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News :: Labor
Powell assures India, US tech outsourcing will continue
17 Mar 2004
Powell said India need not import more American-made goods, as it was not a precondition for the continued outsourcing of American jobs to India" ... "'There is no quid pro quo here"
Outsourcing Debate Turns Spicy for Powell, March 17, 2004

Pleasing everyone is an impossible task, no matter how noble the cause. That doesn't stop most of us -- even high-ranking cabinet officials -- from trying anyway.

Secretary of State Colin Powell rediscovered this eternal truth on a trip to India where he tried to calm an increasingly emotional debate surrounding the outsourcing of U.S. jobs. He "sought to assure Indians on Tuesday that the Bush administration would not try to halt the outsourcing of high-technology jobs to their country," The New York Times reported. He then told India's government that it should return the favor by importing American goods and services, according to the paper. (Powell also spoke about opening up trade in advance of his India trip.)

Powell "said such a move was not a precondition for the continued outsourcing of American jobs to India," the Associated Press reported. "'There is no quid pro quo here,' Powell said after meeting with Foreign Minister Yashwant Sinha to discuss what has become a politically sensitive issue in the United States."

The Washington Post indicated Powell's strategy was not a slam dunk. "Powell pressed Indian officials on Tuesday to open markets to U.S. firms to help defuse the politically charged issue of the outsourcing of U.S. jobs to India. But Indian officials said they saw no link, and Powell faced tough questions from Indian college students on a lively television program over what one student called U.S. hypocrisy," the newspaper said. "Powell had signaled before his arrival that he would raise the issue of outsourcing, and Indian newspapers Tuesday were filled with quotations from unnamed Indian officials saying they rejected any notion of a quid pro quo to accommodate the political troubles of the Bush administration. The practice of moving such work as computer-assistance services to lower-wage countries has emerged as an early issue in the campaign, though the number of American jobs affected is still relatively small."

The New York Times surmised that "[i]n discussions with Indian leaders and college students, Mr. Powell found that the issue of the transfer of American jobs to India by leading technology companies was as emotional in India as in the United States."

USA Today, in its report from New Delhi, put the issue in some perspective, noting that Powell said outsourcing "is 'a reality of the 21st century,' but that India should do more to offset the loss of U.S. jobs by opening its market to American goods. The number of U.S. jobs moving to India is small -- fewer than 200,000 -- but the practice has become highly controversial in a presidential election year that has seen anemic job growth. U.S. companies are hiring Indians to perform service jobs ranging from stock market analysis to troubleshooting computer software. An estimated 2 million graduates fluent in English enter the workforce here each year."

More on the balance between job transfer and imports: "Powell acknowledged that the trend of U.S. companies hiring overseas is resulting in a loss of jobs for American workers, but he said this could be compensated for by services that U.S. businesses can provide to other countries. 'We should focus on those (services) and make sure that we are training our young people for those kinds of jobs,' Powell said, according to the transcript of a press conference in the Indian capital of New Delhi," CNET's reported. "In his talks with India's foreign minister Yashwant Sinha, Powell discussed the need for further opening up Indian markets to both services and investment from U.S. corporations. But both Powell and Sinha said this should not be seen as a quid pro quo for outsourcing. Details of what changes might work best were discussed during recent visits by other U.S. officials to India, they said."

Powell spoke about how technology helps to stoke outsourcing. "When you put in place the Internet system, and when you put in place broadband capabilities, so that information and services can be moved around the world and connected to other parts of the world at the speed of light, people will take advantage of that kind of capability and that gives you the kind of outsourcing that we have seen here (in India)," Powell said in remarks picked up by IDG News Service. "We have also seen outsourcing of jobs in the United States to Mexico, to China, to other parts of the world as the global world develops."

White House spokeswoman Claire Buchan had this to say, according to The New York Times: "The secretary made clear in his remarks that we are concerned when Americans lose jobs, and we are focused on creating jobs for American workers, and the best way to do that is to open markets around the world, including in India."

The Indian Express newspaper put a different spin on the story than most of the American press, explaining in a headline that Powell "calms waters" in the debate. The paper also noted that Sinha "sought to reassure his visiting counterpart that India had begun to open its market through the reform decade and was determined to follow through. 'It is in the interests of India to integrate with the global economy. We are autonomously following this path... this should not be seen in the context of pressures and counter-pressures,' Sinha said."

Very Developing Countries

The outsourcing of IT jobs will not wane, "despite a growing political backlash, particularly in the US, and up to 25 per cent of traditional IT jobs will be relocated from developed to developing countries by 2010, according to [IT analysis firm] Gartner," The Financial Times reported. "Gartner identifies the growth in offshore outsourcing to India and other developing countries as one of the most significant shifts in IT in the near term. By 2005, Gartner predicts, 30 per cent of leading European businesses will include outsourcing IT services to 'nearshore' or offshore sites in their business and IT plans. As a result, the offshore contact centre industry and business process outsourcing will represent the highest opportunity for growth."

The Lure of China

The San Jose Mercury News has highlighted the Chinese technology market and its ties to U.S. companies in a series of articles. "With 21 percent of the world's population, China is simply too big for Western tech giants to ignore. The country is the second-largest personal computer market in the world after the United States. More than 300 million Chinese use mobile phones and an estimated 90 million Chinese surf the Web," the newspaper wrote in an article focusing on Microsoft's foray into the country. "Even though Microsoft doesn't make a dime of profit in China, it continues to pour money into the world's most populous country, investing in the hope of long-term success. Microsoft's experience provides a glimpse of China's enormous potential as the nation moves beyond its strength in hardware and manufacturing to newer areas like software."

In a separate article on Sunday, the newspaper wrote that China is both an attraction and threat for U.S. tech companies. "Propelled by a decade of stunning economic growth, China is racing to build a world-class technology industry, a prospect that is exciting and, increasingly, unsettling Silicon Valley. China's appeal comes from its huge and fast-developing domestic market and its growing importance as a manufacturing partner for the world's tech companies. The uneasiness comes from China's unexpectedly rapid progress toward its goal of becoming a center of both innovation and manufacturing that could challenge the valley and other U.S. tech centers," the newspaper reported.

The Sino-U.S. 'Semi-Challenge'

A row between the United States and China related to technology imports could boil up any day now. "The Bush administration plans as early as this week to file its first formal trade case against China over what the U.S. says is an unfair tax on imported semiconductors," The Wall Street Journal reported. "The administration faces intensifying pressure from Congress, U.S. industry and organized labor to challenge various Chinese trade practices ranging from the pegged value of China's currency to some of its domestic tax rules. China racked up a record $124 billion trade surplus with the U.S. last year. The administration sees the semiconductor case as the best opening assault on Chinese trade practices. ... A U.S. semiconductor case would mark the first challenge against China by any country since Beijing joined the [World Trade Organization] in late 2001."

More from The Financial Times: "The case, which US officials said could be filed as early as Wednesday, will mark the end of a two-year honeymoon in which Washington has tried to resolve a series of disputes with China without resorting to the WTO."

"A combination of election-year pressures on the Bush administration to take a tough stand on China and Beijing's refusal to budge on the tax issue has led Washington to bring the case," the newspaper reported. "At issue is a 17 per cent value-added tax that China imposes on all semiconductors. The Chinese government rebates all but 3 to 6 per cent of that tax for domestic producers but retains the full tax on imports, giving domestic chipmakers a huge advantage in an industry with narrow profit margins. The Chinese tax has become the biggest international trade issue for the $70bn (£39bn, E57bn) US semiconductor industry, which fears the rebate is encouraging semiconductor production in China at the expense of US imports."

Jetting to Europe, Empty-Handed

Microsoft chief executive Steve Ballmer went to Brussels yesterday in what was seen as an 11th-hour dealmaking attempt with antitrust regulators who are poised to slap the company with fines and force the company to unbundle its media player from the Windows operating system. The jury, so to speak, is still out. The Financial Times said Ballmer "failed to clinch a deal on Tuesday with Mario Monti, European Union competition commissioner. ... Both sides said discussions were 'ongoing' after the four-hour meeting but it was unclear whether the two main protagonists would meet in person again. However, Mr Ballmer was expected to stay in Brussels on Tuesday night. The Microsoft chief had decided to come to the [European Commission's] headquarters amid hopes within Microsoft that earlier talks had paved the way for a settlement. But in their meeting, the two men were unable to agree on how far-reaching a compromise deal should be. Microsoft has worked on specific proposals dealing with the Commission's concerns about competition in the markets for computer servers and Media Player programs. But it has been unwilling to agree that a deal should also bear on other, separate areas with which the Commission might also be concerned."

But The New York Times reported that it probably ain't over till it's over: "Talks broke off early evening Tuesday and are expected to resume either face-to-face or by phone on Wednesday morning, according to people close to the talks. Mr. Monti's spokeswoman, Amelia Torres, told reporters: 'There's been a meeting today. Discussions are ongoing. That's all I'll say,' ... "Mr. Ballmer's arrival on Tuesday was seen by some as a sign that settlement talks were nearing a conclusion. ... The biggest obstacle to a settlement is the issue concerning the bundling of Microsoft's audio and video playing program, Media Player, into its Windows operating system."

And Reuters this morning said while the commission is on schedule to make an announcement next week on the probe, sources close to the case said it "would not preclude the possibility of a settlement." This same notion was reported by The Los Angeles Times. "Ballmer's face-to-face talks with Monti increased the chances for a settlement, analysts said, and underscored how crucial the case has become to the world's largest software company." The Wall Street Journal reported that instead of "compromise with Microsoft to avoid an extended court battle, a person familiar with the commission's thinking said, Mr. Monti's team is trying to wring more concessions in a settlement than they would order in an official ruling against the company."
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