Following the 2016 U.S. presidential election, increased focus has been placed on U.S. companies that leverage offshore talent, as well as the associated impact of offshoring on the U.S. economy.
Through numerous proposed policies, the new presidential administration is prioritizing an “America First” agenda to promote American jobs and to protect the economy.
Potential changes to immigration and non-immigrant business visa programs, import tariffs and trade policies, as well as statutory corporate tax rate decreases, may impact the service delivery models, as well as talent and sourcing strategies of companies with multinational operations or offshore service delivery models. These models include outsourcing, captive centers, shared services and Global Business Services (GBS), all of which could leverage offshore talent.
In this era of uncertainty, companies need to be prepared, agile and adaptable. Successful change management and potential transition in talent and sourcing strategy can be enabled by a thorough understanding of current state operations, including companies’ visibility into their risk profiles, relationship maturity, financials and contract health. When combined with scenario-based analyses, these insights allow companies to understand their options to make decisions for their talent and sourcing to thrive in an era of disruption.
Talent and Immigration
The new administration is proposing restrictions on non-immigrant business visa programs and has temporarily halted H-1B premium processing. The U.S. relies heavily on workers dependent on non-immigrant business visas to fill key roles with technical skills. As of 2015, over 26 million foreign nationals1 were in the US workforce, many of whom are reliant on visas to secure their employment statuses. With additional restrictions on workers who rely on non-immigrant business visa programs, U.S. companies may experience talent gaps in their current and future workforce.
If new non-immigrant business visa restrictions are adopted, some foreign nationals may opt to leave the country due to job security concerns. Uncertainty surrounding non-immigrant business visa programs may also make it difficult to recruit talent to work in the U.S. Consequently, outsourcing providers and companies that leverage diverse talent pools with the technical expertise to meet the unique needs of their companies and their clients may find it challenging to fill their talent needs.
Visa restrictions may also lead to increases in labor costs. Companies that fill the talent gap with domestic talent may need to invest in skills-based or technical training to make up for potential talent shortages. Furthermore, limited supply of skilled domestic workers coupled with high demand for their services may result in wage increases.
Robotic Process Automation (RPA) is emerging as an enabler for onshoring by reducing operating costs. When implemented effectively, RPA can significantly reduce manual, rule-based tasks to one-third the cost of an offshore worker. Location analyses also can be used to locate low-cost domestic talent, often referred to as “rural sourcing,” to find key talent pools in areas with lower cost of living and labor costs.
Service providers that leverage landed resources (e.g. foreign workers providing onshore client support) should consider how restrictions could affect service delivery quality and costs. Companies employing foreign nationals reliant on visas may need to assess their talent and sourcing strategies and determine how potential restrictions may impact costs or their abilities to serve clients with their existing service delivery models.
Trade and Tariffs
The U.S. relies heavily on the global economy and workforce. Between 2013 and 2023, supply chain and operations globalization is anticipated to increase by 43 percent. The new administration has alluded to several policies with the ability to impact the global economic landscape for U.S. and foreign companies, including a border tax on imports and an “outsourcing tax” for the use of offshore labor.
Changes in the current tax and tariff structure may increase costs for companies that leverage labor and
products outside the US. Increasing import tariffs may drive up costs for industries with global supply chains. For example, the automotive industry uses thousands of car parts manufactured in other countries, shipped across borders multiple times and ultimately imported to the U.S. for assembly into the finished product. Tax and trade policy changes could significantly increase production costs for automotive companies and companies with similar sourcing models. Similarly, an outsourcing tax may dilute the cost savings associated with the use of offshore talent.
In preparation for potential tax and tariff changes, companies should assess their current costs, risks and strategies for risk and change management. For example:
- Is there a need to restructure global supply chains to leverage automation or domestic labor?
- Does the organization have flexibility and support to make these changes?
- Would a change to the current tax and tariff structure in the service delivery model impact the way in which the organization does business?
If the majority of its suppliers are located overseas, the organization may need to renegotiate its current contracts or consider localization of key suppliers to manage costs. Companies should also model and understand associated risks in the event that other countries implement similar tax or tariff strategies aimed at protecting their own economic interests in retaliation to changes in U.S. economic policy.
Corporate Tax Rate
Under the new presidential administration and the House Republican tax reform blueprint, changes have been proposed to decrease the U.S. statutory corporate tax rate. Lowering the statutory corporate tax rate has the ability to reduce the cost differential between onshore and offshore service delivery and improve viability for domestic service delivery of back office operations and manufacturing due to decreased total cost. U.S. companies may be motivated to repatriate offshored jobs, invest in automation to offset costs of hiring domestic talent, reduce total cost of operations and shift towards an export-driven business model. Service providers may follow suit and invest in domestic infrastructure to support business delivery closer to their clients.
When making decisions to change their operating models, companies should discuss how changing tariffs and taxes would impact their operations to consider alternative talent and sourcing models.
Fear and Public Perceptions
There is an increasing theme to “Hire American, Buy American” tied to the U.S. presidential administration, which has expressed negativity toward companies that offshore operations and labor. The American public seems to share this opinion.[/rara_column][rara_column span=”2″]
According to a survey conducted by Gallup, 77 percent of Americans believe that outsourcing (presumably through the use of offshore labor) is bad for the U.S. economy. In this environment, companies leveraging offshore labor should assess if this perception has the ability to impact their brands.
U.S. companies should assess their brands on two fronts: domestically and internationally. At home, companies may face increasing pressure to bring operations onshore and hire domestic workers. Abroad, U.S.-based companies may face backlash from foreign governments in the form of retaliatory tariffs, restricted access to markets or additional red tape that may hinder the ease of conducting business overseas. Consumers here and abroad may also hold positive or negative perceptions associated with how a company conducts business. These perceptions may translate to consumer activity through the increased or decreased use of certain companies’ products or services.
While fear of negative perception is enough to drive some companies to make significant changes, all changes should be considered rationally and logically.
1 “Foreign-Born Workers: Labor Force Characteristics – 2015,” Bureau of Labor Statistics, May 19, 2016, https://www.bls.gov/news.release/pdf/forbrn.pdf (accessed March 9, 2017).
2 “Definition and Benefits,” Institute of Robotics Process Automation & Artificial Intelligence, 2014, http://irpaai.com/definition-and-benefits/(accessed March 9, 2017).
3 Tomas Hult, David Closs and David Frayer, “How Global Should Your Supply Chains Be?” Global Edge Business Review, 2014, https://globaledge.msu.edu/content/gbr/gbr8-2.pdf (accessed March 9, 2017).
4 Bryant Ott, “Beware: Your Customers Oppose Outsourcing,” Gallup Business Journal, August 9, 2007, http://www.gallup.com/businessjournal/28309/beware-your-customers-oppose-outsourcing.aspx (accessed March 9, 2017).
By: Mark J. Voytek, Principal, Americas Outsourcing Advisory Leader, EY