The U. S. domestic sourcing industry needs a higher profile and a stronger voice in national debates on key issues affecting outsourcers, according to a group of industry leaders who met recently in Atlanta. The conference, called “Momentum”, looked to portray successes in delivering “offshore-like” services from onshore locations, many in rural America. Several company representatives speaking at the conference reported significant hiring and triple-digit revenue growth in recent years.
However, the industry’s acceleration is threatened by misdirected public policies and misunderstood industry dynamics, according to Ron Hira, Assistant Professor of Public Policy at the Rochester Institute of Technology, keynote speaker at the Momentum 2013 conference.
He said the industry suffers in the United States because of a lack of understanding among legislators and the American public about key immigration, taxation and education related issues that have become central to larger national debates. He said that industry leaders need to change perceptions in Washington and facilitate a “rational discussion” of industry needs.
Challenges Facing the Industry
“This industry needs to reframe the problem,” said Hira, who is also a research associate at the Economic Policy Institute in Washington, DC and the author of “Outsourcing America”, published by AMACOM Books. “Globalization and other factors have changed the structure of US job creation. Traditional policy responses are insufficient. The problem is not globalization, technology, and immigration. It is how we are managing these major structural changes.”
Hira pointed to tax policies that encourage offshoring, immigration policies which enable offshore services providers – such as the big four Indian providers, Wipro, Infosys, TCS, and Cognizant – to bring in lower cost workers on visas which undercut American workers and domestic providers. And he questioned policies which encourage international students to attend US colleges and universities but don’t allow graduates to remain in the country to work.
He called for programs to subsidize the education of IT services workers and for innovative investments in training to improve skills of currently idle labor resources. “We also need to make smarter choices about government procurement,” he said. “The government needs to recognize the benefits of building the capacities of firms and their workers through targeted purchasing programs. We wouldn’t offshore university research grants because they are the lowest cost option.”
Lobby Group to Rival Nasscom
“We are beginning build a community of government agencies, service providers, advisers, buyers working together to help promote US outsourcing,” said Amrita Joshi, CEO, Ahilia Inc., a California-based marketing firm which convened the meeting. “The ultimate goal of this is to have an organization that is dedicated – similar to India’s Nasscom – to promoting U.S. outsourcing. We had meetings of a few key leaders to brainstorm what the objectives of this group would be and next steps. This is a very grassroots effort and this is the first time these companies have gotten together.”
Other speakers included Cameron Art, General Manager of IBM Global Business Services’ North American Application Management Services business. He spoke about IBM’s strategic commitment to establishing domestic service delivery centers in college towns such as Lansing, Michigan and, most recently, in Baton Rouge, Louisiana where the company recently announced a $55 million investment in conjunction with the state and local governments, Louisiana State University and other local institutions, and private developers. IBM’s new service center will create more than 800 new IBM jobs over four years, more than 500 additional indirect jobs, and will result in the development of the first high-rise riverfront residential and office buildings in downtown Baton Rouge in over half-a-century.
Developing broad support for domestic sourcing and implementing policies, which promote the industry is complicated by the fact that companies active in domestic sourcing, including IBM, are also leaders in offshore delivery of the same services.
U.S. BPO Jobs
Aggregated statistics on the number of companies delivering outsourcing services from U.S. locations and the number of people employed by these companies were not available, and speakers agreed that the number of sourcing jobs in the U.S. make up only a small portion of the global delivery industry.
Developing broad support for domestic sourcing and implementing policies, which promote the industry is complicated by the fact that companies active in domestic sourcing, including IBM, are also leaders in offshore delivery of the same services. Thus, their allegiances are often split on some of the key issues.
With very limited political presence in Washington, and with the American public trained by campaigning politicians from both sides of the political spectrum to blame “outsourcing”rather than “offshoring” for the loss of many high value jobs in the past 15 years, the domestic sourcing industry suffers from the lack of supporting voices, loose vocabulary and broad misunderstandings among politicians and legislators.
“Politicians have generally ignored information technology and business process outsourcing,” said Hira. As offshore outsourcing grew in the mid-2000’s, “established IT industry groups, such as Tech America, formerly ITAA, the Information Technology Association of America, emerged as evangelists for globalization at the expense of the domestic services industry and U.S.- based jobs,” he told the Atlanta audience. He argued that despite providing large numbers of jobs in the United States, IT and BPO services providers lost domestic support because they sent considerable volumes of work offshore and there was little differentiation between domestic providers and offshore outsourcers.
Call for Boosting Onshoring Services
While the dominant industry trend among global services providers has been to migrate more work offshore to lower labor cost locations such as India and the Philippines, some U.S.-based clients have called for work to be done domestically. Some companies, particularly in the healthcare and financial services industries, have been driven by concerns about data security and protection, while others were concerned about quality and other delivery issues. Still others were driven by more patriotic concerns about “American” jobs. Global providers, such as U.S.-based IBM, Accenture, and EDS, as well as Indian outsourcing companies, have responded by establishing domestic centers while maintaining their international operations.
At the conference, companies such as Rural Sourcing Inc., Systems in Motion, Catalyst IT Services, Xpanxion, and Onshore Outsourcing, said their domestic-centric models are meeting a growing demand for US-based outsourcing services. Executives from these companies claimed that they can deliver services at the same or better quality than offshore at generally competitive prices.
Phil Fersht, CEO of HfS Research, a sourcing industry research firm, offered data showing that one-third of enterprise buyer respondents to his firm’s recent survey indicated that they were interested in sourcing some or all of their IT services in the US, while 17%-19% were already using U.S.-based operations for IT services. Fersht also reported that his research confirmed that some domestic providers were cost competitive with offshore firms by delivering services at only a 10% premium to some offshore prices.