Bill Proposed in Michigan to Ban Outsourcing of Tech Jobs

Warren, Michigan, Aug. 12, 2003 - Macomb County lawmaker Steve Bieda hopes to make Michigan the first state to ban government contracts with companies that use foreign workers.

"This represents a huge drain of American jobs," said Steve Bieda, a Warren Democrat who hopes to succeed where lawmakers in five other states, so far, have failed. "Our tax dollars shouldn´t be sent to companies that distribute corporate revenues overseas. State contracts should support Michigan jobs and put more money into the Michigan economy."

Bieda´s legislation would prevent the state from awarding bids to companies that will use foreign workers to perform the work required by the proposed contract.

In the private sector, companies increasingly rely on foreign workers for software development, computer programming, engineering work, data processing and Web page design. But offshore workers from Ghana to Russia are also being employed at relatively low-tech jobs to handle U.S. corporations´ needs for accounting, customer service calls, and even processing of income tax returns and medical records.

Delta Airlines relies on call centers in India and the Philippines to handle flight reservations. The AIG insurance company announced last fall that it was moving its claims-processing work from Houston to a subsidiary in the Philippines. Hewlett Packard has shifted 1,200 customer service jobs from Florida to India. American Express processes credit card applications overseas.

The New York Times reported last week that custom software manufacturer Oracle will increase its jobs in India from 3,200 to 6,000. Microsoft plans to double its software development operation in India to 500 employees. Accenture, a leading consulting firm, has 4,400 workers in India, China, Russia and the Philippines.

As state and local governments attempt to upgrade archaic computer systems and develop advanced Web sites, outsourcing has emerged as a troubling issue.

Last year, Michigan awarded a $25.2 million contract to Farmington Hills-based Covansys to upgrade the computer system used by the state employees retirement system. Much of the work on the three-stage project will be done by Covansys workers in India, though the state won´t allow the company to release any details about the workload.

The company´s Chennai, India, center alone employs nearly 1,600 workers, about six times the size of the work force at the Farmington Hills headquarters.

A 4,800-employee firm with 23 locations across the globe, Covansys has emerged as a major player in the competition for IT contracts with state governments. The company has won bids in 45 states thanks, in part, to its reliance on low-cost workers in three locations in India.

The first company to establish IT-based offshore services in India, Covansys has appealed to cash-strapped states´ concerns about budget deficits.

With states facing their worst budget crisis since World War II, and with constituents demanding more convenient on-line services, Covansys tells officials that they can´t afford not to sign contracts with companies that provide low-cost services through offshore outsourcing.

Arvind Malhotra, senior vice president of Covansys Public Sector practices, said outsourcing does not eliminate American jobs. "Equilibrium" in the global job market will eventually stabilize the situation, he said. In the meantime, American IT workers get a piece of a growing pie when U.S. companies remain competitive through cost controls such as outsourcing, Malhotra said.

The emerging complaint from state officials about the loss of American jobs contradicts previous priorities placed on cost containment, added Malhotra, a native of Bombay, India. When the company has offered the option of American workers at one price or outsourcing at a lesser price, states routinely have chosen the latter route.

"On the one hand, they´re concerned about costs. Then, on the other hand, they have now become concerned about jobs. So, yes, there is some amount of hypocrisy going on," Malhotra said.

The cost differences can be stunning. The labor costs for a computer programmer in China is up to 50 percent less than for one in Chicago. A software designer with skills working with Java script is paid $60,000 in New York City, but a recent college graduate in New Delhi with the same ability earns as little as $5,000 a year.

In New Mexico, the unemployment claims contract awarded to Tata Consultancy Services for $6 million was compared with an $18 million bid by TRW and $13 million offered by IBM. Tata Consultancy Services, a firm based in India with an American subsidiary, has had big success landing state contracts.

Former Michigan governor John Engler, now a vice president for EDS, which runs an offshore affiliate, has said that states must keep their eyes on the price when choosing IT contracts. "States need to look at their best value in procurement," Engler said in a March interview with a trade publication.

The dilemma for state officials -- costs vs. jobs -- has produced a backlash in recent months. Some officials maintain that saving taxpayer dollars is of paramount importance, but IT corporate executives worry that workers will move toward unionization or that state and local governments will adopt protectionist policies to prevent outsourcing of government contracts.

At a House Small Business Committee hearing in June, lawmakers were told that U.S. companies seeking to lower labor costs are bypassing American engineers, accountants, architects and computer programmers in favor of foreign white-collar workers who will do the job for one-fifth the cost.

"U.S. manufacturers contract with engineers from India who send their drawings to workers in Poland, who, in turn, ship their finished products back to America for incorporation into ´American´ products," said Rep. Don Manzullo, the Illinois Republican who chairs the committee.

"Radiologists in India interpret CT scans for U.S. hospitals. Computer technicians in Ghana process New York City parking tickets. The U.S. economy is growing and creating jobs, but Americans are not filling them. These jobs have been moved overseas, where foreigners will work for a lot less."

Malhotra and other IT company executives say U.S. corporations must remain competitive in the global economy by adopting a 24/7, or "follow the sun," approach. That means that when the workday ends for software designers in America, Indians working on the same team project continue the effort while their American colleagues sleep.

What´s more, one recent survey of American companies that rely on offshore outsourcing found that a solid majority believe the quality of work overseas exceeds American efforts. That attitude could result in more American downsizing or downward pressures on wages.

The Washington Alliance of Technology Workers hopes to combat offshore outsourcing by unionizing IT workers and by lobbying for state legislation. The Seattle-based alliance believes that high-tech workers who expected to avoid the layoffs and worker-management struggles endured by their blue-collar parents are now bracing for a fight.

"There is a great awakening, a bridging of the cultural gap between white collar professionals and the American labor movement because of the off-shoring of technical jobs," said Marcus Courtney, president of the group, which is affiliated with the Communication Workers of America. "All of a sudden these workers see that the old (corporate) ways are staring them right back in the face."

Connecticut, Maryland, Missouri, Wisconsin and Washington have legislation pending that would prevent offshore outsourcing in state contracts. Last year, New Jersey lawmakers attempted to pass such a bill after learning that a contractor had farmed out work to a call center in Bombay for welfare and food stamp clients calling the state with questions or concerns. The bill was bottled up in the state Senate after intense lobbying against it by the industry.

Bieda´s bill, introduced earlier this month, may receive a more welcome reception in Lansing. The state´s leading business lobbying group, the Michigan Chamber of Commerce, remains open to House hearings to consider the bill´s merits. Small businesses´ ability to compete for state contracts with companies that rely on outsourcing may emerge as a key issue.

Rich Studley, the chamber´s senior vice president for governmental relations, said the proposal deserves further study, but potential conflicts with U.S. trade policy, such as the North American Free Trade Agreement, must be examined.

"State hiring preferences or state purchasing preferences, while sometimes proposed in the past with the best of intentions ... can trigger retaliatory legislation," he said.

Bieda concedes that his bill won´t reverse the outsourcing trend, but the Legislature can use the "power of the purse strings" to get the attention of the IT industry.

"We should send a message. We have scare resources in this state and we need to protect jobs," he said. "You have to look at the true cost, the cost of losing jobs and the way those lost jobs hurt workers and affect the economy. When selecting a bidder, the seductive siren of these companies isn´t necessarily the whole truth."