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American nearshoring spells trouble for Nasscom

When it rains, it pours. The Indian IT/BPO sector has been facing several headwinds: tough H-1B visa rules, advances in process automation, and forced investments in the US which could have otherwise been focussed on in India. Each of these has impacted hiring and growth in India, at a time when the country badly needs both.

Now, a more tectonic shift in the global delivery model — of bringing offshore jobs back to American locations through telecommuting and ‘nearshoring’ — may end up being the unkindest cut of them all. Western companies may steadily begin allowing of Nasscom offshoring contracts expire and move work to remote locations in the US such as Hattiesburg, Mississippi, or Columbus, Ohio, hiring Americans to do the work.

Adam Ozimek, the chief economist at Upwork, a global freelancing platform, in a new report said: “Data now shows that offshored US service sector jobs are going remote.”

It was Alan Blinder, a Princeton economist, who said in 2007 what Nasscom already knew well. Any service occupation which doesn’t require a “touch and feel” interaction with the customer would likely get outsourced. Plumbing, lawn mowing, and nursing jobs could obviously not be offshored. But paralegal work, which is mostly completed in an office with little client involvement, could be.

Blinder’s theory held for years as Western companies steadily moved back-office jobs in accounting, finance, and HR to exploit India’s lower labour costs, adequate English language skills, and solid IT backbone.

But not every company engaged in offshoring. IT companies doing contract work with the federal government were banned from moving work to foreign countries. So, they began to locate offices in second-tier towns in states like Mississippi and Alabama, because some of the cost-saving elements of the offshoring model could still be protected. Also, these remote regions offered tax incentives to companies to expand hiring. ‘Nearshoring’, a threat to offshoring, was born.

Compared to offshoring, these nearshore offices didn’t have some of the same operational problems associated with Nasscom’s work. Clients no longer had to be up early or sneak out during dinner to participate in a status call with Indian employees. Language and accent barriers went away. The costs of project management went down substantially. Clients didn’t have to take 15-hour flights to India and be jetlagged at oversight meetings.

Now, the very technology which propelled India to the forefront of the global economy 25 years ago is making it possible for companies to nearshore at will. Nearshore service providers sell the above benefits as differentiators. In a dig at Nasscom companies, some American call centre providers are not even subtle about language issues, promising highly-trained and articulate call centreagents based right in the US.

And then, there’s telecommuting. In August, GlobalWorkplaceAnalytics.com examined US Census data to conclude that regular work-at-home employment has grown by 159 per cent since 2005, more than 11x faster than the rest of the workforce. Many of these jobs are in telemarketing and BPO.

A 200 Mbps internet connection — several times the speed of a T-1 line — is now routinely available to American homes for $75 per month. Skype allows for free, secure video conferencing calls for multiple employees, including screen sharing and other collaborative work arrangements. Add a $1,000-PC and every home in America can be converted to a full-fledged office.

Nasscom’s USP has always been that India’s lower loaded labour cost, combined with structured quality, is a decisive differentiator. Nearshoring and telecommuting trends put this assertion in doubt and raise fears about Nasscom’s ability to maintain years of strong growth.

The writer is Managing Director, Rao Advisors LLC, Texas

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