Recently, a couple of research firms have come to a predictable conclusion on Obama’s plan to tax overseas profits: it will be a nuisance, at the very least, for companies that offshore operations, like Cisco and scores of others; at worst, it will disrupt operations and dissolve profits. Obama is proposing the U.S. tax the offshore profits of U.S. companies to raise over $200 billion.
Oh Obama, Wake up! We dont need your theoretical concepts!
Datamonitor cuts right to the quick and says the plan will be “bad news” for offshoring operations like customer service contact centers. In a press release, it says the Obama plan could lead to higher price points, reduced operational efficiencies and an erosion of long-term competitiveness.
(It) should be taken as disturbing news for contact center outsourcers that have delivery centers in offshore locations. How these tax laws could impact vendors’ ability to do business in a cost-effective manner is of significant concern
Datamonitor says the plan, should it become law in 2011, would result in a reduction in operational flexibility. Moving operations back onshore in the US could lead to disruption given the high attrition rates domestically, the firm states.
Datamonitor also noted that the US would be virtually alone in taxing the overseas profits its global companies. The firm says the tax plan could place the US “at a serious disadvantage” in terms of price flexibility.
This will leave US outsourcers with few options other than to find ways of offsetting their own higher taxes through internal cost-cutting or possibly relocating to more tax friendly jurisdictions.
Canadian researcher XMG says offshoring will continue because it’s intrinsic to reducing operating costs and maximizing productivity without increasing headcount. The Obama proposal will hit profitability but not lead to a drastic reversal in the offshoring model, the firm says.
The US scenario of ongoing shortages of highly skilled labour for IT… an aging workforce and the unavoidable high cost of operating in the US continue to make offshoring a viable business strategy.
Those most significantly affected, XMG notes, will be small to medium sized companies who depend on offshoring for profitability. Overall, this would have a negative effect on improving the US economy, the firm says.
At the very most, it is highly probable that the new tax mandate just becomes another expensive regulation dictating solutions that enable visibility and transparency into global financial transactions and enhanced reporting requirements.
Anti-offshore and other “protectionist” activities in the past have not significantly affected offshoring, XMG notes, adding that it does not expect them to do so this time, either.