We need an offshoring tax

http://services.silicon.com/offshoring/0,3800004877,39453991,00.htm

by vaksel • 17 years ago

9 17 17 years ago

services.silicon.com

steveplace• 17 years ago

Quote: Let's start with the value proposition. Offshoring should never been seen as only a cost savings exercise - the hidden costs associated with quality control, oversight, lack of grass roots innovation, lower standards of service based on service agreements, and exit costs need to be fully considered.

If you don't consider all of these aspects, you have not properly understood the true value proposition and may be surprised when you do not see any real cost savings.

So he's saying that the companies that offshore will lose value relative to the companies that don't? If that's the case, why is government intervention necessary?

pchristensen• 17 years ago

I think he's saying that the costs of offshoring aren't reflected in the price, and that when you buy for the low price you also get liabilities you didn't know were there.

Kind of like the externalities of oil and gas exploration, drilling, pollution, habitat destruction, etc that happen when you buy gas but aren't included in the price.

EDIT: I don't think this is true, just an attempt to explain the article. Companies that buy bad outsourcing packages will lose to ones that manage their business better (onshore or off)

derobert• 17 years ago

Those costs are not at all kind of like externalities because an externality is an impact on a not directly involved ("external") party. But these costs are all on the organization who decided to outsource, so — unlike with externalities — one shouldn't expect a market failure, and the article does not provide evidence of one, or even claim one.

friism2• 17 years ago

That may be so, but the external costs of oil and gas exploration are borne by society (thereby meriting government intervention) whereas liabilities incurred by offshoring mostly affect only the company. Government shouldn't try to keep private companies from making mistakes, the free market does a much better job of that.

Tichy2• 17 years ago

"Offshoring countries provide huge subsidies to their homegrown services companies to stimulate growth in the market, so it makes sense to provide offsetting incentives for companies to look at local talent."

On the other hand, why not accept the free gift from the offshoring countries? The subsidies they pay (if they really do) translate directly into savings of your tax payers. On the other hand any "offshore tax" would just come directly out of the pocket of your tax payers by way of having to pay higher prices for the products of the off-shoring country. So there would be no net gain.

Just to name another way to look at it. I don't know what the best course is, but that article seemed to be all claims and little reason.

friism2• 17 years ago

Right on.

Industrial subsidies in countries like China translate to a net transfer of wealth from Chinese taxpayers to taxpayers in countries buying the subsidised service.

From a standpoint of global economic utility, subsidies shouldn't be encouraged however, because they lead to sub-optimal allocation of resources. It seems to me that a good way to get rid of subsidies is to make the case to the taxpayers footing the bill. If prompted, it seems unlikely that the Chinese populace would want to pay for westerners getting artificially cheap goods and services.

(Just using China as an example here)

Tichy2• 17 years ago

I am not sure that the subsidies really exist - labor simply is cheaper in some countries. Perhaps the best way to react is to accept the free gifts and transform them into innovation? That would be tax the own population that benefits from the cheap imports (subsidized or not), and invest the collected money into diversification and research? It seems unlikely to me that the industries subject to offshoring will ever fully recover. Or, if the industries seem likely to recover, maybe they should receive the tax money? After all, aren't the subsidies an attempt to squeeze competition out of the market, to come back with higher prices once the monopoly is established? So the tax money should maybe be spent on helping the industries survive.

For example lots of money could be spend on fancy software projects, that have no pressure to make money. Then, when India and other countries can not keep the prices low any longer, there will still be software companies in the own country. They can then turn back to producing serious stuff. (Just thinking for fun here). On the other hand, maybe the no-worries exploration phase yields some interesting results that bring in money later on.

Also, where to draw the line? Is it realistic to watch the whole world for "fair labor prices"? It seems more realistic to try to make one's own country "fair", you can't solve everybody else's problems, too.

9oliYQjP3• 17 years ago

Rather than an off shoring tax, I think we need to look at the flow of assets covered under intellectual property across borders. I'm just putting this idea out there; I'm not sure how I feel about it personally. But businesses want to treat intellectual property like real property. However, unlike real property, they want the benefits of being able to ship it over borders without restriction (e.g., an off shoring company sending the latest code on a nightly basis). Real property is subject to import tariffs, duties, rules, etc.

Countries wouldn't just accept truck loads of goods crossing into their borders without restriction unless some sort of free trade deal was in place. But this is essentially what is happening with intellectual property. Every night, a huge amount of intellectual property gets transferred via the net from one country to another (e.g., an off shoring company's nightly build). Unless I'm mistaken (which I very well may be), it's hardly accounted for. I'm not sure that we can continue to have it both ways with intellectual property. It probably should either consistently be treated like property, or not.

ewanmcteagle• 17 years ago

Free trade is the default. It has to deliberately made otherwise. Restricted trade serves only special interests and since the world is gradually trying to move towards undoing trade restrictions I don't see why this is a good argument.

9oliYQjP3• 17 years ago

I'm not disagreeing with you, however free trade is most certainly not a default as far as the law is concerned. As such, intellectual property is for all practical purposes being treated entirely inconsistent with real property in this manner.

EDIT: FYI here is the U.S. Harmonized Tariff Schedule in delimited format (2.0 MB) http://www.usitc.gov/publications/docs/tata/hts/bychapter/09... to give a sense of the sort of wire-ranging tariffs that exist on real goods imported to the U.S.

skushch• 17 years ago

Sort of like a tariff? This will end well.

maxharris• 17 years ago

This is not hacker news.

vaksel• 17 years ago

yeah because offshoring has nothing to do with programming

shimon• 17 years ago

It seems hard to define "offshoring" clearly enough to write a law for this tax. Couldn't you serve the same goal, though, by encouraging companies to hire locally, i.e. subsidizing job creation? There are lots of ways to do this, such as a tax credit based on how many full-time employees a business has. Many jurisdictions already have such a tax, so perhaps we need to ask:

1. how much of a local-hire subsidy would we want, and

2. how do we educate business managers about the cost advantages available through such subsidies, so they have a better understanding of the comprehensive cost of offshoring?

zacharyvoase• 17 years ago

We don't need any more tax, thank you very much. It's called competition, just deal with it. If a company feels it can get a better deal (in terms of either quality or price), and they go offshore to get it, that's your problem, not theirs.

Either improve your quality, lower your prices, or both.

lew2048• 17 years ago

Write the equation that defines "the national interest".

The economy is an extremely complex system. This guy wants to fix a component of that very complex, highly-inter-related system with a verbal argument. Hand-waving. No testing of the law, which he doesn't specify. No testing of the implementation mechanism, a gov bureaucracy, which we know to be extremely un-reliable, and to be so complex a subsystem as to have emergent properties which often produce perverse effects.

This has as much chance of making the world a better place as a random change to source code in the linux kernel.

We need an offshoring tax

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