Ever since the commencement of the global economic crisis, and now in this COVID 19 pandemic world, India and China are being accused of robbing the US and Europe of jobs, dumping cheap goods, and generally following unfair to developed countries trade practices. Globalization is no longer as attractive a word as before and there is increasing protectionism in the mature markets which were the main consumers for the emerging markets.
The steep rise in visa fees, keeping the H1B visa quota static at 65000, higher visa rejection rates, making L visa intracompany transfer visas more difficult, linking trade to immigration, lack of progress in securing a multilateral trade agreement with EU are all part of the protectionist wave sweeping the US and Europe.
The vibrant Indian IT outsourcing industry is finding itself caught in the internal political storm of the US. Dumping of cheap Chinese goods and currency manipulation to secure unfair trade advantage is a charge levied against China. Geopolitics is only adding fuel to the fire. Against IT is the refrain of robbing the US and Europe of high paying, technology sector jobs. The current pandemic has shifted the focus to China but concerns on job loss in the US are simmering and will re-emerge as soon as the pandemic is brought under control.
Outsourcing and loss of US jobs became the previous US Presidential debate issue in both the previous elections. This debate is refusing to go away despite active lobbying by NASSCOM and Indian IT majors. IT companies will have to adapt themselves to work within the new protectionist operating paradigm.
The large Indian IT majors operating globally had seen the protectionism coming and had been preparing themselves for several years. Over-dependence on the US market was reduced and some diversification into Europe and emerging markets have been affected. The smaller firms operating in single markets like the US or UK have limited ability to adjust to this changing global dynamics.
Our industry has to learn to live with higher visa charges, higher visa rejection rates, greater pressure to recruit local more expensive personnel that threaten margins is real. Misdemeanors like the use of business visas for servicing short term assignments has to end. The consequences of the breach have become increasingly unacceptable.
The larger companies have already taken steps to continue servicing the US and European markets without impacting their top or bottom line. US and European customers have actively collaborated with IT companies because of the benefit of lower costs are improving efficiency and enhancing their ability to become more competitive.
Broadly speaking, the following steps are being taken as a workaround to this protectionism:
Taking on roll more local hires:
Companies are taking on rolls more and more local resources. The percentage of local hires from mature economies has risen over the years and for eg. Tata Consultancy Services to 7.5% of the total workforce of the company.
Opening more local delivery centers both in the US and the EU:
In response to local pressures and also to get better access to the local market, companies are opening small delivery centers in the mature markets. The majority of the development work continues to be executed offshore in India but some innovative and business-related activities are carried out locally.
TCS, Infosys, Cognizant, and all the major IT outsourcing companies have created multiple GDCs (Global Delivery centers) in the US, Canada, and Europe. These centers have been created in the UK, France, Germany, and many other countries.
Fine-tuning the Global network delivery model: has been going on to leverage local opportunities and diversify the customer base. Nearly the whole of Latin America and Mexico has delivery centers. These centers help leverage the advantages of local free trade agreements like NAFTA and others and also to reduce manpower costs.
Companies are sponsoring global events like Boston Marathon and the Chicago marathon, conducting technology summer camps for young people, supporting health initiatives, associating with Leukaemia, American Heart Associations and the like to build an inclusive brand image within the mature market countries.
The larger IT companies have substantial cash reserves that are being deployed to buy mature market companies in Europe and the US. This gives them access to qualified local manpower and the market base. The Lodestone acquisition by Infosys and the Alti acquisition by TCS is part of this strategy.
Many companies have been trying to build their consulting capabilities and through that increasing their ability to access high billing rate jobs. The lack of quality resources within India for this type of work has forced many a company to build this capability through acquisition and local hires. However, this strategy has not yielded the desired results.
While the major IT outsourcing companies can handle this protection trend, the challenge is becoming almost un-surmountable for small niche solution providers. This is forcing many of them, Indian and foreign-owned to come to the market for acquisition and mergers.
Many an acquisition done with good intention has not yielded the required dividend because or poor business due diligence. This is a process that many of the IT majors do not internally possess.