Third Party Risk Monitoring

What Challenges do Suppliers face for Location & Visa Independency?

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What Challenges do Suppliers face for Location & Visa Independency?

With the US elections approaching, global service providers continue to be influenced by the impending visa situation in the near term. It is believed that with business visas, such as H-1B and L-1, becoming limited and the US presidential election due in November, visas have become a political tool to win votes. As a result of anticipated visa restrictions, as carried out by the US and UK, and now Canada, service providers are looking to become independent of visas and hire locally. Consequently, what will be the implications of onshoring operations that have been offshored for so long?

Companies like Infosys, Wipro, and Tata Consultancy Services are heavy users of the H1B and L2 visas in the US, the Tier 2 visa regime in the UK, and temporary work visas in Canada. Turning into a visa and location independent firm is something considered to be within the reach of service providers due to the recent advancements in technology. With concepts such as Virtual Reality and other collaboration technologies, it is becoming possible to deliver integrated experiences irrespective of the location.

Infosys has been battling this issue for the past few years and has arrived at a point where it believes that the answer to the excessive dependency on location is a combination of local hiring within the United States, better positioning, and use of next generation collaboration technologies. Infosys increased hiring in the US to lower its dependence on visas and to create a stronger base closer to its customers. In 2015-16, the company took in 2,144 new hires in the North and South Americas alone, which was more than one-fourth of its employee base in the region in 2014-15. This has been the largest addition of local employees by Infosys in the region.

Apart from Infosys, many offshore-centric IT services companies are known to be looking at hiring local staff in the US. Wipro’s CEO Abidali Neemuchwala had said that in the future, the company is looking at hiring more number of local employees in onsite locations instead of sending people from offshore locations such as India. He also stated that although hiring will continue, the number of offshore hiring is likely to decrease drastically.

Many companies have begun to reverse their offshoring ventures and are bringing back their operations to home soil following the offshoring race during the last twenty five years. Two factors contributing to this phenomenon are rising labor costs and cost of living. Since 2001, hourly wages in China have risen by an average of 12% a year. Additionally, apart from the present slide, global oil prices have steadily increased over recent years. It is, thus, easy to see why the impressive profit savings initially associated with the offshoring of yesteryears are currently under threat.

Companies that have moved overseas departments closer to home in recent years cut across all product lines are AT&T, Dell, Host Analytics, Alorica, Expedia, HP, and Monster.com. Host Analytics recently opened a professional services and customer support center in Ponca City, Oklahoma. AT&T opened a call center in Birmingham, Alabama, signaling the return of 360 jobs that once had been shipped to other countries as a part of its strategic initiative to relocate about 3,000 jobs from multiple overseas countries to Southeastern United States.

However, when bringing back jobs, on a per-transaction basis, it is usually the most expensive option for customer support because of high wage levels and cost of living back home – as opposed to offshoring where there are efficiencies gained from the low cost of labor, along with a high technical proficiency. Transactionally, offshoring is the least expensive option per call, per hour, or per issue. Onshoring has labor compliance challenges too. From a labor standpoint, onshoring may represent a new threat, contributing to worker insecurity, and may be reflective of economic polarization. Compensation of workers may be affected by onshoring through various forms of legislation. For example, the labor policies in the domestic market will be implemented differently than they were in the offshore locations. In the United States, the Trade Adjustment Assistance Act is meant to provide compensation for workers directly affected by international trade agreements. However, whether or not these policies provide the security and fair compensation they promise is debatable.

At present, the onsite-offshore mix for January to March quarter of 2016 for Capgemini stands at 48.7% offshore and 51.3% onshore and Syntel’s stands at 75% offshore and 25% onsite employees. The top reasons why companies still prefer offshoring IT projects have been identified as lower staff-related costs, not having sufficient headcount for projects, and increase productivity / time to market. Certainly, there is great magnetism to offshore providers’ lower business bill rates. In an offshore model, projects with aggressive deadlines can benefit from “follow the sun” workflows where tasks are passed around daily between locations that are time zones apart. Also, highly defined and well-documented projects which require little collaboration can be optimized with an offshore provider.

An effective supplier risk management program such as Supply WisdomSM can help manage risks effectively and stay updated on changing trends & ratios of the onsite-offshore mix of leading service providers. Contact us for more information or to get started with a free trial.