Bush Unlikely to Curb Offshore Outsourcing

Are we serious about reversing offshore momentum?

With the re-election of President Bush, some offshore outsourcing advocates were set, it seemed, to do a victory dance. They then thought better of it, reflecting on doubts that Kerry, had he won, would have slowed the trend in any significant way, despite a few rhetorical potshots, such as claiming that Bush "outsourced" the botched attempt to capture bin Laden at Tora Bora. The outsourcing supporters werent going to lose either way, so why get excited about business as usual?

It is safe to assume, however, that the second Bush administration will do nothing to penalize companies that, euphemistically, arrange for cost-effective worldwide labor. What nobody knows for sure is whether there will be any raising of the H-1B visa quota or whether the second Bush administration will push beyond the No Child Left-Behind Act to advance science and technology education and work for fair trade with countries with which we have trade imbalances.

Another measure to balance the tech-worker scales must be done locally—state and local governments offering tax incentives to build tech facilities in the United States. As Intel CEO Craig Barrett said in a recent eWEEK interview, he can get incentives for building a plant abroad, but when he tries to build one in the United States, hes derided for seeking corporate welfare. A significant momentum shift will take years of concerted effort on several fronts. Most of all, to do these things, we must want to do them.

Out and about

CEO Randolph Blazer resigned after four years at BearingPoints helm and was replaced by interim CEO Roderick McGeary. Why? Meta Group analyst Stan LePeak said one reason is that BearingPoint (formerly known as KPMG Consulting) had failed to expand the outsourcing part of its business beyond 7 percent and instead was relying excessively on lower-margin consulting and project-based services. In contrast, LePeak said, Accentures business is now 37 percent outsourcing, and Computer Sciences Corp. is now doing more than 50 percent of its business in outsourcing.

Outsourcing is recurring revenue, while consulting and project-based services generate revenue that ends when the project does, necessitating greater sales costs in generating new business. "Its tough to run a business that size just on consulting and systems integration. Their gross margins are about 10 percent below comparable firms," said LePeak.

In addition, BearingPoints $126 million data center contract with Florida was canceled. Washington Technology said that improper communications between former Florida CIO Kim Bahrami and BearingPoint, where Bahrami now works, were the reason current CIO Simone Marstiller ended the deal.

Computer Sciences said its results for the quarter ended Oct. 1 were $3.93 billion, up 9.6 percent over last years second quarter. Earnings per share were 68 cents, up from 57 cents for the same quarter a year ago. In the current quarter, CSC has signed a $1.35 billion ITI services agreement with Ascension Health and a $1.1 billion infrastructure support services deal with Textron.

EDS, meanwhile, is still digging out from under its multibillion-dollar NMCI (Navy Marine Corps Intranet) contract. Costs due to that deal fed a third-quarter loss of $153 million for the integrator. EDS auditor KPMG also found two significant deficiencies in the companys internal controls.

General Electric is selling the majority interest in its India-based business processing operation, GE Capital International Services, to investors General Atlantic Partners and Oak Hill Capital Partners. GECIS will provide services to GE under a multiyear contract but can offer similar services to other companies. GE is retaining 40 percent of GECIS, and about 1,000 GECIS employees will stay with GE. The units current leader, Pramod Bhasin, will remain as president and CEO. "Its a great time to sell it off and make a very handsome profit," said Metas LePeak. "More companies with captive operations will sell them off."

Careful readers of eWEEKs Rumor Central by Spencer F. Katt learned as much several weeks ago.

Stan Gibson can be reached at stan_gibson@ziffdavis.com.

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