In early November, Amazon announced that it will expand its presence in Vancouver from 1,000 jobs to 2,000 jobs by 2020. Although this did not receive nearly the same attention as Amazon’s request for proposals for the 50,000 employee location dubbed “HQ2”, there are some valuable clues to glean (see our earlier detailed assessment on the viability of Amazon’s HQ2 strategy and potential locations for our more complete analysis).
We read three important clues in this announcement.
If centers at much smaller scale are valuable to Amazon, why even pursue the HQ2 strategy?
First, Amazon might realize that a single 50,000 location is likely too big and contemplating whether it can make “clusters” (cities within very short distances from each other) produce similar benefits as a single location, which would be multiple buildings anyway. If Amazon believes this, it might be looking to select multiple cities within a cluster for the HQ2 strategy (think Philadelphia, Baltimore, Washington, DC).
Second, Amazon may have intentionally set a very, very large 50,000 employee target to get maximum attention and creativity, but is planning to structure the eventual single location agreement to only commit to 5,000-10,000 employees. Still very large, but something it has a much easier chance to fulfill and then potentially exceed as it so desires.
In summary, we believe these clues Echo many of our earlier perspectives and underscore that the eventual outcome may be quite different than stated – we remain Primed to hear what Amazon decides in 2018.
While APAC remains the dominant delivery location, global services headcount is growing in other locations as GICs and service providers recognize the value of location-specific talent and seeks to diversify their portfolios
While the APAC region remains dominant, other regions are growing on the back of digitalization, risk diversification, increasing regulation
Asia Pacific dominates global services market share; nearshore Europe and Latin America / Caribbean are growing
Philippines records a 72% increase in global services market share in 5 years
“Putting Canadians First” — the title on the document explaining changes to the nation’s Temporary Foreign Worker Program —makes the Canadian government’s intent clear. Canada is forging ahead with adjustment to its immigration policy. The result will increase costs for global service providers in two important dimensions.
At this point, it’s now very unlikely that meaningful immigration reform will happen for the next two years in the United States. But Canada is moving forward, and components of its reform will make it much more difficult for service providers to utilize temporary foreign workers.
Canada’s immigration reform will increase the cost of transitioning new work to the global services model, particularly for India-based firms.
Knowledge transfer. First, reform will raise the cost of knowledge transfer and effectively change the traditional knowledge transfer structure used by the Indian firms. Current practice is to send to Canada teams who will be doing the work to consult and learn from the existing teams and then return them back to India or other locations replete with sufficient knowledge to continue doing the work.
Consequently, they will have to rely on in-country resources, which will make the knowledge transfer slower and more complicated.
Landed model. Reform components will also increase the cost of the Indian heritage firms’ landed model — their employee base that resides in Canada. By making it harder to send Indian nationals to live in Canada, it will raise their cost of getting the visas, which will make it more likely that they will need to hire Canadian nationals to do the work.
Everest Group’s analysis is that it could increase their costs by up to 20 percent for their Canadian landed model.
Neither of these two factors will stop the process of sending temporary foreign workers into Canada. However, it will slow down the process and also be more expensive for service providers than their current structure.
The “Putting Canadians First” reform of the Temporary Foreign Workers Program will not stop the Indian service providers from competing effectively in the Canadian marketplace. But it will complicate their business and modestly raise their costs to compete in Canada.
We do not believe that these changes will materially affect the multinational service providers such as CGI, HP or IBM. They already have substantial presence in Canada and have large existing workforces there. In fact, the net result is that the Canadian-based multinationals’ competitive posture will be slightly improved due to these immigration changes.
Photo credit: Ian Alexander Martin