State Governments More Open to Working with Offshore Companies?


While nearly every industry has increased its use of third-party service providers over the past few years, some have been more reluctant than others to utilize offshore companies. Government agencies until recently avoided working with offshore vendors due to concerns over negative political fallout and the possible exposure of sensitive data.


In a 2005 study, the Reason Public Policy Institute found offshoring was involved in only about 6 percent of federal outsourcing and less than one-tenth of a percent of outsourcing at state and local levels. According to the National Conference of State Legislatures, several states have passed laws banning or limiting state contracts with non-U.S. citizens. Other states give preference to domestic contractors over offshore companies and/or require contractors to disclose where all work will be performed.


This makes the IT modernization projects performed by Tata Consultancy Services for at least two Arizona municipalities, Tucson and Phoenix, pretty unusual. TCS has completed seven such projects in the U.S., reports Computerworld, though it hasn't disclosed the names of all of its government clients.


Gage Andrews, deputy director of Tucon's IT department, said TCS migrated the city from a 20-year-old mainframe running mostly homegrown COBOL applications to a Windows server environment. Following the migration, Tucson employees will handle day-to-day operations, with TCS providing ongoing maintenance and support. IT staff that worked on the mainframe will be moved to other projects, said Andrews.


Thanks to the increasingly global nature of IT, Andrews said, "it's going to be pretty hard to find somebody that is only an American-based company."


U.S. companies like IBM, EDS and Accenture are all beefing up their offshore operations, so it's likely at least some government work outsourced to those companies is going offshore, said Chris Dixon. And nothing prevents non-U.S. companies from buying American competitors, much as Canada's CFI Group did in 2004, buying American Management Systems, said Dixon. However, it's still uncommon, he said, for U.S. government agencies to do business with a foreign company like TCS, which brands services under its own name.


It's also possible (my opinion, not Dixon's) that U.S. agencies may feel more comfortable doing business with offshore companies like TCS and Wipro, now that they are establishing facilities here in the U.S.


Tanmoy Chakrabarty, vice president and head of Tata's government industry solutions, said his company is working to sell its tax and revenue system services, called Tax Mantra, to global clients, reports Computerworld. Although the services were developed and first used in India, Chakrabarty said tax systems around the world share many of the same characteristics.