Nearshore Americas

Cognizant’s US Hiring Spree Indicative of Need for Domestic Capabilities

Major BPO and IT services provider Cognizant Technology Solutions caused a stir last week with the announcement that it plans to hire 10,000 American workers over the next three years, expanding its workforce in the US to 39,000. Most of the firm’s other 137,000 employees are based in lower-cost countries such as India, but Cognizant said that it did expect costs to go up as result of the impending hiring spree in the US.

The move to create jobs, especially in science, technology, engineering and math (STEM) fields, does score political points for Cognizant and India Inc. in general. It also comes as Congress debates legislation that would make it more difficult for outsourcing firms to bring in overseas consultants on temporary visas instead of hiring local workers. The immigration bill, which could damage the business models of multinational outsourcing firms has been passed in the Senate and is currently awaiting approval in the House of Representatives.

Nearshore Americas caught up with Pace Harmon Partner David Rutchik this week to discuss the implications of Cognizant’s announcement.

Nearshore Americas: What do you think is behind Cognizant’s decision to hire so many staff in the US?

David Rutchik: Well the majority of their business is in the US – close to 80% – and more and more US clients are recognizing the need for local capabilities within certain roles or certain types of services, and that’s certainly one of the big drivers for Cognizant. We’re seeing that it’s becoming increasingly difficult to bring in landed resources with the visa restriction and it’s just not feasible for you to continue to grow with a local or US capability by bringing in foreign nationals. So it really is a statement that the business continues to grow in the US and that investing and building US capabilities is the best approach.

NSAM: Cognizant has said that it doesn’t expect costs to go up as a result of hiring US workers. But how can it do this without incurring greater labor expenses?

Rutchik: It can’t! But by saying that they don’t think costs will go up, presumably they’re saying that they’re going to increase margin so they may be talking about net costs. But certainly the reason that Cognizant and others have used landed resources – typically resources from India that have come in on a L1 or H1B visa to work temporarily in the US – that’s clearly been less costly, because they’re paid in local currency in the country where they live and the devaluation of the Rupee in particular has made that much more prominent, so they will spend more money certainly on the labor side; whether or not they can command an increased rate to offset that is another question.

NSAM: Do you think this decision is related to the possible impact of the immigration bill being debated in Congress?

Rutchik: There’s no question it’s part of it, although Cognizant and others – in order to compete with the IBMs and Accentures and so forth – they have to have local resources in the US and Europe to fill the roles that companies are recognizing are critical to have onsite. So they would be doing this anyway, but the difficulty in bringing in resources – the increased costs and the greater scrutiny – is definitely accelerating a lot of this activity.

NSAM: What are the main advantages of hiring staff in the US?

Rutchik: Having a capability in the US will allow them to do a lot of things. For example, from a business integration standpoint, to do the more high-end work, there are a number of elements that really require an onsite capability and without that capability the Indian multinationals have not been as effective. Secondly, there is a cultural predisposition for a lot of US companies and US workers to be working with American workers as opposed to foreign nationals, and whether that should be the case or not, that’s the way it is from a cultural standpoint. So that will enable (Cognizant) to compete more aggressively. But without a strong US presence, all of these providers are really beholden to the immigration rules and they just can’t put their current and future businesses at risk by having this uncertainty.

NSAM: Will Cognizant’s decision to employ so many US staff help to improve the image of outsourcing in the US?

Rutchik: I think so. Again, they’re not alone in doing this, but as they hire more of US universities and become more involved in the US market it won’t be perceived as outsourcing as much, at least in the way the public views it – the public equates outsourcing with offshoring which of course is not at all the case. So yeah, there’s no question that this will help their image. Cognizant is based in New Jersey and they really have invested in having a strong US focus and they’ve been hiring a number of high-end US capabilities and thought leaders, so this should all help the perception of the industry overall, but also it shows that they’re looking to be more of a transformative player as opposed to an offshore body shop.

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NSAM: So is this is part of a wider trend of outsourcing firms hiring more US staff?

Rutchik: Yes, of course the IBMs and the Accentures of the world already have those capabilities but the Indian multinationals and companies that are not US-based like Atos Origin, they will definitely continue hiring in the US as long as US companies continue to outsource and to bring in third-party support for large systems implementation and to look at other business process areas. But that’s not going to enable the labor cost arbitrage, so they’re going to have to compete based on capabilities as opposed to purely on price points.

Duncan Tucker

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