December 16, 2016 | IT & Telecom
The results of the U.S. Presidential elections have elicited nervous and unsure responses in the last few weeks from IT outsourcing major players. The Indian-dominated offshore IT services market has already been in the doldrums due to weak quarterly results and rather pessimistic forecasts issued by most Indian IT services – the rising ‘threat’ of Robotics Process Automation and intense competitive rivalry on new contracts/renewals, where an increased propensity to multi-source while shortening contract duration has challenged top and bottom lines of the outsourcing markets. And Trump’s victory isn’t likely to elevate their spirits, at least in the shorter term.
Donald Trump’s big promise during his much-talked about 18-month campaign has revolved around getting offshored jobs back to the United States. This clearly leads to tightening of immigration and offshoring policies to curb or limit outsourcing – the route that most U.S. corporations take to yield the benefits of labor arbitrage. Trump’s position could deliver a telling blow to the Indian IT outsourcing business, which derives nearly 60% of its revenues through businesses in the United States.
The mix of temp vs permanent staff is about to drastically change:
Cloud-based service delivery and automation will expand the competitive footprint:
I foresee challenging times ahead for the Indian IT and BPO suppliers – and their recent quarterly announcements and tepid forecasts for the next year lends support to my view. One can expect large scale consolidation to happen in the industry. Smaller outsourcing organizations may lose relevance and struggle to survive while the bigger organizations with a wealth of cash deposits will look to acquire or partner with U.S.-based start-ups (to strengthen the digital portfolio) or U.S.-based established firms (consulting firms can be a likely ally for strengthening the consulting capabilities of the outsourcing majors) to impact the nationality mix of their workforce.
We recommend that sourcing and procurement executives, anchoring key outsourcing contracts for their respective organizations, to take a hard and honest look at the viability of their supplier partners to sustain and survive amidst the mentioned challenges and the upcoming competitive onslaught. They should make future partnership decisions only when this essential due-diligence measure has been considered and executed.