Trump presidency could sound death knell for offshore outsourcing

U.S.-based offshore outsourcing customers should prepare for the effects of a Trump presidency on their IT services deals.

By Stephanie Overby
Dec. 1, 2016

Donald Trump railed against the shifting of U.S. jobs overseas during his campaign, but it remains to be seen whether the President-elect will make good on his promises to reign in offshore outsourcing. The Indian-dominated offshore IT services market was already struggling to find its place in a market increasingly ruled by smaller and shorter term deals, cloud computing options, increased automation and intense competition.

The biggest hit would come in the form of increased restrictions on temporary work visas, such as the H-1B, which Indian and U.S.-based IT services firms use to bring offshore workers on-site stateside. During his campaign, Trump called for raising the minimum salary for H-1B holders to $100,000 per year, from the current threshold of $60,000 per year.

“Any Trump-inspired reform of the U.S. immigration laws will likely make it harder to move employees into the U.S. market,” says Peter Bendor-Samuel, CEO of outsourcing research firm Everest Group. “This will likely take the form of fewer H-1Bs, higher costs for visas, and caps on the number of visas the firms can utilize. That would likely result in IT services firms having to hire more U.S.-based resources, raising operating costs and reducing the labor cost advantages of offshore outsourcing.

The hundreds of thousands of workers currently holding temporary work visas and residing in the U.S. could also come under greater scrutiny if Trump upholds one of his signature campaign promises to strengthen the enforcement of immigration regulations. That would threaten not just new IT service deals but existing engagements, says Phil Fersht, CEO of outsourcing research firm HfS Research.

In addition, Senator Chuck Schumer, one of the most active opponents of the use of temporary work visas by IT services firms, has been appointed Senate Minority Leader. “With Trump's aggressive stance on protecting U.S. jobs, massively raising the H1B minimum wage, combined with the determination of Schumer leading the Democrat Party faction, this does not bode well for the future of the offshore business for at least the next four years,” Fersht says.

The U.S. government could also introduce changes to trade laws or tax laws in order to discourage trade. However, it’s unlikely such legislation — if even enacted — would prevent the outsourcing industry from operating in its current structure. “Restricting trade in services is much harder than restricting [trade in] tangible products,” says Bendor-Samuel.

“And Trump's priority seems to be helping the lower-income constituents, which are largely manufacturing-oriented jobs.” “Regarding things like tariffs and taxes to make labor arbitrage less viable and therefore offshoring less economical, it's hard to know what agenda is really going to be put forward,” adds David Rutchik, executive managing director of outsourcing analyst firm Pace Harmon.

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