When is comes to “bringing US jobs back onshore”, we repeatedly seem to get all sorts of legislation that, quite simply, is focused on restricting our busineses’ competitiveness, when we should be looking at helping them invest in new talent and entrepreneurship, rather than penalizing them for trying to be competitive in today’s global environment. (Read our excellent discussion from last year: Who’s looking out for the US business these days?)
Senator Charles Schumer’s proposed new legislation, if passed, would tax U.S. companies that transfer domestic calls (at $.0.25 per call) to foreign call centers and require consumers be informed when their call is transferred outside the U.S. I assume by now most of you know the details of this, so let’s consider what good this does US businesses and the US economy:
1) The cost differential is not enough to warrant routing call center work back onshore. If the offshore call center is charging $18.00 per hour for each agent, who takes, on average, 20 calls per hour, this only knocks their costs up to $23.00 per agent/hour. A US domestic call center would likely charge clients $30 per agent/hour (or higher), so the cost differential still doesn’t warrant pulling the work back. Conversely, offshore providers are more nimble with price flexibility and can easily squeeze rates down if this became an issue. Benefit to US businesses: none, simply higher taxes. Benefit to US economy: additional tax income, but less competitive businesses.
2) There are an estimated 31 million business in the US, according to the latest government stats… er… that’s quite a lot of administration needed? Even the smallest of firms often use offshore call center support. The administrative organization needed to manage and audit this number of businesses to ensure compliance would be massive. You are talking multiple millions of dollars in investment that would likely struggle to be offset by the resulting tax returns. Benefit to US economy: none, simply government money wasted on bureaucracy.
3) Customers will be informed where their call is being taken, which will create negative overtones for businesses. This is probably the only ”effective” component of this legislation, solely based on the fact it will educate the US masses that offshore workers are more competitive that they are, and run most of the call center work these days. However, what good will this do beyond stir up anti-offshoring attitudes? Yes, it may encourage a small proportion of businesses to move their work to US call centers, but if all calls are revealing the location, it will simply become an expected procedure and quickly lose its impact (such as the adverse side-effects warnings after pharmaceutical products commercials). Benefit to US economy: none, simply the creation of negative overtones towards companies offshoring.
4) US call centers are very good and becoming increasingly competitive. The Recession has only helped US call centers, with a lot more work being moved to centers in locations such as North Dakota, Michigan and Nebraska. Why not use some of this cash to give the US call centers tax-breaks to be more price-competitive, than penalize the offshore centers? Heaven forbid, why not support new center development in US locations? Benefit to US cell centers: a little more clout and a little more price competitiveness, but likely to be minimal overall.
5) Large enterprises may simply route calls to their offshore captives. Most mid-to-large US enterprises can simply shift call center work back inhouse and run from their own offshore/nearshore locations. Benefit to US economy: none.
6) This legislation also raises the potential of retaliation from other countries, under the recent Uruguay Round of WTO Agreements. Taxing international calls and not taxing domestic calls is a form of discrimination against foreign call center service providers that violates the basic principle of “national treatment”, with the exception of specific situations, such as national security, the environment, local labor, police, etc. Benefit to US economy: zero, and potentially negative.
All-in-all this legislation is reactive, not proactive. The old days of outsourcing backlashes are well and truly over. It’s clear that the way forward is to make the US an attractive location for call center, and other commonly outsourced work-types. Furthermore, it’s clear that the US needs to be an attractive environment where where firms simply want to function, where they can receive government benefits to help then get established, and to hire US-based personnel.
Other economies all aggressively support businesses to invest in their own locations (just go through the countries - they all do it, and some very effectively). This legislation does very little to help US call center jobs and will likely cost the tax payer more in implementing the plan than it can ever accrue from the tax. Government leaders need to be smarter about “protecting jobs”, which means actually helping to create work onshore, as opposed to scaremongering / taxing enterprises into forced activities that do not enhance their competitiveness. For example, the proposed “Entrepreneur’s Visa” is a fine idea – it is encouraging top entrepreneurial talent to set up shop in the US and employ US talent, and they will receive a Green Card. We need to see more schemes that drive the global entrepreneurial agenda for the US economy, not hold it back.