Even in good times, offshoring is a political hot potato. It's a sizzling spud these days, thanks to an unsteady economy in which lots of North American companies are laying off workers in numbers not seen in decades.
Plenty of folks, including IT Business Edge blogger Loraine Lawson, are making it clear they'd like to see some outsourcing limits placed on American companies accepting government aid and/or angling to get government stimulus money. Perhaps partly due to labor unions' support in last year's election, President Barack Obama has been talking about doing away with tax breaks for U.S. companies that send jobs overseas. Indian outsourcing providers continue to express support for Obama, yet there are hints of their concern over the political climate, including Wipro's mention in a Q4 2008 Securities and Exchange Commission filing that it might become more difficult to obtain visas for its workers if Obama was elected.
So I can't say that I was surprised by some unusual verbiage in an e-mail from one of India's largest outsourcing companies. From the message: "In a time of economic uncertainty, out-tasking services has proved to be a key alternative to keeping company's (sic) afloat."
Out-tasking? The sender then offered me some time with a company representative who could discuss "why out-tasking is a good strategy to get business back on stable operating ground" and "how out-tasking services can beneft a company's long-term business model."
I can't blame outsourcing companies for being worried about the possible negative impact of political fallout on their bottom lines. But I think the use of "out-tasking" rather than outsourcing is an obvious and ineffective dodge of larger issues.
In my recent interview with Peter Allen, TPI's managing director for Global Practices, he said Indian outsourcing providers would do well to focus on solving business needs rather than simply emphasizing labor arbitrage. He told me:
The India-based economy over the past three to five years largely took flight on the promise of wage arbitrage, not on promises of productivity or efficiency, not on the promise necessarily of excellence. The proposition was: "We can get you more labor at cheaper prices than you can get anywhere else." That's not really what companies are looking for right now. They don't want more labor; they want more cost-effective ways of getting work done. In our mind, the runway for labor arbitrage benefits is just about gone.
In order to remain competitive, offshore service providers will need to shift their solutions toward "productivity and outcome-based measures of value, not effort-based or income-oriented measures," said Allen. The current market environment favors providers like Accenture, which have always been more outcome-oriented than their offshore peers. He said:
Even when they went offshore, their proposition was about more than just wage arbitrage. There's a pretty bright line between the universe of providers that are actively using offshore delivery locations, but as part of a productivity-oriented proposition, vs. those that are simply throwing people at the problem.
Allen believes taxation policies and currency fluctuations are factoring more heavily than politics into North American companies' offshore plans. It would be difficult for governments to impose hiring restrictions on multi-national companies, many of which have captive offshore facilities "and will contin(ue) to try to put as much work as possible in the most cost-effective locations." However, he does believe "the social conscience of executives" is becoming more of an issue. He said:
No one in a senior executive position in the U.S. can ignore the potential that we may have an unemployment rate in this country approaching 10 percent. No one wants to place their local communities at risk.
The troubled economy will lead to some hard decisions for companies, he added:
There are a lot of desperate companies right now that are trying to find a way to weather this economy. If it's a choice between keeping jobs in the U.S. and going out of business, or being more aggressive in restructuring costs so you can survive the storm, most will choose the latter.