sheelamohanachandran - Fotolia
With nationalism spreading across the world, the global tech sector could be at a pivotal moment in its evolution.
With Donald Trump bringing protectionism to the world’s biggest economy, there is a risk that US organisations could miss out on the benefits of a global IT industry.
By submitting your personal information, you agree that TechTarget and its partners may contact you regarding relevant content, products and special offers.
Furthermore, the UK is attempting to break from the EU, its economic harmonisation and free movement, and there is also a growing swell of nationalism in other countries. Although nationalism in France and the Netherlands was defeated at the polls, its voice, calling for closed borders and protectionism, is now mainstream.
Cognizant is the latest IT services supplier to commit to creating more jobs in the US at the expense of India in light of Trump’s strategy to get companies to hire US citizens.
The company recruited about 4,000 people in the US in 2016, and expects to hire more in 2017. Although Cognizant is a US company, most of its staff are based in India.
“We are evolving our workforce and delivery in the United States,” said Cognizant president Rajeev Mehta. “We hired 4,000 US citizens in 2016, and in 2017 and beyond, we expect to significantly ramp up our US-based workforce by hiring experienced professionals in the open market and making more use of university programmes.”
He said the reason for this is largely because clients want co-innovation. Cognizant will still use visas to bring highly specialised and skilled talent to the US, but expects to further reduce its need for these visas in the future. “As part of our shift, we continue to expand our US delivery centres.”
Read more about IT services and politics
- The IT services sector looks set to face a period of business uncertainty following Donald Trump’s US presidency election win.
- Nasscom lowers the rate at which it expects revenues for the Indian IT services industry as a whole to grow, citing domestic and global issues in its revision.
- The fact Donald Trump’s labour secretary has previously offshored IT work to the Philippines could ease IT services fears, particularly in India.
Infosys plans to hire 10,000 people in the US over the next two years and open four technology hubs. Earlier this year, Accenture, which has about 130,000 staff in India, said it would create 15,000 highly skilled jobs in the US.
Although Cognizant, Accenture and Infosys did not cite political pressure as a reason for their plans, there is pressure on these companies to toe the line drawn by Trump. They derive huge revenues from US-based customers.
Executive order affecting IT services
A Trump executive order said US government agencies should look at ways to reduce the number of immigrant workers in the country, including reducing the use of H-1B visas. This is part of an election campaign promise to encourage employers to hire more US citizens.
This is having an impact on IT services, with providers and their enterprise customers in the US holding back from investing in services offshore as well as pausing hiring at their own operations in India. This is because it is not clear how immigration laws will change, according to Sarthak Brahma, head of pricing advisory at Everest Group.
He said US enterprises have frozen their offshore strategies because of Trump. “If they have thousands offshore they are not immediately pulling it back, but they are not adding bodies,” said Brahma.
There is also uncertainty for large businesses that have established their own IT operations in India. “These companies run with outsourced models and in-house models in India, but they are uncertain what new immigration rules will be because it is not clear in offshore hiring,” added Brahma.
Skilled workforces without a big pricetag
US technology giants in particular have vast operations in India. These companies are benefiting from a highly skilled workforce at a lower cost.
Google’s largest campus outside the US is in the Indian city of Hyderabad, which can accommodate 6,500 employees. Apple also has an operation there, with a 250,000ft2 technology development centre. About 130,000 of Accenture’s 400,000-strong global workforce is based in India.
Outside IT, US industrial giant GE recently added a digital hub to its global network by opening a centre in Bangalore, which will house 2,500 technology professionals and be its biggest hub. Also, Goldman Sachs employs about 5,000 staff in Bangalore, across almost every division of the bank. In 2019, it expects to open a $250m campus on Bangalore’s outer ring road that will be able to accommodate 9,000 people in two buildings, across 1,000,000ft2.
US tech skills shortage risk
The complexities of changing immigration rules don’t end there. In the US, there are many thousands of non-US citizens in highly skilled tech jobs. Without these, the US tech sector could see a shortage of skills.
“Everyone is focused on the 65,000 new H-1B applications, but there are perhaps as many as one million H-1B visa holders already working in the US,” said Peter Schumacher, CEO of management consulting firm Value Leadership Group.
“If the administration starts going after them, the technology industry will have a strategic problem. Roughly 15% of all Facebook employees in Silicon Valley are H-1B visa holders. These are highly skilled employees who earn salaries significantly higher than $100,000.”
Schumacher echoed Cognizant’s call for co-innovation, pointing to the advantages to enterprises of IT service providers having local staff. This is becoming more the case as customers demand innovation on top of operational excellence.
“Increasing the share of local employees makes sense, and the companies that implement this best will gain important advantages,” he said. “Most importantly, by employing more local employees, Cognizant and its peers will gain a deeper understanding of the issues that make the most difference to their customers.”
Schumacher said the challenge will be to embed this understanding in both the delivery and customer-facing parts of the organisation: “This is the biggest gap these companies face, with the prerequisite for developing novel ideas, co-creating value, developing and delivering meaningful innovations and capturing new, higher-value business opportunities.”
Brexit threatening UK IT
Meanwhile, Brexit poses a threat to the UK’s IT sector. The financial technology (fintech) sector in the UK, but mainly London, is an example of an industry that relies on access to the right skills and capital. With the loss of free movement into the UK, this could mean the fintech sector, which has shown great potential for the UK, could stall.
The UK is already facing a skills shortage. In fact, the digital skills gap costs the UK economy £63bn a year, according to a report by the House of Commons Science and Technology Committee, published in 2016.