What Effect Will President-elect Obama Have on Outsourcing?

CIO — The election of Barack Obama has been closely watched by Indian IT services companies who wonder what impact his administration and subsequent policies will have on their businesses.

There is an uncanny resemblance between what happened in the Great Depression and what is happening now: Franklin Delano Roosevelt took the stage facing a worldwide economic crisis and a world war. The economic crisis that FDR dealt with was fueled by the same corporate and banking issues that face Obama, who will also take office facing a worldwide economic crisis and funding a $12 billion per month struggle in the Middle East.

What can Obama learn from FDR?

Although World War II fueled some of the American economic turnaround, FDR's programs and policies were the main contributors to economic stability and growth. His formation of the Federal Deposit Insurance Corporation (FDIC) and United States Security and Exchange Commission (SEC) helped bring regulation to a corrupt and faltering banking system. His formation of the Tennessee Valley Authority (TVA) helped fuel infrastructure investment and jobs and his creation of the Social Security system brought hope back to Americans.

Obama will need to come up with breakthrough programs and polices similar to FDRs to stabilize and turn around the economy. The greed and corruption in the 1930s banking system led to the formation of the FDIC and SEC, and Obama will need to put governance systems and agencies in place to make sure a financial crisis like we are witnessing will not occur again.

Economic stability will lead to fiscal stability, and when U.S. companies see fiscal stability, they will start investing again in technology. Until this happens, the IT sector will struggle.

The good news for the IT sector is that Obama will be the first U.S. President to bring in a CTO. He is clearly a tech-savvy person and understands the importance of funding and creating American-led technology programs. It is possible that Obama's present-day "Tennessee Valley Authority" turns out to be a major investment in technology infrastructure. The TVA created jobs and spurred the economy through the building of roads, dams, bridges, and so on. Obama might do the same with broadband, applications, Bluetooth, etc.

How will all of this affect India and the outsourcing market in general?

When Obama takes office, he will have so many large-scale issues to deal with it is highly unlikely outsourcing is high on his priority list. Even if he attacks the H1-B visa caps, who cares? Indian companies don't, because they have evolved far beyond their initial business models, which relied so heavily on bringing people onsite in staff augmentation mode. The foundation of Indian IT services companies is no longer just providing labor arbitrage—it is now deep with business models and services based on productivity increases, faster time-to-market of products, quality improvements, intellectual property, and so on.

For years, the Indian IT and services market was symbolized by companies such as: Infosys, MindTree, TCS, Wipro, Satyam, and so on. But, this is no longer the case. It is now represented by global brands such as: GE, IBM, Intel, Microsoft, AOL, Motorola, SAP, Accenture, Citibank, Fidelity, AMEX, and Target who all have large facilities and direct employee bases in India. These companies depend on their India centers to help them drive global revenues and stay competitive. Obama's proposed $3,000 tax credit to employers for each employee hired in the U.S. will not affect any decision-making in this regard, because U.S. companies can save the equivalent of this amount in one month with an Indian employee.

Also, Indian business models are more diverse than in the past, so they can withstand economic fluctuations better. Yes, most Indian companies will be hurt by the inevitable decrease in IT Capex spending by companies, but on the other hand, U.S. companies will need to find ways to dramatically decrease costs and improve their competitiveness, which could be a boon for India.

The stark reality of business will have a far-greater impact on the outsourcing industry versus anything Obama will legislate. U.S. companies are driven by the fundamentals of capitalism, free-trade, and competition; these same drivers of American business created the outsourcing market in the first place.

The main point is that Obama's administration simply won't have the time and capacity to look specifically at any large-scale policies on outsourcing. They have larger battles to fight. But, he can greatly impact it by addressing the economic crisis in the world. If he can fix the economy, it is good for everyone. If he can't, it is bad for everyone ... including Indian companies.

There is a lot of hope and pressure on Obama. The world needs him to come through. The IT industry needs him to come through. India and the rest of the world will be watching ... and hoping for his success.

Scott Staples is the president and co-CEO of IT Services at MindTree, operating out of MindTree's U.S. headquarters in Warren, NJ. As co-CEO, Staples shares responsibility for all aspects of MindTree's IT Services business around the world. He has 20 years experience in the market, focusing on IT consulting, management consulting, and the financial services and healthcare industries.

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