President Trump is the death-knell for traditional offshore outsourcing... as we know it

November 09, 2016 | Phil Fersht

Addendum note:

Since I penned this blog, Senator Chuck Schumer has been made Senate Minority Leader.  Schumer has been the biggest and most active opponent of offshore outsourcing, in the US government, for the last several years - we even wrote about his failed H1B bill back in 2010 after his infamous branding of Infosys as a "chop shop".  Net-net - with Trump's aggressive stance on protecting US jobs, massively raising the H1B minimum wage, combined with the determination of Schumer leading the Democratic Party faction, this does not bode well for the future of the offshore business for at least the next four years.

 

President Trump is the death-knell for traditional offshore outsourcing... as we know it

The traditional Indian-dominated offshore IT services market was already in the throes of desperation to find a new path for itself. Much of the global 2000 has already been pulling back on the traditional “mega deal”, amidst intense competition between a surplus of IT services providers and an increasingly desire to parse out smaller contracts to multiple suppliers.

The election of Mr Trump to the Oval pretty much just hammered in the final nail in the coffin for the traditional IT outsourcing market as we know it. The Republicans control the House, the Senate and Trump has a huge mandate to impose his will, not dissimilar from Obama and his healthcare reforms.  Change is going to happen and it will likely have a very significant impact on global IT and BPO service delivery.

Why is this bad news for offshore services industry? 

Temporary IT workers will likely be massively hit. Trump’s campaign has already outwardly promoted raising the H1B minimum salary to $100,000 per year (from $60K). This makes managing complex IT projects a lot more expensive and negate much of the cost advantage for complex engagement requiring “landed” IT staff. For the IT community of several hundred thousand H1Bs, L1s and B1 holders currently residing in the US, many of them will come under scrutiny if Trump holds true to his number one campaign promise – curbing immigration and protecting American jobs. So this doesn’t just spell bad news for the competitive of new IT services deals, it also threatens the viability of existing long-term engagements. 

Enterprises will increasingly look to cloud-based solutions. With the cost of maintaining legacy ERP systems likely to spiral, many enterprises will be forced to write off legacy sooner than they may have wished and invest in cloud-based enterprise solutions that require less offshore labor components. Much of the Indian IT services industry, for example, grew up on supporting and maintaining now-legacy IT environments, such as on-premise SAP systems. While many long-term engagements will have already be well past the "labor arbitrage stage" and hard for the Trump administration to police, all US businesses engaging with large numbers of offshore services will become under increasing scrutiny.  If there was ever a time to make investments in standardized IT solutions that do not have a heavy offshore dependence, this is it.

Automation is now the new labor arbitrage - and Donald just made it happen. Forget Brexit, Trump is now the new true friend of the fledgling automation industry (and he probably doesn't even realize it). One of his last speeches was centered on his berating of IBM for offshoring a bunch of jobs from Minneapolis.  Offshoring is often a prerequisite to automation... just look at the manufacturing industry where the work is initially moved to overseas factories, before being automated within those factories (or brought back on shore to factories employing a much smaller workforce).  Just look at many car plants today which may have employed thousands of workers just 20 years ago, which now only need to employ barely a hundred.  IT is no different and the tools are now in place to accelerate automation of IT and business processes faster than most people realize.  With the use of IT labor now under so much more scrutiny, the service providers can no longer ignore the fact they need to pivot their delivery models away from labor scale even faster than they had feared.  As we analyzed earlier this year, 9% of outsourcing jobs are likely to be displaced by automation over the next 5 years, but that number could be reached in two or three in this new climate.  

What can the offshore industry do to survive this?

Invest in US companies employing skilled US IT and consulting staff.  Wipro must be tickled pink it acquired US cloud services firm Appirio the other week.  The best way to protect - and upskill - Indian based IT workers is by making investments up the value chain to front end new generation IT projects.  Wipro can support many new engagements from this investment, where the client facing staff are all US natives, without the scrutiny of the offshore police.  Other Indian-heritage IT services majors need to follow suit with US investments, especially in consulting domains.  Consultancies like Bain and AT Kearney - while very expensive - could be very attractive acquisition targets for the likes of Infosys, TCS, Cognizant et al.  In addition, cloud services niche providers, such as Onesource Virtual, Collaborative Solutions and Sierra-Cedar are possible targets to diversify and de-risk the traditional offshore model.

Invest in intelligent automation capability and embrace start-ups. Enough of the rhetoric... the leading offshore-centric service providers have to go down this path or face extinction in the future.  President Trump may be able to make deployment of offshore workers unattractive, but he will really struggle to prevent the automation of processes and technology.  The successful IT engagements of the future with traditional enterprises beset with legacy systems are already being increasingly dominated by the need for greater automation capability.  That is bread and butter.  The emerging wave is being able to make automation more intelligent with smarter analytics algorithms and cognitive technology.  This means major investments need to be made in internal training to develop these skills and capabilities, in addition to smart partnerships with tech firms and startups.  The huge bright spot here for India - and other developing nations like China and Eastern European countries - is the emergence of the start-up tech culture. Many investors are already fed up with the insane cost of priming start-ups in Silicon Valley... and are more than keen to look overseas for more fruitful, lower risk tech innovation initiatives.  

The Bottom-line: This is the new reality for outsourcing and it's time to pivot

The FTE model dies with the Donald - the offshore outsourcing industry must look to develop new generation engagements that do not involved labor-dominant pricing.  The surviving service providers will start providing services and not "people".  Love or hate the election result, this happened.  The one bright spot, in my view, is that these changes were happening in any case, and Trump's protectionist policies are merely going to accelerate reality.  The key now is to recognize what is going to happen and get ahead of it... get ready to pivot.  This is real disruption hitting the IT services industry and it's never going to be the same again.

Personally, I am desperately hoping Mr Trump embraces an amazing opportunity to unite the country - this will either be his defining moment, or a sad mess. Whatever we think of the man, what an amazing achievement.  He was just relentless!

Posted in: IT Outsourcing / IT ServicesPolicy and Regulations

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1 Comments

58 Comments

  1. Anupam Tantri
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    The US election result is going to reverberate across the globe. Next leader that should watch out is Angela Merkel. We have to hope that the US Congress does not usurp its responsibility of being a strong watchdog over the Executive branch. Corporates should not make wholesale changes, whether they be outsourcing or for that matter anything else. So long as business policies have a sound strategy and in the best interests of the "owners", no President or Prime Minister can change the road ahead of us or the outcomes. Life is full of unpredictable events; business leaders have to keep their eye on the ball, adjust to the changing times, have a good strategy and keep playing the game. Outsourcing companies have just scratched the surface. Immense opportunities lie ahead in AI, process improvement, data analysis space and as Phil points out "the offshore outsourcing industry must look to develop new generation engagements that do not involve labor-dominant pricing" or strategies.

  2. Heine Winther
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Driving value beyond cost via innovation and transformation is therefore even more important. And... digitization, automation, AI and the journey to Cloud are some of the important levers. Will be interesting to see if this will further accelerate.

    Heine

  3. Ashok Gairolaagree
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Phil,

    Agree outsourcing is a prerequisite to automation - one component all principal companies "outsourcing work and saving millions" forgot was to pass on some benefits to customers or community and this has started pinching local skills and has created a vote bank for Trump.

    Ashok

  4. Michael Hochberger
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Your view is reactionary but at least off enough to lead to a conversation. If we can believe his campaign Trump's business-related plan is as follows (leaving aside his changes to the Supreme Court). 1.) He will truly enforce immigration laws.- build the wall (employing a lot of people) and unbelievably start to deport illegal immigrants. This will further constraining the labor market (at 4.9% unemployment rate we are approaching what economists call "full employment" somewhere around 3-4 % of people are always looking and or leaving jobs) leading to INFLATION 2.) He will plan to repatriate offshore profits companies have been holding overseas. A strain on business 3.) He will lower the corporate tax and the tax on the wealthy. 4.) He will begin by penalizing the manufacturers who offshore large numbers of employees. That may or may not include IT and BPO. But if it does it will be a PENALTY not a prevention. That leaves a lot of spending: the wall, infrastructure projects, lower corporate taxes and no way to pay for it. Trump is a businessman he prides himself in business with coming up with new revenue sources Business will be upset. He will tax not prevent IT and BPO outsourcing. We've seen companies paying way too much to the big offshore companies for these services. American companies with Indian labor marking up their labor by 300%. SMALLER, NIMBLER privately owned outsourcing companies with less of a desire for pure profit will benefit as pricing will again become king. As you mention, automation has already been occurring before Trump. But as we know especially in the BPO world, you can't always automate. Trump will not tax the american companies, he will levy tariffs on the offshore companies. The other growth area will be US based companies with US labor.

  5. Phil Fersht
    | Posted Apr 23, 2019 08:12 PM | Permalink Reply

    @Michael - these are interesting thoughts. Bottom-line, the offshore outsourcing industry is already under a lot of straight with creeping automation, over supply of services and lack of demand. Determined protectionist policies are going to accelerate the change it was already going through

  6. James Levy
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Phil,

    Brave and pointed piece. I agree with you - DT is strong-willed and he means business. I can see the outsourcing business getting turned on its head a lot faster than otherwise would have happened, if he is allowed to push through his policies.

    Let's just hope he rises into his new role and sees business sense here... this is more than protecting jobs, it's about keeping businesses globally competitive,

    James

  7. Chris Coyte
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Phil As usual a well written and imotive piece. The last paragraph really says it all; this change was in play already and if our industry was not preparing for the inevitable then the law of the jungle prevails, "survival of the fitest" Chris

  8. Manish Mehta
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    I was saying the same things to some people here in India. The traditional politics - large Co. nexus and the alignments with Wall Street etc. become a bit challenged when you consider that it's been a campaign driven from the outside. The usual corporate - political party context is weaker, quietened in the short term atleast and industry executives wary of doing more of the same (outsourcing).

    Assuming he truly wants to come good on the many promises, then big businesses are obviously not going to be wanting/to be seen as enthusiastically removing staff and shifting jobs offshore. Think too what that means to companies running offshore captives, GICs in India, offshore factories in China etc. Recollect the nudge to Apple, Ford, IBM and others during the recent campaign. Now throw in the immigration tangle and challenges to free movement of labor. Add in a few more twists via rules, enforcement of policies, suddenly it gets a lot harder for the offshore located firms.

    Don't see this result on the whole being positive to the outsourcing/offshore dynamic by any stretch of the imagination. The automation trend ofcourse is going to continue too.

  9. Sunder Sarangan
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Great commentary as always, Phil Fersht - but the question is not whether this is accelerates change for traditional offshore outsourcing. The answer to that question is obvious. The question should whether the winners coming out of this change will be the same traditional offshore outsourcing firms - looking very different from their current ways? Or will we see a new breed - and if so who?

    Sunder

  10. Phil Fersht
    | Posted Apr 23, 2019 08:12 PM | Permalink Reply

    @Sunder -

    The existing breed which can leverage their traditional businesses to fun their as-a-service offerings will survive. They have to get the balance right. I can see some of the smaller, more nimble players winning out, such as your own firm, but also some of the existing majors, such as HCL, Wipro and Cognizant as examples of providers pursuing the dual strategy.

    PF

  11. Terry Woods
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    I agree. This will accelerate global productivity improvement and as a proven result, improve economies.

  12. Sundar Viswanathan
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    @Phil, Candid as always. You are the best when it comes to starting a conversation. I differ from you on this topic though - President Trump is not "the" death-knell - he could be one among the several factors.

    Mr. Trump's issue is with illegal immigrants. Not IT professionals working on H1B. As far raising the wages for H1B employees is concerned, it’s good for the professionals and its high time the IT companies started paying up.

    Mr. Trump could alter the criteria for H1B, but that's alright as long as US can find talent internally and if it is in the best interest of the US. The sad state of affairs is that, the skilled-talent is not easily available "on-shore" any more! So, H1B will continue to be leveraged the way it has been for decades.

    I understand that Mr. Trump is the President elect of the US of A, but to give him the credit of driving technology transformation even before he enters White-house is a tad too much.:-) I am reminded of the Nobel Peace Prize conferred on President Obama even before we knew what he was up to.

    As far the competitiveness of the "offshore industry" through labor arbitrage, that was lost when IBM, Accenture etc., ramped up their facilities in "best cost locations" and even overshot the leading "offshore" service providers in their home country! The truth of the matter is almost all IT services companies are "offshore" companies.

    Having said this, I like your recommendations!

    It's time Indian IT services companies started dreaming big.

    Unleash the $Bn bank balances, invest in acquisitions that change the game. For instance, I love your idea of acquiring marquee consulting firms, interesting start-ups etc., or acquire to integrate value chain in a given area (design to field services) and offer real "as a service" model to their customers.

    Which other business on earth gives 25% returns? Last time I checked, even real estate returns / stock market returns (from even emerging economies) were not more than 15-20%. The industry should forego margins and do some quality spending on customer engagement, talent, branding, partnerships, training, tools, in-house technology, set up "global" facilities and lab infrastructure etc.,

    Sundar

  13. Phil Fersht
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    @Sunder - Trump was lashing out at IBM for shipping jobs to India just this last weekend... you can bet your bottom Rupee he's looking at IT jobs too... not just manufacturing

    PF

  14. John Slagboom
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    This can have a huge impact in a negative way temporarily. I am an RPA Architect through Co Sourcing Partners at a Fortune 1000 MHC that is seriously moving into the RPA space; however, because they have key contracts that will only allow the employment of US citizens, we have not been able to use H1-B visa RPA analyst or developer at all. Can you guess what our success rate has been finding enough to these has been among US citizens? Not that it is easy if you can use H1-B visas. I say temporary problem, because the $100k threshold is going cause quite an upward pressure to make RPA a huge career field in the US much quicker. Unfortunately, the acute shortage of RPA professional will get worst, before it gets better. Upshot, it looks like I am going to have to become an RPA developer in the meantime! Whose says you cannot teach an old dog, new tricks?

  15. Sanket Kulkarni
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Sundar, very well said.

    I would say that even previous regime (Obama) did not make enough on immigration to ease the pain. So, offshoring industry has learned to live with it.

    That being said, forward looking steps from IT Offshoring industry are very much needed. Would you forgo your margin in pursuit of it - that is really big question.

    Trump might be just that trigger to IT firms to usher in that change.

    Exciting (roller-coaster) times ahead.

  16. Craig Knowles
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Very interesting and it will be exciting to wait and see what happens.

    Working for a cloud based SaaS provider (Market Dojo), it will very interesting to discover if this dramatically increases the adoption of cloud based providers in the short term. Especially if as you mentioned, the cost maintaining the likes of legacy ERP systems spirals.

    However I am still skeptical as to whether there will be any changes made in the short term and if the house and the senate actually back his reforms. After all he probably isn't the most convincing leader that the states have had in recent times.

  17. Nil Bhattacharya
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Very interesting and thoughtful analysis. Future is in as-a-service delivery model of service offerings that continually improve though automation thereby making it viable for end user consumption. The critical element here is to foresee the value in this service delivery model and making appropriate adjustments and investments to align your organization to that model if you are planning to stay in the business on your own or as a partner to firms like IBM, COGNIZANT, DELOITTE, TCS, WIPRO ETC. I do expect to see a lot of smaller companies that will continue to emerge in the space of service automation and innovation that bigger companies will like to add to their portfolio. Interesting times to say the least

  18. Phil Fersht
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    @Craig - this blog is based on everything we've learned about DT via his stated policies over his 18 month campaign. He now has a huge mandate (whether we like it or not) to drive this policies through the House and Senate - which the Republicans control. Add to that his new best buddy Paul Ryan, and you can only assume DT walks on water for a couple of years at least.

    Th big "if" is the unpredictability of the man, and whether he puts all his energy into trying to force Vicente Fox to pay for his wall =)

    PF

  19. Cindy Carpenter
    | Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Despite Trump's xenophobic and anti-globalization rhetoric, he is also very anti-regulation and pro-business and all of his own personal businesses rely on a global economy. Personally, I'm not convinced he will actually advocate for regulatory changes that will seriously impact global businesses.

    What I'm wondering about is the impact of having Chuck Schumer now be the senior Democrat in the Senate. Phil, you've written about his strongly anti-offshore outsourcing views in the past. He may take advantage of the climate in the Trump years to push more anti-offshoring regulations through.

  20. Phil Fersht
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    @Cindy - unfortunately, most of Trump's business are not heavily reliant on offshore support (some accounting and IT, but not a lot as it's retail and often decentralized). So (a) he just may not care about protecting offshore deals as it doesn't really impact his business interests and (b) he will use it as a visible policy to gain support across the house and make a strong statement.

    What we do know is he's unpreditable, but all the signs right now are that he'll push to "protect" American jobs regardless of whether they are manufacturing, IT or other... and remember where he won the election... the rust belt states which are looking to him to create jobs and do right by them.

    However this turns out, immigration and job protectionism are likely to be his main focus areas... and this doesn't spell at all well for promoting further labor arbitrage of IT / BPO work.

    At a time when the offshore centric industry is grasping for fresh demand and a shift away from liner FTE pricing, I don't see DT doing it any favours at all...

    PF

  21. Manish
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Phil,

    Totally, totally agree....your remarks in the context to Craig and Cindy's questions. It's got all the signs of a perfect storm brewing ahead. It's not hyperbole the title of your blog above. And to think that some of these firms actually project doubling their revenues and margins by 2020. Beats me, the logic.

    From the interesting times we are now soon headed into the dangerous times. This is a global shift. Seriously, notice how the British were forced to change a PM mid-term after the Brexit vote, it can happen anywhere if the people want it and watch how on a recent trip to Bangalore the usual suspects were given a miss.

    Thanks,

  22. Sid Dogood
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Finally, the secret is out that American's do not want illegal immigrants and visa guest-workers taking our jobs! We don't want corporations bringing over millions of Indian guest-workers so that they can have cheap labor and claim Americans can't or won't do the work-when we held the jobs and had to train our replacements when we were laid off! We don't want every city or state giving documentation and driver's licenses to assist illegal immigrants access to services (free) or employment (our jobs)! We don't want corporations to be allowed to screw with retirees or anybody else's pensions that were EARNED, or eliminate retiree heath insurance that was PROMISED! We don't want to be screwed on our taxes because corporations (so called job creators-NOT) don't want to pay US\State taxes and they keep Billions of dollars offshore! Corporations are NOT people, American citizens are people!! The signs of this are everywhere, and we shouldn't have needed Donald Trump to point them out.

    Americans are losing their jobs to mostly visa holding Indians across this country, entire apartment complexes are filled with these guest workers, stores are full of guest workers since Americans can no longer afford to shop after being fired, training their replacements (here and offshore in India). It is as clear as can be what is going on. This is not an immigration comparable to the past, these non-immigrants are being brought over for the single purpose of taking Americans jobs at lower wages. Now visa expansion is the goal of our bought politicians and the corporate lobby; even the trade agreements (TPP) are loaded with language meant to expand foreign guest workers taking what's left of American jobs. Our representatives say they love America, but they seem to hate Americans.

  23. Dave Fulton
    Posted Nov 10, 2016 10:56 AM | Permalink Reply

    Phil, I believe you will be proven wrong in your assessment over then first several months in 2017. In my opinion, the real concern is with President Duterte and his negative/caustic comments towards the U.S. to where U.S. corporations feel the need to relocate their BPO business,

    Dave Fulton

  24. Frederic Khalil
    Posted Nov 10, 2016 10:16 PM | Permalink Reply

    Phil,

    I believe that the challenges facing traditional outsourcing started long time before these elections, given the decrease in the "real" value that companies have realized to date. In addition, I am not sure about the effectiveness of your suggested merger strategy between companies like ATKearney and Infosys or Cognizant, based the real experience I encountered when I worked at ATKearney during the times when EDS was the parent company,

    Frederic

  25. Jimmy Roa
    Posted Nov 10, 2016 11:10 PM | Permalink Reply

    Uncertainty and Fear begets caution, and caution begets a wait and see attitude. Offshore outsourcing will continue it's existence but growth in this industry will slow down.

  26. Nancy Richardson
    Posted Nov 11, 2016 08:07 AM | Permalink Reply

    Phil - always enjoy reading your insightful thought-provoking posts. This industry has been ripe for an overhaul, and tech / automation will be infused to deal with these changes.

    In another way, I feel for the dual impact this will have. We have leveraged, thereby boosting, 3rd world country citizens...people and families...that otherwise would not have the incomes that often accel what is available to them otherwise, locally. They don't have options and freedoms we have in the USA.

    This evolution will be devastating to them, and for those countries where our mfg businesses may very likely return home from. Though we shamelessly underpaid them in comparison to our onshore workforce, it was gold to them.

    We, in turn, will feel incomparable inflation. Our citizens will have some job opportunities, albeit lower end. But we would have the opportunity to innovate and manufacture on our Homeland.

    The reign of "Survivor of the Fittest" is beginning. It will be a tough road for all - home and global. My hope lies in these pangs and efforts will indeed return us the USA to her strength in all ways. I've defended her ability to be so, now a veteran. The world depends on doing so.

    Nancy Richardson

  27. Phil Fersht
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    @Nancy - the sad reality is offshoring is merely a stop gap between expensive onshore work and that work being automated / run by technology. By making the offshoring less cost effective is simply accelerating the inexorable move to technology replacing jobs, whether they are onshore, or offshore. The offshore delivery nations need to get ahead of this and focus on developing their own local economies, and their own ability to innovate through startups and smart partnerships. Moreover, they need to move their talent pool up the value chain to areas requiring more problem-solving skills and business aligned thinking. By having their major firms make smart onshore acquisitions is the smart way to keep moving up this value chain and keep their workers supporting global businesses,

    PF

  28. Nancy Richardson
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Well-said. Will be an interesting evolution, with huge impact - as will inevitable changes in international Trade agreements. Big changes ahead...high hopes. NR

  29. Waldo Pepper
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Trump has proven to be an unconventional thinker now that he's entered the political arena. He's made things that were unspeakable just 18 months ago central planks of his policy. In the area of the topic at hand, I expect he will push the boundaries, and do something unexpected: I believe he will regulate automation. This could take different forms, whether a heavy tax on job-replacing technology, perhaps equivalent to or exceeding an amount equal to the number of jobs replaced multiplied by the median salary of that job, with no write-offs for maintenance, purchase and the like for said equipment. The single major obstacle to Trump's ambition to create millions of jobs has been identified by many media organizations in recent days as automation. Trump takes a simple approach to obstacles: obliterate them.

  30. Phil Fersht
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    @Waldo - regulating automation... I know the EU is trying that one! http://www.horsesforsources.com/Eu-Data-Protection_073016

    Time will tell how much DT is generally going to push for here... the GOP may view him as someone they can manipulate, give him his Wall and a few other bits and pieces, but ultimately keep him away from meddling too much with things. I can see an anti-outsourcing push as an area that unites key people on both parties (Schumer, Grassley et al). Net-net - I see very few positive signs that globalizing labor will me something this administration will be pushing!

    I would like to see smart government people get involved in the AI and automation debate - IMO that has a much further reaching impact on society than a few thousand jobs being recreated overseas. We're talking entire industries and millions of jobs under threat is AI and automation are allowed to reach their true potential...

    PF

  31. Waldo Pepper
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Thanks for the reply! I think Trump's greatest strength is that, not only does he NOT play by the usual political rules, but those rules and the attendant tactics seem to really grate on him. I expect him to bring the bully pulpit to new levels; I heard yesterday that he plans to continue rallies through his presidency (poor Secret Service). I agree re: automation vs outsourcing. And thanks for the link.

  32. Sid
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Nice article Phil. More than Trump ,Tech disruption brought in by Automation and AI has already inflected big blow to low end outsourcing. Arrival of Trump will force Indian SI to move up the value chain and in long run will benefit Indian Companies. This will also force them to make themselves diverse and will force them learn from Companies like Accenture /Cap to leverage mix delivery model .This might also lead to consolidation & M&A activities within Indian IT companies

  33. Manoj
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    Factually speaking there is no now no difference in Accenture, TCS, Infy and Cap Gemini and CSC. The size GEO - Distribution of all global IT companies are almost the same. Indian origin companies have globalized to American companies, and American companies have set up Indian bases and now there is ZERO difference in capacity distribution of any one. So Accenture, CSC will be hit as much as Infy and TCS by automation. I agree that more t han Trump, it is Automation that will hit all the Global IT service companies. To say that Infy will be hit more than CSC or TCS will be hit more than IBM, is not right analysis in my opinion. Let us get emotions out and see the data and facts of all companies.

  34. Phil Fersht
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    @Manoj -

    Have to disagree here - the Indian headquartered providers which have ~90% delivery our of India are going to be a lot worse hit that these Western heritage providers which have less dependency on India. Accenture has a huge onshore consulting business to compensate, likewise IBM, and CSC has a much smaller India presence. Capgemini's heavy IGATE investment could be an issue for them. On the flip side, the likely Trump policies will push more impetus towards RPA... so unless the Donald finds a way to regulate automation, it seems we're set for lots of "Donald-bots" in the next few years =)

    PF

  35. truthseeker
    Posted Apr 23, 2019 08:12 PM | Permalink Reply

    hey man, I am in my early 50s...

    I just need to work for 8 years and retire -- Trump can help me get back into programming again

  36. Barbara Hodge, SSON
    Posted Nov 17, 2016 01:21 AM | Permalink Reply

    hear, hear Michael! Agree completely. BPO is facing constant change - like everything else when it comes to business. Technology replaces people. People become more expensive offshore with markets more crowded. RPA means fewer people needed. It's just another reason for BPOs to focus on delivering smart services as well as transactional work. Their work is assured. The model needs to adapt.

  37. Neil Franco
    Posted Nov 17, 2016 03:06 AM | Permalink Reply

    I like the part where is says "service providers will need to start providing services and not people" This has been the real need all along, right from the beginning.

  38. kaustubhan srivathsa
    Posted Nov 17, 2016 03:09 AM | Permalink Reply

    Great article, Phil. A wake-up call anyway. It will infact help to raise the profile of the Indian IT industry as it gets into automation.

  39. Brave New World
    Posted Nov 17, 2016 03:15 AM | Permalink Reply

    Phil - enjoyed reading your thought-provoking views. Regarding your point on AI and automation - in my view, the real challenge we need to focus on is not how to prevent these technologies from reaching their true potential but rather how do we harness their power and the economic fruits they produce to benefit everyone rather than just a select few who "own" the technology. IMO, we will need to reinvent capitalism as we've known and practiced it and to restore our political processes so that everyone's interests are fairly considered, not just those of the powerful corporate and political lobbies.

  40. SESHAGIRI KOMMAJOSYU
    Posted Nov 17, 2016 04:52 AM | Permalink Reply

    Remember Charlie Chaplin's movie " Modern Times" ?

    The process were standardised and humans made to work like robots. then came the technology revolution and replaced the robotic humans with robots in manufacturing industry and still going on.
    then came business transformation initiatives thru IT which is technology driven. Jobs were lost to technology across the globe. Now in the financial sector more is done thru very less employment. To support all these IT driven transformations and technology development faster , jobs moved across the globe for talent and cost arbitrage. Now we are at the stage of automation( robots ) in IT which will further make jobs shrink across the globe , cost arbitrage will be gone. Offshoring will fall drastically but jobs themselves will be lost like they have in financial sector. DT factor will only make it happen faster.

    But governments/ corporations have to create jobs to keep all citizens employed. they will move to some other sector with these new technology and tools becoming a lot cheaper to own ( automation , cloud, social marketing, IoT).

    Anyone who can know where is the next wave like the IT wave of 30 years, will be the winner. this wave will again need a lot of new talent/ skills.

  41. Debashish Sinha
    Posted Nov 17, 2016 05:16 AM | Permalink Reply

    In 2009, I co-founded Systems In Motion/Nexient to promote an Agile Application Services delivery model leveraging US mid-west resources - with delivery centers in MI and IN. With the Trump election, it has become even more apparent why that was a necessary and strategically important endeavor at the time.

    We saw many of the Indian IT services companies pay lip service to US domestic workforce development at the time. I hope today they will take it more seriously.

    I said it then, I'll say it again now - Investing in US workforce development is a strategic imperative for everyone, not just for the state employment agencies. It mitigates risk for US enterprises, provides an important resource base for agile and cloud app development for vendors, and provides a political and economic sustainability story for offshore companies that profited from American import revenues.

    I'm happy to help any CEO of an offshore company set up a US mid-west operation - whether through organic development or acquisition.

    Warmly, Debashish Sinha CEO, ZenNut

  42. Ajesh Chandra
    Posted Nov 17, 2016 07:42 AM | Permalink Reply

    Mostly agree with Phil,

    The Offshoring industry is going thru its own made challenges - 30%+ workforce does testing works, mostly manual, which is getting disrupted with Agile model. The high end services are getting differentiated and the offshore model will not work due to lack of SME knowledge. Real time we see "cool" deals going to niche onsite players. There is also lack of urgency to adapt heavy automation as the industry has got too used to dong FTE based pricing. The operational leadership is only focused on "managing only". The captive models will also be under pressure unless they will add to the growth agenda.

    The only saving grace has been dollar appreciating, in last 4 years has gone from 50 to almost 70 now, a huge 40% appreciation on INR cost base.

    The Silver lining is on a larger scale there will be more opportunities created outside of the Western economy as wealth moves from West to East which will be a balancing act. The world will disrupt in the sense that it will move from being build to "Serve the West" to "Serve Local".

    Having said all this there is no better place to be than the IT Industry as we look to future.

  43. Peter Ross
    Posted Nov 17, 2016 10:35 AM | Permalink Reply

    I would suggest that raising the H1B minimum salary will also be a boon to the offshore employee leasing industry. First, this negates the need to bring workers onshore and second these workers can be employed at relatively lower labour costs (within their host countries) and managed via cloud-based workplace collaborative tools.

  44. George Brooke
    Posted Nov 17, 2016 02:09 PM | Permalink Reply

    Compelling article, but I disagree with the commenter's point (Mark Robinson) that "outsourcing is a prerequisite to automation". Phil's actual statement included the word "often" and while this may have been true in the past, the manufacturing industry example is not necessarily representative of things to come. US F500 companies, who are by far the largest outsourcing buyers, also have highly mature and capable IT organizations that are perfectly capable of "rolling their own" RPA and skipping outsourcing as an evolutionary step towards process innovation. So, a key to offshore outsourcer survival is to present a non-traditional value proposition based on business domain knowledge-driven design of a workflow-orchestrated blend of human and RPA task execution. IT will not be able to compete.

  45. Mrinal Singh
    Posted Nov 17, 2016 09:06 PM | Permalink Reply

    Phil, Interesting thoughts, though you by referring to Trump you took a savy marketer approach.

    Indian IT Services companies have been under pressure and if we look at some recent trends, revenue growth without commiserate headcount growth, plateauing growth rate, acquisition of companies like Panaya by Infosys and emergence of corporation like IPSoft etc, we can see the direction things are moving.

    One a slightly different tangent, when corporations themselves are being disrupted by emergence of entities like Airbnb and Uber, the time for large monolithic projects and millions of dollars single sourcing agreements are going to be a thing of a past...

    I am reminded of the book "Even elephants can Dance"... Agility is the way to go... Devops, Containers, Agile are all indications of that...

    My 2 cents!

    Mrinal | http://www.linkedin.com/in/mrinalsingha

  46. Nilesh Kharva
    Posted Nov 14, 2016 11:32 PM | Permalink Reply

    I don't think a lot will change... remember Obama had a similar stance back in 2008 he had a slogan 'Buffalo not Bangalore'

  47. Doug Hudgeon
    Posted Nov 18, 2016 12:00 AM | Permalink Reply

    Phil,

    Good article. Offshoring's loss will be a win for the automation industry rather than job seekers. Ultimately, this'll be good for the US but it won't be well received by the grassroots Trump voter.

    And charts like this one are not going get any better for middle-income earners in the western world: http://www.businessinsider.com.au/a-brutal-chart-from-bridgewater-explains-the-rise-of-trump-2016-11?r=US&IR=T

    The frightening question is what will do to jobs in India and other offshoring locations?

    Doug

  48. Phil Fersht
    | Posted Nov 18, 2016 01:17 AM | Permalink Reply

    @Brave New World - this election exposed both the GOP and Dem parties to be pretty broken - and the electoral process producing two candidates who were, let's face it, way below what the country really needs to move it forwards. At least the Dems are being forced to reinvent themselves to find a leader and a structure that is aligned with the common people and not the "liberal elite". The GOP were expecting a fully loaded reinvention in the wake of a Trump defeat, but now will feel a mandate to pretty much carry on as they were... net-net, I don't think it's capitalism that needs fixing, it's the political process to produce policies and candidates that align with what people can resonate with. This election was decided on emotion and hatred, not real policies and movements to change the world...

    PF

  49. mukul
    Posted Nov 21, 2016 03:09 PM | Permalink Reply

    Do you really think that DT can target legals on H1B who have paid so much in taxes like SSN without any benefits and have helped keeping the SSN alive with relative higher pay? Also with very strong leadership that India has at this time, Will he not expect a rebut? Think about american companies - Coke ,Maconalds, Pizza hut, Pepsi etc making billions in India's big consumer space. Big arm and flight deals which can go Europe route as rebut instead of US. also any major step on H1/L1 can impact significantly to rental and overall real estate properties too. The secondary job generations due to high spending on visa holders. would this not be in the back of his mind?

  50. Phil Fersht
    Posted Nov 22, 2016 10:01 AM | Permalink Reply

    @Mukul - in his "priorities" address yesterday, he has jobs, immigration and temp workers right at the top (and these are more feasible, and aligned with many senior Democrats). I would imagine his further reaching plans, such as mass deportation and building the wall are going to take a back seat as these will require a lot more work to put through Congress. If I had to make a prediction here, I would imagine Trump will look at to metrics to judge his success - the US economy and job creation.

    PF

  51. Diana
    Posted Nov 28, 2016 11:22 PM | Permalink Reply

    Is he going to bring all the work that is now being performed offshore on his line of merchandise back to the US? Double standard if he is saying don't offshore work and he continues to use foreign labor to produce his line of mdse.

  52. Pete
    Posted Dec 19, 2016 02:19 PM | Permalink Reply

    Outsourcing to another country needs to be put to a stop. I grew up in the USA. I went to college for computer programming, worked for free for IT companies and carried and maintained a 3.8 GPA. After college I then worked four years in the IT industry before getting laid off. I can not get an IT job. I have skills and built my own roommate finder website (USARoomies dot com) to prove this. The IT market is saturated and adding India to the fold makes it much, much harder.

    USA Roomies

  53. kek
    Posted Dec 30, 2016 12:23 AM | Permalink Reply

    Stopping the IT H1B Visa program is more important than IT outsourcing. Raising the minimum wage to 100K is a good start. Once US IT college students and unemployed USA IT workers are at full employment then and only then allow H1B Visa employment to fill the labor gap. Regrading outsourcing to India that model has become less and less desirable over the years with or without Trump. With Trump at the helm the US is about to enter a 1950's "Eisenhower" like economy that will be glorious for all USA workers

  54. Manish
    Posted Jan 06, 2017 02:31 AM | Permalink Reply

    Has the new immigration bill been introduced recently? Things are moving rather quickly....

  55. Mike Slavin
    | Posted Jan 31, 2017 03:56 AM | Permalink Reply

    Phil - nicely done treatment of a potentially emotional discussion. While potentially painful short-term to heritage Indian service providers, everyone in the outsourcing game is being forced to dial up their capabilities and service delivery models.

  56. Deepak
    Posted Feb 01, 2017 04:48 PM | Permalink Reply

    Well Said Sundar

  57. Jonathan
    Posted Feb 02, 2017 08:17 AM | Permalink Reply

    Interesting article. I actually wrote something quite similar however explore how detrimental a halt in outsourcing would be to the American economy. Particularly with regards to innovation. Let me know what you think :) https://medium.com/@jono46k/outsourcing-the-unlikely-key-to-american-prosperity-and-why-we-cant-afford-to-give-it-up-cc8f212a1dba#.mb732gphe

  58. Devendra
    Posted Feb 14, 2017 01:24 PM | Permalink Reply

    Interesting Articles. I have just landed on this page today while i was writing a article on the same topic. https://www.bizofit.com/blog/robotic-process-automation-bigger-threat-jobs-new-h-1b-policies/ Hope you will get it and will give your point of view there. Thanks!

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