Strategic CIO // IT Strategy
Commentary
1/13/2012
11:13 AM
Paul McDougall
Paul McDougall
Commentary
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Obama's Insourcing Call Falls On Deft Ears

President Obama wants companies to bring jobs home, but smart businesses are already rethinking the insourcing and outsourcing mix--due to business advantage, not political rhetoric.

Infosys, one of the true heavyweights of the global outsourcing industry, also is bolstering its presence in the U.S., but for somewhat different reasons than CGI. Infosys has enough scale in India to meet customer requirements globally for basic application and development work, but it's now looking to grab a bigger share of the market for high-end consulting.

For that market, it needs industry specialists who can get close to customers and understand their business needs as well as technology requirements. "The skill sets we need for that are really only available in the Western markets that we serve," Infosys Americas president Ashok Vemuri told me by phone. Vemuri said Infosys has hired about 1,000 workers in the United States since last April.

But nobody is getting too carried away with this movement. Global outsourcing industry revenue increased 40% year-over-year in the most recent quarter, according to market watcher TPI. While much of that growth was fueled by a single deal, a $7.2 billion contract won by Atos related to its acquisition of Siemens' IT services group, outsourcing revenue in the quarter was "well within historic norms," says John Keppel, a partner at TPI parent Information Services Group.

[ Learn why one Indian outsourcer has committed to hiring more U.S. workers. See Indian Outsourcing Model 'Over,' Says HCL Exec. ]

It's also unlikely that Obama will lead any serious push to limit offshoring before the next election. On Thursday he did say that he would "put forward new tax proposals that reward companies that choose to bring jobs home and invest in America. And we're going to eliminate tax breaks for companies that are moving jobs overseas." But those are nice, vague words that sound good in an election cycle; Obama made similar pledges when he was a presidential candidate four years ago on which he never followed through.

"We go through this every four years around election time, when there is a lot of noise," Infosys' Vemuri said. "We don't think it will affect us very much, especially given that the unemployment rate in the IT sector is actually quite low"--3.7% in 2011, according to the latest Bureau of Labor Statistics estimates.

Indeed, under Obama's watch the U.S. Agency for International Development has launched programs to train foreign workers for jobs at companies that serve U.S. businesses from offshore locations. Meantime, a bipartisan "jobs bill" floated by Reps Tim Bishop (D-N.Y.) and Dave McKinley (R-W.Va.) that would rein in U.S. companies' offshore call center operations isn't likely to go anywhere either. Such bills are introduced in Congress almost weekly and very few of them make it to the floor. To boot, a provision in the Congressmen's proposed U.S. Call Center Worker and Consumer Protection Act that would require offshore workers to disclose their location and transfer callers to a U.S. agent on request probably wouldn't pass legal muster.

The bottom line: There's indeed some rebalancing of offshore vs. onshore resources occurring, but it's being driven by sound business and technological reasons and not electioneering rhetoric. It's also highly selective. We won't see big U.S. companies reversing course on offshoring, as it has become deeply embedded in their business processes.

Indian IT services companies as a group are forecast to record earnings growth of 17.8% and revenue growth of 29.2% in the current quarter, according to brokerage firm Angel Broking. That hardly sounds like an industry whose customers are fleeing for more familiar shores.

For the 15th consecutive year, InformationWeek is conducting its U.S. IT Salary Survey. Upon completion of the survey, you will be eligible to enter a contest for prizes including a Bravia HDTV or iPad 2, and get a link to download our report once it is published. Take the survey now. Survey ends Jan. 20.

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