Tag

offshoring

Offshored Information Technology jobs may not return home | In the News

By | In The News

India’s standing as a labour arbitrage market could survive for the next three decades, IT consultancy Everest Group said, and that it was unlikely that previously offshored work would return to its home market.

In the early 2000s, industry analysts had said the labour arbitrage advantage would end by 2020. Analysts have also suggested that as wages rise in offshore centres, it might be feasible for the jobs to move back onshore.

“There is no doubt that India is still a highly attractive and viable option for low-cost labour, albeit not quite as good as it was 15 years ago, but still very compelling, and it will likely remain so for another three decades,” Michel Janssen, Chief Researcher at Everest, said.

Read more in The Economic Times

 

Gazing into the Global Services Crystal Ball: Sometimes you get it Right, and Sometimes, Not so Much | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

When I visited India for the first time in the early 2000s, the country was largely unknown in terms of business. The airports were small and dingy. The upscale hotels were really nice but also scarce. That meant they could charge insanely expensive rates…I remember paying US$700 per night at the Leela Palace!

My U.S. colleagues and I were on a mission to visit largely unknown service providers like Infosys, TCS, and Wipro, all of which had around 10K employees. At the end of the trip, we concluded that this was going to be real, and big…very big.

So we, and the other industry analysts in the space, pulled out our crystal ball to see what specifics we could predict. How clear, or cloudy, were our sixth senses back then?

What we got right

We did well in this category. India, along with many, many other low-cost locations, is absolutely capable of doing the global services job with scale. It’s also capable of doing many sophisticated processes (full disclosure: we might have underestimated this one a bit.) And those “unknown” companies I mentioned above? They’ve become truly global players, by some measures even surpassing the original powerhouses like Accenture, ACS, CSC, EDS, IBM, and HP (many of which have already consolidated).

What we got wrong

While inflation slowed in the U.S., it did even more dramatically in recent years in India. This, in turn, slowed the arbitrage difference, creating relatively smaller impacts on our models. And currency moves – such as a change from around 45 to 64 rupees – created a large positive impact, offsetting inflation by roughly 50 percent.

What we got really wrong

Labor supply was the biggie. All of us in the analyst community completely underestimated the impact of the available supply, which created an ongoing downward pressure on entry-level salaries. Using the best available data, the number of college students in India has risen from 13.6 million in 2008 to more than double that (28.5 million) in 2016.

While we didn’t predict it in the earliest years of the global services industry, by the end of the 2000s we were forecasting the end of labor arbitrage. India salaries were rising at double digit rates, and it seemed that it was only a matter of time before we reached parity (for offshoring purposes, 70 percent of U.S.-based salaries was considered parity.) As you see, we were miles off on that one.

What we got really wrong | Supply of labor

Increased labor in India as well as other locations have ensured limited salary increase, especially for junior roles

Future of Global Services

Looking forward (through our much more mature crystal ball) on the cost question

  • Temporary shortages of key skills, particularly digital, will create upwards pressures on salaries. But as the education and corporate systems retool their training curriculums, I expect the resulting surge in available talent will allow a cap and perhaps drive down salaries. Still and all, India is still a viable place to get low cost labor, albeit not quite as good as it was 15 years ago. (Review our Executive Briefing, India Global Services Industry: A Look Back at the Last Decade and Our Future Outlook, to drill down into the supporting analytics for this analysis.)
  • Many functions and processes have reached an offshoring saturation point. This doesn’t mean a complete stoppage of work moving offshore, just that many of the big, concentrated moves have already happened.
  • New automated solutions like RPA are going to create significant process labor efficiencies, in turn increasing headcount pressures.
  • The tipping point in this equation will go back to the supply side, where the ongoing wave of college students will keep pressure on wage advances far into the future, especially for the entry level positions.

Gazing forward to at least a 2040 – 2050 timeframe, other low-cost locations such as eastern Europe may get tapped out, since they don’t have as large a stream of graduates as does India. So, I say: advantage to India in keeping the wages compelling with its tidal wave of ongoing supply. But the looming question will be, what to do with all of those freshly minted grads?

My next blog will tackle the interesting another aspect of my looking back and looking forward retrospectives: “Are the India Heritage Services the new Global Leaders? The answer isn’t obvious. Stay tuned…

The Reasons Firms Are ‘Reshoring’ Jobs Go Beyond Trump’s ‘America First’ Doctrine | In the News

By | In The News

In March 2017, telecommunications giant AT&T Inc. agreed to add about 3,000 jobs to its American call center workforce. Rather than continue with its pattern of offshoring those jobs to Mexico and slimming its workforce at home, AT&T is beginning to bring those jobs back.

It isn’t alone. Verizon Communications Inc., an AT&T competitor, recently ended its contract in the Philippines with roughly 1,500 workers, while the company is adding about 1,000 jobs to the U.S. workforce.

Although companies are reducing their offshoring tendencies overseas, they’re continuing to outsource certain jobs domestically.

Some firms, for instance, may exert caution in which jobs they opt to bring back and the pace at which they do so. When reshoring IT jobs, in particular, there might be challenges in filling those roles because skills shortages in the technology sector have companies in a bind.

“There isn’t enough in the U.S. to absorb all of that work coming back straight away,” said Peter Bendor-Samuel, founder and CEO of Everest Group, a boutique research and management consulting company based in Dallas.

Read more in Talent Economy

Stepping Back from Globalization and Offshoring | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

A sea change is starting because of digital technologies. The impact as companies apply these technologies to their business will be massive – much bigger than the Industrial Revolution with the invention of the loom for manufacturing clothing and Ford inventing the production for manufacturing automobiles. Everyone has been talking for some time about how big an impact these technologies will have on the services industry. But there is a new factor now that makes the potential impact even more significant: the protectionist activities driving companies to step back or pause in globalization and offshoring. I think the services industry would be foolish to ignore the potential of this greater impact. Let’s look at where businesses are headed.

There can be no denying that the stakes have been raised and barriers are being put in place to make globalization and offshoring less acceptable and expensive. In Europe, it is evident with the Brexit bill and the UK opting to leave the EU. In the US, protectionist barriers are starting to be executed through proposed changes to immigration law and H-1B visas, tax reform and potential border tax implications, and reputational risks arising to companies from government entities or disgruntled employees and vocal press entities. The result: companies are paying more attention to how to do work onshore without suffering negative cost impacts.

By investing in digital technologies such as Robotic Process Automation (RPA), cognitive computing, automation and cloud, companies can drive cost improvement by dramatically improving the productivity of their workforce. In many cases, they can achieve cost improvement even greater through improved productivity than through labor arbitrage and thus offset impact of not sending their work offshore.

Of course, service providers also can use these technologies to improve their own workforce productivity to offset the potential of rising costs from immigration and H-1B visa reform in the US.

Our market data shows leading providers in the services industry have been looking at digital technologies and associated digital models well before this step back in globalization. Our tracking of service providers clearly shows the traditional services (labor arbitrage, offshore factory model, remote infrastructure management and asset-intensive infrastructure) grew by only .1 percent last year. Almost all the growth in the IT and business process services market came from new digital offerings – which are currently growing at over 18 percent a year.

Although the trend in digital services has already been growing, we believe the current climate discouraging globalization and offshoring will further accelerate the adoption of digital models. This will force the current shared-services structure. It also will force the provider community to fundamentally change their business models and the way they currently structure their business to deliver services.

Companies Face A Deal They Can’t Refuse | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

Just a month into 2017, the acceptability sentiment toward sending work offshore has changed. Companies are increasingly eager to explore ways to do work onshore which they would otherwise do offshore or is currently offshore. The question is how to do that without creating a negative cost impact.

A wide variety of factors are shifting the sentiment toward offshoring work, including …

Read more at Peter’s Forbes blog

IT Future Shifts from Labor Arbitrage to Productivity | Sherpas in Blue Shirts

By | Sherpas in Blue Shirts

The labor arbitrage/offshoring model is powerful and relatively simple — compared to investing in productivity for U.S. workers over the past couple of decades. Perhaps your company is like most enterprises in America, having opted for this strategy to achieve cost savings. I believe it’s important to recognize that the arbitrage/offshoring model took companies’ attention away from investing in internal productivity improvements. But there are fewer opportunities now for the labor arbitrage model since it is maturing, and new barriers are arising for sending/maintaining U.S. work offshore.

Read more at Peter’s CIO online blog