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President Trump vs. Offshore IT Outsourcing: Border Tax Looms?

President Donald Trump intends to impose a border tax on companies that move some operations overseas, according to The Wall Street Journal. Among those listening closely: Technology companies and businesses with current or future offshore IT outsourcing strategies.

In a meeting attended by Michael Dell and several other business leaders, Trump today said: “If you go to another country…we are going to be imposing a very major border tax,” the Journal reported. How big a tax? That remains to be seen.

Depending on the figure, Trump’s stance could introduce challenges for IT service providers and MSP-friendly companies — many of which leverage outsourced help desks and other IT offerings from India and the Philippines. Foreign outsourcing giants like Tata Consultancy Services, Infosys and Wipro also are watching the situation closely.

India, Philippines IT Outsourcing vs. Trump Tax

Indian IT services companies have been bracing for anti-outsourcing sentiment ever since Trump’s inaugural speech emphasized an America-first message, according to the Economic Times of India. “The $150-billion Indian outsourcing industry has been a favorite punching bag of American politicians for over a decade,” the Times said. “But this time around, things are more serious to be dismissed as just an election rhetoric.”

Companies headquartered in India aren’t the only ones that could potentially suffer. Most major U.S.-based technology giants — and some MSP software companies — have offshore operations in India.

Meanwhile, business process outsourcing (BPO) is booming in the Philippines — though concerns about Trump’s potential policies are rising.

The Philippines IT and business process outsourcing industry employs more than 1.1 million people directly, with an estimated 70 percent of its business coming from the United States, according to Financial Times. The sector is targeting annual revenues of $40 billion and 1.8 million jobs by 2022, the report said.

Now, the big question: Can the Philippines hit those targets if the Trump administration imposes trade taxes on such services? Hmmm…

Cost of IT Labor: Here Comes Inflation?

There’s a potential irony to all the Trump tax talk. Trump’s motivation certainly sounds reasonable to some Americans, especially those who have lost jobs that were outsourced to foreign companies. Let’s assume Trump’s plan to tax offshore outsourcing actually inspires some U.S. companies to bring some jobs back to U.S. soil.

Will that really lead to a rising tide for all boats here in the U.S.? That’s doubtful.

  • The potential upside: Gainful employment for IT workers who return to U.S. payrolls.
  • The potential downside: Higher IT support prices — which vendors will surely need to pass onto customers. And we’re not just talking about a few selected services. Every Fortune 500 company likely leverages some form of offshore outsourcing. And many U.S.-based companies could actually become less competitive — not more competitive — as they strive to deal with artificial pricing barriers from President Trump.

Somewhere within all this rhetoric there’s a middle ground — an opportunity for U.S. companies to innovate and hire, while leveraging outsourcing when it truly makes sense… … …

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5 Comments

Comments

    Jose Beltran:

    This will encourage the young intelligent hopes to take IT , engineering courses since they know that their jobs would not be outsource. IT companies should help in training Americans the new technology instead of outsourcing…Retrain America if not the future of America will be working for India. Also, heavily tax the outsourcing companies and use this money to retrain Americans.

      Stack 123:

      It is refreshing to hear someone talk based on logic and reality. I am so tired of listening to the amateur hour society where everyone can talk as if they know everything even though they have absolutely no experience. Yes, I agree with you 100% and thank you. Outsourcing has its place, but the reality of what’s happening is a mindless transfer of wealth. Outsourcing should be strategic, not a free for all where in order to remain competitive you have to put your R&D offshore. If other countries want to compete, they can and we want them to, but not under a context of us handing all our knowledge to them. The amateur hour folks, who’s greatest problem in life is choosing the flavor of their latte, simply do not have the experience to understand this.

        Nayan:

        Good to see you understand Stack 123. The fact of offshoring is to cut revenues on initial stages so that the revenue can be forwarded to the later stages. As for instance, a recruiter of a firm, who is a U.S. Citizen demands anything between $60k per year to $75k per year (changes with experience and location), while on outsourcing a recruiter only asks for $18k per year plus free job boards and job postings. Outsourcing does not take your job away instead it gives you an opportunity to be a part of it. It takes away the hurdle of going through job postings or adverts and directly gives you a chance of interviewing with the company. Hope this helps.

    John:

    I’d pay more for products to keep work here.

      Joe Panettieri:

      Hey John: I’d pay more for *quality* products and services. But I won’t pay more for U.S.-built products/services that are substandard. I learned this lesson the hard way with U.S. car purchase.
      -jp

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