Wednesday, May 6, 2009

Bangalored to Buffaloed...

"Look towards Buffalo, not Bangalore" seems to be the new mantra of the Obama Administration. The new administration of President Obama has been holistically and surprisingly following what had been promised by the Candidate Obama in his elections manifesto. He has not only gone about seriously trying to de-nuke the Earth, by sincerely extending the idea of destroying all nuclear weapons to Russia - and surprisingly, has been responded by them positively - but also, he is going ahead with the seemingly impossible task of disallowing tax breaks to US companies that outsource jobs to cheaper locations.

'Bangalored' was a term recently made famous in US by Unions and activists trying to highlight the plight of workers who lost their jobs to people from locations where in the salary is cheaper than in US. Bangalore, being the epicentre of IT revolution in India and leading from the front as a destination for outsourcing has been associated closely with job losses in the western countries. Although the term 'Bangalored' has been in use since before the World War I - having got a torpedo blast named as Bangalored which was invented in the city and also the term being recently used in the film Saving Private Ryan - currently it is an epitome of someone losing his job to a fellow worker across the globe, deep into the regions where the dollar is being traded as a high value commodity.

The recession has had its effects already on the economy of Bangalore, with lesser sales and order bookings for companies and mass layoffs. Now, Obama seems to have hit the last nail in the coffin by going ahead with his plan for taxation. He proposes to end the Tax Breaks that American companies have enjoyed for a while now, if they outsource jobs out of the US. He seems to suggest that getting jobs done in Buffalo would be a better idea for the 'by now foundering' US economy. So will we see a flight of jobs in the reverse direction now? Shall we start coining the new term 'Being Buffaloed'?

To start with, having jobs done by Americans and paying for their salaries makes a US company less competitive. Say if an IBM and an Infosys are bidding for a client, then IBM to pay their employees and to recover the overhead costs will be bidding much higher than Infosys. So, as a matter of fact US people will gain employment but not orders. They will have jobs, but not work. May be working in an Indian IT company and retaining your jobs will not be all that difficult in this scenario.

Looking at the other side and the more worrisome situation of an employee from a US based company. If a company decides to shift the jobs back to the US only due to the new taxation policy, then how much does the company gain?

Let me take an example of a software developer who is drawing $20000 per year. With the new taxation policy, he is costing his company 35% more that is his new cost would be $27000. A rise of $7000 overnight, without he getting a penny of it. The average salary of a software developer in the US is said to be around $60000 per annum. So even with a conservative estimate and taking into consideration the reasons for which an American employee would be preferred over an Indian employee sitting far off from the office, still the Indian employee is far more cheaper than the American one. This sentiment should not be forgotten, when you are worrying for your job. There is less likely a chance that US company's will shift jobs back enmasse.

The times do seem quite tough for everyone, but we just need to tighten up our seat belts more for the rough ride ahead of us. And yes, also pray that the rupee doesnt climb up substantially against the dollar.


  1. Beautifully pointed out!

    In addition, I would suspect -
    1) Indian IT guys be ready for 20 to 30 % salary cut.
    2) Be ready for more streamlined outsourcing from US; meaning, how and what gets outsourced and billing rates would be streamlined.


    Now, if the economy improves along side this new burden, may be things will be balanced. Lets hope !

  2. One thing I like to point out “They will have jobs, but not work”. This is not fully true because the salary they will get there will be spend in us and thus US economy will grow…that’s the reason behind Obamas step.

    And even if a job is outsourced revenue collected by that 35% will also boost the US Economy