Barack Obama on Outsourcing

US President Barack Obama once again struck misguided fear into the hearts of outsourcers worldwide. Last week Obama derided the outsourcing policies of many American companies last week. Obama pointed to companies that move their operations to India and other countries to save taxes back home and called such businesses tax evaders. The knee jerk reaction of many in the press was to label the remarks as protectionist and anti-trade. Although criticism of outsourcing by the US president makes many in the industry cringe, cries of protectionism miss the point. Instead, Obama is targeting a tax loophole that provides American companies an economic disincentive to bring their profits back to the US.

"If you are a business here, entirely located in the US, and investing in the US, and hiring workers in the US, you are paying a 35 per cent rate," Obama told Bloomberg Magazine.

"However, if you are a multinational and you are investing in India, and your workforce is in India, and your plants and equipment are in India, but your headquarters are here, you are taking deductions on all the expenses in India, but you are keeping your outside the US; and that just doesn't seem entirely fair," he argued.

Calling for fairness scores political points domestically, but the truth is that the current tax policy is just bad economics. US companies, given the choice between taking a tax hit to invest in America, or spend their capital abroad, are likely to rationally do the latter.

"The same is true where you have companies that have 90 per cent of their sales in the US, but are posting 90 per cent of their profits overseas. You get a sense there that the accountants have been busy."

"Our goal here is simply to make sure that there is an even playing field between businesses who are investing in the US, hiring American workers, selling to a lot of customers here as well as overseas. And that is an area where there can be some legitimate debate, but certainly shouldn't be portrayed, somehow, as being anti-business", Obama continued.

Indian BPO giant Infosys took the remarks in stride. Kris Gopalakrishnan, CEO and MD of Infosys said that the US President's remarks were aimed at US companies having operations in multiple countries.


"What he is talking about is US companies setting up operations outside US. Not about outsourcing to India. That is very clear," said Gopalakrishnan.