Matt KendallPresident-elect Donald Trump is no friend of the free markets. Whether you are a believer in open markets or in Trump’s words, “the dumb market”, there is a lot riding on how the new president’s incoming policies impact global services. Operating in such a tenuous environment, it’s tough to determine which threats are potentially real and which will turn out to be illusory, so many companies with outsourcing partnerships continue to “wait and see”.
Thankfully, while bracing for impact and attempting to prepare for the unknown, companies can still take some practical steps that can lower the damage caused by whatever changes the service industry might face. To offer some guidance, David Rutchik, Executive Managing Director at Pace Harmon, has some advice.
1. Closely Review your Contracts
It’s always wise to be familiar with the small print in any outsourcing contract, so conducting a thorough review as a preparatory step should be at the top of your checklist.
“To prepare for possible offshore outsourcing impacts, organizations from the United States should first review their existing contracts,” said Rutchik. “I would advise companies to confirm in their contracts that the requisite protections are established for areas such as change of laws, migration of service delivery locations, and termination outs in the event that the engagements become uneconomical.”
2. Evaluate Impacts of Reshoring/Onshoring
The potential need for reshoring or onshoring existing offshore processes is something worth considering, but shouldn’t be rushed without first ensuring that it is economically viable.
“It is vital to understand the impacts and options for moving certain functions back onshore, such as service desk or BPO,” Rutchik advised. “U.S. companies should also thoroughly evaluate the economics of their specific outsourced programs.”
3. Lower Dependency on Landed Resources
Now that Trump has set his sights on reducing the volume of talent coming in from outside the United States, companies need to reassess their dependence on that talent, as well as the cost of retaining it.
“The ability for enterprises to utilize landed resources may become tougher as visa restrictions may tighten,” explained Rutchik. “To address this issue, companies should ensure that onshore resourcing is not dependent on landed resources, and that the pricing distinction between landed and onshore is clear. Otherwise, the ability to secure onshore support, as well as the price to obtain it, may be compromised.”
4. Don’t Worry About Internal Tariffs
While mostly focused on manufacturing, Trump’s protectionism threats of applying a 35% tariff on goods that are produced overseas then returned home are still a concern for services companies, but they needn’t be, according to Rutchik.
“Regarding tariffs and taxes to make labor arbitrage less viable and therefore offshoring less economical, that level of government intervention to try to manipulate the economy to achieve specific political results is likely to backfire,” he said. “U.S. companies would simply be that much more uncompetitive on the global stage, and this will drive inflationary price pressures, even within the domestic market. Enabling U.S. workers to compete in the global marketplace by providing significant training in higher paid skills, etc., is a much more sustainable approach.”
5. Pay Attention to Manufacturing Developments
Finally, with manufacturing in the cross-hairs, a good approach would be to watch how the industry is affected, as well as closely monitoring any developments that lean the government toward a focus on the services sector.
“Based on the President-elect’s rhetoric, it appears the possibility for offshoring changes is much greater for manufacturing operations rather than services areas,” said Rutchik. “With that in mind, companies should pay careful attention to the impacts on this area, particularly to the extent that the focus changes or broadens to include services provided to U.S. companies from offshore locations.”
What other advice should clients of nearshore and offshore services vendors be following? Is it worth preparing for the worst, or should they deal with whatever problems that arise on an ad-hoc basis? Let us know what you think in the comments below.
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