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Surveys Predict Massive Outflow Of US IT Jobs

by Mike Godfrey, Tax-News.com, New York

12 December 2002


When Hewlett-Packard told analysts last week that it planned to outsource major parts of its software support functions to lower cost 'offshore' countries such as India, China and Mexico, it became just the latest in a long line of US companies to join the global IT outsourcing craze. And what is good for the countries with large, well-educated low-cost populations such as India and China is good also for the truly offshore jurisdictions that tend to be staging posts in the outsourcing process.

For India, it's usually Mauritius; and for China it's usually Hong Kong. These are the places through which incoming investment is often chanelled, and where IT operations often set up their regional holding companies, taking advantage of favourable tax regimes for capital and in some cases for labour also. The destination countries wink at or even actively encourage the offshore holding company regimes, because it's a way of offering tax incentives without having to defy the OECD or explain too much to local vested interests. India and Mauritius are a perfect example.

Ann Livermore, HP's services chief, said the company plans to relocate a major portion of its IT services work to India: "We think customers are going to put a lot of pricing pressure on the consulting and integration market. We are going to aggressively move everything we can offshore." In fact., HP already has several thousand employees in India. Other major US companies that have trodden this path include EDS and IBM. The companies say they have to do it, to compete with foreign-based, lower cost competition.

A report from Forrester Research says that around 30,000 IT jobs have gone overseas so far - and that the number will grow to not far short of half a million in the next five years. While the lower cost is the main driver, says Forrester, other factors encouraging the drift offshore are vastly improved and much cheaper telecommunications links, together with the startling development in web-enabled services, allowing a remote facility to work in with a head office team as if it's in the next room.

For US companies wanting an intermediate regional HQ or holding company, a legion of low-tax offshore jurisdictions has grown up to offer advanced IT facilities, including as well as Hong Kong and Mauritius, the Isle of Man, Bermuda, and the Netherlands Antilles. In fact, nowadays almost every low-tax offshore island holds itself out as the beating heart of the data revolution. Most of them are doomed to beat on vainly: once a concentration of activity has developed in a particular jurisdiction, it's hard for neighbouring ones to make out that they're more attractive.

A comprehensive report describing the stage of development of e-commerce in most major offshore jurisdictions, including the legislative regime, is available in the Tax News Reports Shop at http://www.tax-news.com/reportshop/
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