The Trump Regime and the Impact on India's IT Outsourcing Industry

Will Trump’s aggressive anti-outsourcing promises become a reality? What can Indian IT companies do to stay relevant in the new regime?

Donald Trump’s win in the US presidential elections has certainly cast a shadow of uncertainty over the future of Indian IT services sector, which is already facing a spate of challenges. The big, burning question that continues to haunt Indian IT companies is whether Trump’s reign will spell danger for the $100B plus IT outsourcing industry. Will it further add to the woes of an industry that is facing a steep slide in revenues due to shrinking enterprise IT budgets and technology disruptions like cloud, mobility and analytics.

Trump’s big promise during his 18-month long campaign was about getting the jobs back to the US. This meant tightening of immigration and offshoring policies to curb outsourcing – the route that US companies take to get work done in foreign countries like India and China that have access to cheap labour. His aggressive stance on protecting jobs gave a clear indication that IT outsourcing engagements with US companies would get impacted.

US is a big market for India’s IT outsourcing business with over 60% of the revenues coming in from there.

Indian IT companies have been sending tens of thousands of IT professionals to the US to work on onsite projects, utilizing the H-1B visa program that allows tech workers from foreign countries to be hired for US IT jobs. Although the H-1B visa program was initially designed to keep businesses competitive in a global economy and fill up temporary gaps in availability of tech talent, the belief is that it is now being misused through outsourcing.

The jobs and outsourcing trade off

Trump’s campaign promised to restrict outsourcing by bringing H1B minimum salary to $ 100000 per year (from $60K). He also said that he would discourage companies from sending jobs outside US by levying 35% tax on products made overseas. These promises if implemented would make IT projects costlier for Indian IT companies.

“For the IT community of several hundred thousand H1Bs, L1s and B1 holders currently residing in the US, many of them will come under scrutiny if Trump holds true to his number one campaign promise – curbing immigration and protecting American jobs,” states a blog from outsourcing research firm, Horses for Sources.

Rhetoric to Reality

Industry experts believe that it is uncertain that whether Trump will stick to all of his extreme anti-outsourcing promises made during the campaign. Many are also of the view that a protectionist policy will not solve the US unemployment issue and the country would have to look inwards to fix the tech skill gap that is the real cause of job losses. According to reports, there is a skill gap of about 3.5 million STEM (Science, Technology, Engineering and Mathematics) graduates in the US. This is the reason why the country has to rely on tech professionals from India to retain their competitive edge.

Another point to consider is that traditionally there has been a stark difference between election rhetoric and real policy implementations. Even president Obama was pretty vocal in his campaigns but once he took over the office, things calmed down and mostly, it was business as usual for IT companies.

Considering that it is quite likely that most of the extreme campaign promises will never see the light of the day.

What Indian companies can do?

Trump or no Trump, Indian IT is headed for some serious challenges. There is an increasing need to look for new markets as business from traditional markets like Europe and US becomes sluggish.

As traditional services models get obsolete, IT services companies should look for improvements in service deliveries through increased use of automation and new technologies. Experts suggest that Indian IT majors would be looking at setting up delivery centers in low cost areas in the US, US acquisitions and partnerships with US-based start ups to stay relevant in the Trump regime.