President Barack Obama’s 2012 State of the Union address not only provides a window into the prevailing economic landscape, but is also an indicator of the fact that in the current turbulent global economy, the shadow of protectionism is certain to rear its head. The President, among other issues, touched a raw nerve back home when he stated that jobs needed to be brought back to America, raising a red flag for the growing $88 b Indian IT industry which derives more than 60 per cent of its export revenues from the US.
An anti-outsourcing rhetoric in a run up to the 57th presidential election is only to be expected. Data, however, shows that there is no basis for rhetoric in the tech sector. Forrester Research, an independent global technology and market research firm, points out in its 2011 study that increased offshoring does not translate into disappearing American jobs. The study on hiring shows that nearly 1,31,000 services and software jobs were added in the US last year. Vendors who sell software, systems integration and IT services have added the most jobs in tech. These, in fact, are up by 1,23,000 since the recession trough in Q1 2010.
The significant economic benefits that companies derive from offshoring their operations, or relying on remotely located providers, have built a strong case for enhancing, rather than diminishing, this activity. Take the case of Apple, which has wowed the world with its design and product innovations. Would it have posted record earnings and profits if its products were not manufactured in China? By outsourcing their manufacturing to hubs such as China, Taiwan and the Philippines, companies are bringing products quickly to the market, reducing their cost of operations to compete effectively, and growing to provide more jobs.
Despite protests to the contrary by politicians, and criticism that IT outsourcing service providers are no more than ‘chop shops’, outsourcing has proved itself to be advantageous rather than harmful to all stakeholders. India’s industry bodies have been lobbying actively with different governments to emphasise the favourable impact of outsourcing. But with sentiment running strong for local job creation, as articulated in Obama’s speech, it would only be prudent for Indian outsourcers to continue to create more jobs in these regions.
NIIT Technologies, for instance, has set up a low-cost facility in Augusta, US. Nearly 34 per cent of staff deployed among its US units are local hires. In countries such as Germany and Spain, this number is close to 100 per cent. TCS’ recent announcement to set up its Mobility Solutions Centre in California is another example of a successful company pressing ahead with local employment by leveraging the innovative characteristics of the region.
Even though free and fair movement of skilled personnel are vital for companies to stay competitive, governments are under pressure to raise trade barriers due to political compulsions. These are becoming visible in the form of more stringent visa norms, hikes in visa fees and likely imposition of heavier taxes on companies that outsource. Indian IT-BPO services providers must gear up to overcome potential trade obstacles by evolving business models that not only offer a strong value proposition but also address political sentiment even as industry bodies effectively lobby to remove these barriers.
(The writer is CEO of NIIT Technologies)