While addressing Congress in February, President Barack Obama made another reference to ending tax breaks for U.S. companies that ship jobs overseas, saying such a proposal would be included in his budget slated for release in April.
It was a familiar statement—one he made several times during his campaign for the presidency—that was designed to get people thinking about shifting offshored jobs back home.
While there aren’t any tax breaks, experts say companies are only permitted a dispensation in the U.S. tax code that allows them to postpone income tax payments on offshore earnings until they are sent back home. This is what he hopes to eliminate.
Offshoring and immigration are hot button issues—especially when you consider nearly 5 million Americans are seeking unemployment benefits and another 1.7 million are working part-time because they can't find full-time work. The latest numbers from the Bureau of Labor Statistics, released in early March, state that U.S. unemployment reached 8.1 percent by the end of February—a 3.3 percent increase over 12 months.
And whether Obama’s plan is approved or not, experts say economic factors are currently driving the ways in which companies consider offshoring.
“Companies are accelerating domestic hiring not because of the Obama plan, but because of the economic situation today,” says Andrew Kokes, vice president for marketing at Sitel, which provides global outsourcing services in 28 countries for Fortune 100 companies.
“They’re looking at ways to reduce their costs, either through a headcount reduction or through one of those big layoffs we’re hearing about. Those tens of thousands of people weren’t sitting around doing nothing, though. That work has to be made up in alternative ways.”
When combining worker responsibilities won’t work, he says, the simple reality is that it’s cheaper to hire people elsewhere, frequently in China or India. And those cost cuts are far more significant that any tax break the government could provide.
“The break is in the actual cost of labor,” says Kokes. “We all want to be protectionist about this. We all want to keep jobs at home. But there’s this reality of how to overcome the enormous cost savings benefit of sending something to a 20 to 30 percent cost-saving market, particularly when companies are at their weakest points and really need those savings. It’s difficult to drive an agenda that requires jobs to stay here.”
Jagdish Dalal, managing director, thought leadership, International Association of Outsourcing Professionals, expects more companies to consider hiring domestically, but says it will have little to do with any tax cuts or increases.
“It has nothing to do with the political national interest,’ he says. “It has more to do with the fact that India and China’s economies are also hurting. That’s grown to a level where the parity has decreased. As more people lose their jobs here, you’re seeing more people willing to work for less. Therefore, there’s a greater opportunity to employ local people at a lower rate. But there are some companies that are conscious of it and saying that instead of having a layoff here and sending jobs offshore for a smaller amount of money, they’d rather not do that. They’d rather not have the public hit.”
Sue Marks, CEO of HR firm Pinstripe, says she thinks companies are beginning to think differently about the way they hire—not because of tax breaks, but because of public sentiment during a recession. She believes hiring managers will start thinking more broadly about transferring skills from one job to another.
“At the end of the day, when you slice and dice occupational categories, we’re going to have increases in some and decreases in others. So if we’re looking at this economic stimulus as a way to bring back jobs in the short term, we’re going to need more utility players—people who have a broad base of skills and can get results in a number of areas.”
“We’re going to have to expand job descriptions,” she adds. “Do we need different kinds of skill sets? We need to get at core behavioral competencies.”
Kokes and Dalal believe that the President’s reference to tax breaks for companies that offshore was little more than political posturing designed to boost his support among American workers. They said that it would be difficult to comment on his exact proposal until it is released with the federal budget in April.
“There’s this desire to have a domestic strategy, but there’s also an offshore reality,” says Kokes, adding that offshoring companies typically save 20 to 30 percent over those that staff domestically. That said, he believes many American employers are already considering ways to keep more jobs in the country to help the economy
“Historically, times of huge change and economic disruption lead to great innovations,” says Marks. “It’s a vicious cycle and people are scared. We need to look for ways to make this a virtuous cycle.”
Kim Fernandez is a freelance writer in Bethesda, Md. She can be reached at mywriter@gmail.com
