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Outsource magazine: thought-leadership and outsourcing strategy | August 22, 2017

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Wish They Weren’t Here?

Wish They Weren’t Here?
Outsource Magazine

The anti-immigration lobby in the US is growing in strength and prominence. But what does this have to do with outsourcing? We take a look…

Many of the voters who turned out in November’s mid-term elections to deliver the Democrats a bloody nose – and President Obama what he later described as a “shellacking” – did so because of their dissatisfaction with the country’s policy on immigration. Always a controversial topic in a country receiving more legal immigrants per year than the rest of the world put together, the spectre of immigration loomed especially ominously over these elections in particular due to the ongoing employment crisis in the US and continued fears amongst the electorate regarding the country’s economic health.

The United States were built on the backs of millions of immigrants, but increasingly many of the descendants of those millions of free and brave are asking whether, at a time of uncertain economic prospects, enough might be enough. Of course, immigration was by no means voters’ only grievance in November – but concerns over the sanity of America’s immigration policy have become woven increasingly tightly into the overarching (if inchoate) manifesto of the Tea Party movement which has so successfully seized the political agenda in recent months and which contributed so forcefully to the Republicans’ resurgence.

It is, to a great extent, the conflation of immigration with other issues of sensitivity to the American right which has led the outsourcing space to be tangled up in the debate. The cry of “American jobs for American workers” is aimed not just at the stereotypical Latino migrant sloshing across the Rio Grande: it covers too a more recent immigrant type, in the form of a highly skilled hi-tech worker coming in from overseas markets to occupy a high-value role which, say the Tea Partiers, could and should be occupied by home-grown talent.

“The debate actually involves four separate topics,” says Stan Lepeak, MD at EquaTerra (and an Outsource Editorial Board member): “illegal immigration of un/lower skilled labour; legal immigration/retention of skilled labour already in the market; outsourcing in general, a business practice; and offshore outsourcing, a business practice and trade policy. Each is being conflated by all sides in the argument but the drivers, impacts, benefits and means to promote or limit each is different.  For example, lumping illiterate and illegal immigrants hopping the border fence with highly educated visa-holders looking to launch companies and create jobs is simplistic at best and dangerous at worst.  To the extent possible (not highly so in the near term) each topic needs to be addressed individually on its own merits, detriments and characteristics.”

However, such a cool, rational perspective is impossible for many who find this the most emotive of issues – emotions which the Tea Party and similar movements are keen to stoke into active democratic protest. And the rhetoric is not just coming from the right: Democrats in both houses are also making political capital from speaking out against both outsourcing and immigration, while many of the erstwhile Democrat voters who either boycotted the polls or switched allegiance in November did so prompted by this very issue.

With various media and corporate factions encouraging much of the electorate to engage with the debate on a comparatively superficial, “heart not head” level (though none the less vociferously for that) the politicians who depend on their votes are well aware of the value of playing particularly protectionist cards. When “outsourcing” becomes a dirty word encompassing a multitude of perceived sins, those cards become all the more valuable – and even more so while a lack of employment opportunities clouds the visible horizon.

“In the United States the electorate has seemingly viewed the issues of immigration and sourcing on a surface level,” believes Christopher Ford of Morrison & Foerster. “They are viewed through the prism of the direct impact on American jobs.  The electorate has failed to view it on a more macroeconomic level (e.g., the impact of globalisation on the cost of goods in the U.S. markets and the strengthening of domestic companies as a result of sourcing and immigration).  Accordingly, the electorate is only looking at the “bad” side of the equation and not taking into account the positive impacts.  Unfortunately, it is doubtful that a deeper view will be taken or that sourcing professionals will be able to change perceptions, particularly in a slow economy.  The obvious remedy will be for unemployment to decrease which, in turn, will decrease the focus on job loss.

“The question must be viewed in the context of the federal government and state and local governments. In each case, the protectionists’ demands are driven by the electorate’s requirement that jobs are not lost to overseas workers.  The passage and enforcement of federal legislation like the ‘Buy America Act’ that places restrictions on the purchase of foreign goods and services by governmental entities receiving federal funds is one means to control use of offshore outsourcing. 

“The issue with state and local governments, however, is broader than just the offshoring issue. State and local governments tend to abhor the concept of outsourcing generally.  Notwithstanding, they are increasingly realising that it is a necessary tool to deal with aging infrastructure and applications that cannot be easily upgraded by internal resources.  Accordingly, more and more of these governments are quietly viewing sourcing as a viable alternative.  When choosing to outsource states and local governments tend to require that jobs remain in the state or local jurisdiction, as the case may be.  This requirement avoids the argument that the state or local government is shipping jobs to foreign countries, and helps to reduce the public scrutiny that would certainly be present if such measures were not in place.  

“Needless to say,” Ford adds, “such restrictions reduce the cost-effectiveness of the outsourcing venture.”

It is the desire to keep jobs in-country rather than outsourcing them that leads to problems for the global outsourcing industry: because the “highly educated visa-holders” Stan Lepeak describes can be seen as taking “American” jobs away just as surely as if those jobs were sent overseas. The use of Indian IT and ITES workers in particular, brought into the US by major outsourcing providers keen to satisfy their clients’ onshore stipulations, is attracting an increasing degree of opprobrium: how can American workers move up the value chain following the offshoring of much of the country’s manufacturing base, cry the critics, when those higher-value jobs are being filled by foreign workers (who can compound the problem by repatriating a goodly proportion of their earnings)?

Earlier this year Senator Charles Schumer (a Democrat who has earned a significant reputation as a scourge of offshoring, and who notoriously described Indian major Infosys as a “chop shop” this summer) pushed through a Bill establishing higher rates for H-1B and L-1 visas (the primary temporary work permits used by services companies) for organisations with workforces over 50 per cent of whom are non-citizens. This caused uproar in India in particular (prompting accusations that the action discriminates against Indian providers as against US-based majors using a significant, but not majority, proportion of overseas workers – accusations which Schumer denied, claiming “we’re not trying to kick anybody… We’re just trying to bring jobs back”) but played beautifully to the re-emergent protectionist agenda – as did Ohio Governor Ted Strickland’s move in September to deny state contracts to businesses sending work offshore.

Much of what legislation has been enacted, however, has come under fire from observers both within and outside the outsourcing community for being potentially counter-productive. (In a very well-read post on his popular Horses for Sources blog, HfS head Phil Fersht pointed out five reasons why Schumer’s legislation would actually drive work offshore rather than preserving employment within the US. “The US IT and hi-tech industries grew up on bringing talent into the country that added new skills and ability – and was often more affordable,” wrote Fersht. “By further discouraging bringing the talent to the States, Schumer and co are driving the next wave of IT development out of the country.”) Furthermore, the providers in question are hardly likely to give up without a fight – and, as Stan Lepeak points out, there are various strategies for negotiating new legislative obstacles.

“There are many means to get around restriction where in fact they truly exist,” Lepeak says. “Some of these means benefit the market while some hurt it from an employment, productivity and competitiveness standpoint. [Companies can] hire/transfer local workers to perform activities either as a token or in scale model; perform the work offshore or hire the labour out of the market; push for greater automation of work eliminating the need for local labour; and not pursue business with overly restrictive local labour requirements.

“Where there are additional costs they are passed onto the client, often with the clear stipulation that lower rates are desired offshore as the required option, hence illustrating how restricting in-market visa labour and immigration can actually drive more work offshore versus forcing providers and buyers to use higher-cost local labour.”

So, in the eyes of many observers, legislation intended to protect American jobs may actually result in job losses as work moves offshore – hardly in line with the stated objectives of either the Tea Party or the traditionally more-labour-sympathetic Democrats. Furthermore, this legislation – indeed, the anti-outsourcing movement generally – assumes that the impact of both outsourcing and an influx of comparatively low-wage highly skilled workers upon the US economy is a prior negative, when a host of scholarly literature exists to make a contrary argument.

If in truth that argument is far from cut and dried, the bottom line remains that great swathes of the American voting population remain instinctively and passionately opposed to both outsourcing and immigration, and it appears that little attempt is being made to drive the debate nationally onto a more rational level. Few constituencies exist to support those making public pronouncements in favour of outsourcing and despite the calls of those such as Ian Ippolito of Exhedra Solutions (in the Outsource debate on the following pages) for “a practical legislative compromise… educating the electorate on some non-sound-bite-sized economic fundamentals” it is unlikely that any such result will transpire: it’s hard to imagine any mainstream politician looking to retain his or her seat proselytising in outsourcing’s favour from the campaign stump.

In the final analysis, though, one must question whether or not anything other than a concerted, wholehearted and long-term protectionist assault from Washington would impact upon the space in any catastrophic way. Business has decided there is value in the outsourcing proposition. To make that proposition more expensive – either via restrictions on immigration or legislation attacking offshore outsourcing specifically – risks reducing the ability of business to achieve the nimbleness and agility necessary to survive and flourish (which hardly bodes well for the economy the protectionists seek to protect). The measures already enacted do just that – but, we must assume, not to a degree which actually threatens the integrity of the US economy nor the outsourcing industry – while failing to achieve the aims of those promoting them.

The danger is that the rhetoric and subsequent determination to legislate will only intensify as the populist mood within the US consolidates – based not on the genuine requirements of the American economy, but on an atavistic belief that that economy simply cannot benefit from outsourcing and the influx of workers upon whose invaluable skills a good proportion of the economy, now and future, depends. If it does, the aforementioned concerted protectionist assault could indeed take place – and the question then becomes, who stands to lose more: the outsourcing companies ostensibly being targeted, or the American economy itself?


Read our debate on immigration, The Professional Perspective, featuring thoughts from across the Outsource community – and check out our interview with the North American CEO of a provider looking to negotiate the immigration minefield…


article_o_avatar_50px“As Congress continues to debate ways to address illegal immigration, we must remember the many hard-working legal immigrants that contribute so much to our nation’s economy and culture.” – Bob Filner

Picture – Press Association

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