Thursday, 26 January 2012

Obama's State of the Union message to procurement

It’s not often I take the time to look for procurement messages in a US Presidential address, but Obama’s State of the Union address has some interesting messages for the procurement world.

Obama views the economy has been weakened as a result of outsourcing!  Does he mean
outsourcing to firms within the US or business going to firms in other countries?  Assuming outsourcing aims at delivering a competitive cost advantage does not need to be compromised.  Losing a cost advantage would hinder exports.  But outsourcing within the domestic economy could also provide a panacea to the USA economy though. It would be a good thing if businesses sourced from areas (within the USA) which have perhaps suffered most from the crisis, stimulate local economies, reduce local unemployment and deliver cost reductions.

However, if Obama means reducing the amount of outsourcing to businesses located outside the USA, the problem, which of course will impact on other countries, will be that whatever the original business objective of outsourcing will be compromised – I assume is most cases that was a procurement decision and meant reduced costs yielding a competitive advantage.  Therefore Obama may get a short-term political gain from the message but the businesses will suffer a cost disadvantage.  I sincerely hope procurement professionals are part of the options appraisal process.

Obama implies there has been a tax advantage in outsourcing through moving jobs and profits overseas. Our friends in Brazil, in ‘Bigger Brazil’, are reducing businesses taxes for certain categories of local production. Like Brazil, Obama talks about tax breaks for certain, desirable, categories of business. It isn’t that surprising that like Brazil, those categories include high-tech businesses. So if you start up the right business it makes sense to shop around for the country tax regime best suited to your pocket – nothing particularly new there as an economic development strategy.  But wouldn’t it be interesting if the UK Business Strategy could provide such tax incentives?  We could be looking at a global approach to national protectionist policies which balance each other out and the loser is the domestic tax payer.

In parallel, Obama plans to make it easier for US firms to sell abroad. How’s he going to do that?  Well bipartisan trade agreements are the answer.  He will “also go anywhere in the world to open new markets for American products.  And [Obama] will not stand by when competitors don’t play by the rules.”    This looks interesting.  I can just visualise Francis Maude having the pre-meeting discussion with the Ministry of Justice and Ministry of Defence procurement teams, reminding them of his perception of bias against UK firms, prior to meeting the Obama heavies who “will not stand by when competitors don’t play by the rules”.

As I have advocated elsewhere now is the time to stimulate the economy through investment - Obama seems to agree, "There has never been a better time to build, especially since the construction inductry was one of the hardest hit when the housing bubble burst."  UK public policy makers and spenders would do well to take that advice.

Procurement people live in interesting times

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