The US state of Ohio has issued a ban on outsourcing government IT projects to offshore locations like India, citing security risk in addition to loss of jobs for locals. This move may adversely affect Indian IT industry, which earns more than 50% of its revenue from the US. There is also widespread concern that the ban may spread to other US states. Ohio is not the first state to ban offshore outsourcing. The state of New Jersey had earlier moved to block the same.

Ohio Governor, Ted Strickland has made scathing comments on offshore outsourcing in a recent order to the state agencies. The order says that purchase of offshore services has ‘unacceptable business consequences’, which includes ‘unacceptable data security, and thus privacy and identity theft risks’.

“There are pervasive service delivery problems with offshore providers, including dissatisfaction with the quality of their services and with the fact that services are being provided offshore,” says the order. “It is difficult and expensive to detect illegal activity and contract violations and to pursue legal recourse for poor performance or data security violations,” it continues.

The trigger for the ban order is the offshore outsourcing done by a Texas-based company Parago Inc. Parago was entrusted by the Ohio Department of Development to administer a rebate programme for new energy-efficient appliances. However, the company got the job done using call-center workers in El Salvador.

The doyen of the Indian IT industry, Infosys, has voiced its concern over the move. Kris Gopalakrishnan, CEO, Infosys, said, “This is raising a protectionist barrier. All governments tend to be worried about unemployment. Unemployment has not gone up. We need to look at a global perspective. We are working with governments. We must increase local recruitment. There has to be a balance.”

It is ironic that in 2007, Mr. Strickland, as the governor of Ohio, wooed India’s top IT company Tata Consultancy Services (TCS) to open shop in the state by offering $19 million in tax credits and incentives.

Intel Corp’s $7.7 billion acquisition of McAfee Inc reveals the world’s largest chip maker’s intention in enhancing its image security-wise, as it venture to break free from the PC market into the flourishing market of mobile wireless gadgets. The latest development will afford Intel a definite advantage over its rivals, who are gaining ground steadily with a slew of top-drawer acquisitions.

“McAfee focuses purely on security, with a multi-dimensional strategy and approach to the delivery of protected technologies and products and a vision we share on the future. Bringing software closer to the silicon will help Intel strengthen security to more effectively counter the increasingly sophisticated threats of today and tomorrow,” clarified a statement from Intel India.

The acquisition will be immensely helpful for Intel in boosting its mobile wireless plan by ‘helping to better assure customer and consumer security concerns as these billions of devices connect’.

With both Intel and McAfee having strong presence in India, the latest takeover is bound to leave significant impact on their functioning. While Intel has about 2,500 engineers in the country, McAfee employs over a 1,000, most of them based in Bangalore. In the wake of the buyout, the Indian arms of the tech majors will be working towards making security an integral part of the PC hardware and mobile gadgets.

“Bringing software closer to the silicon will allow Intel to strengthen security to more effectively counter the increasingly sophisticated threats of today and tomorrow. Our joint expertise will better protect consumers and businesses and drive innovation across Intel’s product offerings, and, through our world-class labs, add R&D knowledge that could quickly bring entirely new innovations to market,” said an Intel release.

The acquisition comes as a surprise to many analysts in India. With too many players in the field, they are at a loss to predict the implications of the deal.

The newly legislated US bill, which is believed to have a major financial impact for the Indian IT companies such as Infosys Technologies Ltd, Tata Consultancy Services Ltd (TCS) and Wipro Ltd, is in violation of the WTO rules, proclaimed commerce secretary Rahul Khullar. He added that India is considering various options to oppose the bill, including approaching WTO.

“There is no doubt that the new law is in violation of the WTO rules. Now that it has become law, we will decide our next course of action,” said Mr. Khullar. “We are deeply disheartened and very disappointed. The US cannot pass a law which clearly hurts India’s interests and then realistically expect us to accommodate their commercial interests.”

Various government ministries, including commerce ministry and external affairs ministry are working together on the issue. Government has also sought expert legal opinion on the matter. India may also consult other affected countries such as China and Philippines to protest collectively, to make it more forceful.

The new bill proposes to raise the country’s border security, the expenses for which will be met by hiking visa charges for firms that hire more than half their workers from overseas. This will result in a big drain on the profits of Indian IT companies, which commerce minister Anand Sharma has termed as ‘highly discriminatory’ in a letter to US trade representative Ron Kirk.

Indian IT companies utilize only a miniscule portion of the H1-B and L visas issued every year. However, by raising the visa fee from the present $3,320, by $2,000, Indian companies will be forced to shell out more than $250 million a year. Though a majority of the visas are used by US companies, they won’t be liable for increased fee, due to the 50% overseas employee clause in the bill. This will lead to Indian companies being less competitive. Their working is bound to be affected, as sending skilled professionals to US clients for working on projects locally will become unproductive.

The US Senate passed the Border Security Bill on Thursday, aimed at raising security surveillance along the US-Mexico border by deploying additional enforcement agents and aerial drones. The additional expense will be met by hiking visa fees substantially, much to the exasperation of Indian IT firms. The bill will come before the House of Representatives next week.

“The filing fee and fraud prevention and detection fee required to be submitted with an application for admission as a non-immigrant… shall be increased by ($2,250 or $2,000 depending on the profile of the company) for applicants that employ 50 or more employees in the U.S. if more than 50 per cent of the applicant’s employees are non-immigrants,” says the bill for a period until September 2014. This hike is bound to have a major financial impact for Indian IT companies.

NASSCOM (National Association of Software and Services Companies) has come out strongly against the bill. Som Mittal, president of NASSCOM, said, “The money to pay for this increase would come primarily from raising fees on H-1B and L-1 visas for highly skilled workers. While we understand the need for heightened border security, we believe that the extra fees will produce negative consequences for both U.S. and Indian companies.”

“The notion that Indian IT companies should pay for sealing their border with Mexico is incongruent,” added Mr. Mittal. “This is a populist measure that is protectionist and discriminatory and is not compliant with the practices of the World Trade Organization.”

Meanwhile, the ‘chop shop’ comment on Infosys Technologies by Senator Charles E Schumer has resulted in bad blood. Mr. Schumer had said, “The emergency border funds will be paid for by assessing fees on foreign companies known as chop shops that outsource good, high-paying American technology jobs to lower wage, temporary immigrant workers from other countries. These are companies such as Infosys.”

An Infosys company official termed this an ‘insult’.