.

It is ironic to read that, when White House economic advisers state the obvious by describing the move of some US service jobs to places like China and India as "just a new way of doing trade", there is political reaction from both Republican and Democrats. This cannot be unrelated to election year. There have already been moves in a number of US states to prevent jobs being outsourced to overseas locations.

The US is caught between two stools. One of the key measures of domestic growth in the country is the growth in the number of jobs. Furthermore, it is an important political weapon to be used positively by the Republicans and negatively by the challenging Democrats. Quite clearly, outsourcing is an important element of free trade which enables US companies to set up operations overseas and enhance their services competitively. The contra argument is that without more jobs, the US economy will not grow.

The counter to outsourcing is the targeted subsidy of jobs in the USA; particularly in politically sensitive areas such as manufacturing. Tax incentives offset the appeal of outsourcing but at the same time will lead to higher domestic taxes and prices. The USA is becoming selectively protectionist. Political expediency and necessity will continue to drive this. There is major US political support for outsourcing and the revenues it brings to the major US companies in the sector, but not when it happens in their own backyard.

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