The President’s Economic Plan: How It Impacts Offshoring And The American Worker
The foundation of the president’s economic plan targeted at corporations is rooted in reducing the economic burden borne by U.S. companies in the form of taxes and healthcare costs. As companies begin to see the impact of policy that reduces their cost structure, they will look to invest in their business, growing their operations both domestically and offshore. Having tasted the tangible benefits of leveraging global resources in countries such as India, China, Russia, and elsewhere, it is clear that the investments companies make in their growth undoubtedly will be split unevenly between the U.S. and offshore markets, especially for commoditized resources in the areas of information technology and business-process outsourcing. Does this mean good news for U.S. companies? Absolutely. Does this mean bad news for the American worker? Absolutely not.
The stock market’s bullish reaction to the election is a telling sentiment for both investors and U.S. corporations that are either currently offshoring or planning to do so in the near future. The “green light” opens the door for companies to seek out and leverage the highest-quality, most cost-effective global talent, wherever it may reside geographically. By fundamentally changing their cost structure, U.S. companies are becoming highly flexible, responsive participants in the global economy. They are able to focus on their core business, enter new business lines, and achieve a level of innovation and productivity that is only possible by tapping into a global resource pool. During the past 12 months, many of our clients have been developing their long-term offshoring strategies but have been hesitant to execute them, partially due to the uncertainty associated with the election. Now that there is clarity about the government’s attitude toward free trade, we expect to see a significant amount of pent-up demand coming to the forefront. Beginning in January, there will be a flood of U.S. companies that will either begin or further expand their offshoring initiatives in the areas of IT and BPO.
What about the American worker? If U.S. companies are going abroad to find the best and cheapest talent, where does that leave U.S. programmers and call-center agents? As we’ve seen in the past with auto manufacturing and semiconductor manufacturing, the role of the U.S. worker will inevitably change and evolve with dynamic market conditions. Instead of doing basic coding, the U.S. programmer will be asked to develop new skill sets that leverage technical aspects and blend them with global project management. The call-center agent will need to evolve from simply answering phones to playing a value-added role in service supply chains located in India, Mexico, and the Philippines. These are obviously difficult transitions to make and everyone will not be able to morph into these new roles. U.S. workers who focus on education and retooling their skills sets could be poised to move up the value chain and command higher salaries.
Impact On US-India Relations And The Emergence Of New Offshore Markets
The results of the recent U.S. presidential election will also have a positive impact on U.S.-India relations and spur the development of emerging offshore markets in China, Russia, Central and Eastern Europe, and Latin America. During the past decade, U.S. CEOs and business leaders have depended on Indian firms for a variety of IT services--from software development to Y2K bug fixes. Going forward, as Indian companies continue to improve and expand their service offerings, the expected growth in U.S. demand for IT and BPO services will inevitably be directed toward Indian firms. Commercial ties between the two countries will also deepen as U.S. companies increasingly invest directly in India by setting up captive operations to perform their software development and back-office processing. The U.S. is increasingly looking to India as a dependable business partner, and this election will serve to accelerate that process.
At the same time, as U.S. demand for offshore IT and BPO services grows, U.S. companies will investigate emerging offshore and nearshore markets that provide competitive advantage in a dynamic market. For example, as the U.S. undergoes a demographic shift toward a larger Spanish-speaking population, markets in Latin America will emerge to service U.S. companies with significant Spanish-speaking customers. Evidence of this trend is already apparent among Mexican call-center firms that service U.S. telecom providers by offering Spanish-speaking agents to address customer needs. Even today, U.S. companies are employing highly educated Russian engineers to develop products and components ranging for mobile phones to aircraft landing gear. Unlike working with their counterparts in other markets, U.S. companies working with Russian resources gain the decades of experience Russian engineers have in the aircraft industry, and they know how to apply their expertise to develop innovative solutions to client needs.
The Bottom Line
I believe the presidential election of 2004 is a tremendous win both for the future of the U.S. economy and the offshoring industry. Unencumbered by restrictive trade policy, U.S. companies will deploy resources in the most efficient manner possible, producing positive results for their shareholders, consumers, and the American workforce. As U.S. companies ramp up resources in offshore markets, India will remain and grow as a strong supply base, providing not only basic programming services but also higher value IT functions and more complex back-office business services. The Indian offshoring landscape will experience significant changes as service providers consolidate, U.S. companies open additional captive centers, and existing captive operations begin to offer services to third-party customers.
The next several years will also witness a maturation and emergence of markets such as China, the Philippines, Russia, Mexico, and Eastern Europe. These markets will begin to compete more effectively against India’s current dominance and will excel in niches that leverage their market-specific strengths. At the same time, new markets will emerge to compete for U.S. offshoring demand. These will include countries as varied as Vietnam, Brazil, Ukraine, Romania, and Jamaica.
In order to adjust to these dynamic market conditions, U.S. employers, along with the U.S. government, will need to invest in employee retraining and education to maintain a competitive edge. Federal and state programs will need to be created that support the efforts of companies and employees to move into higher value-added roles--roles that blend technical and global management skills. Globalization has brought about unprecedented change that will require every participant in the global economy, from governments to corporations to employees, to rethink their role and adjust accordingly. In these adjustments, the U.S. is not alone, and those who stand to benefit the most are those who are able to most effectively manage the tangible impact of globalization.
