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Automation, not cheap labor, is reshaping outsourcing

Patrick Thibodeau | June 16, 2016
While Congress and workers debate H-1B visas, virtual labor is ascendant.

IT services firms are shifting to automation, cloud, the Internet of Things and to "next generation services contracts that have pushed the traditional outsourcing services to the backseat," said Dani.

More broadly, the arrival of intelligent automation is spreading through all industries, not just IT services.

"Intelligent Automation is one of the most disruptive trends the industry has seen," said Tom Reuner, an analyst at HFS Research. The approaches are "about decoupling routine service delivery from labor arbitrage. However, the direction of travel is toward human augmentation, and not substitution."

In some ways, it is hard to imagine the labor advantage disappearing anytime soon.

The cost advantage of using offshore workers in the U.S. remain substantial. Outsourcers must pay visa workers the prevailing wage, but about half of these workers are paid Level 1, or entry level, salaries in a four-tier system, according to a report by the U.S. Government Accountability Office. (The prevailing wage Level 3 represents the median.)

Presumptive Republican presidential nominee Donald Trump has offered up an immigration reform plan to raise H-1B wages that strongly implies using Level 3 as the new wage floor.

Ron Hira, a public policy professor at Howard University, looked at the wages paid at one firm, Southern California Edison, which cut some 500 jobs last year after signing outsourcing deals, and compared it to data paid to H-1B workers. What he found was that the offshore contractors were saving as much as 41% on labor cost by using visa workers. His research, which was published by the Economic Policy Institute.

The idea of raising the wages of H-1B workers is championed by reformers in Congress. But what analysts are saying is that wage advantages won't be as important as automation capabilities in the years ahead.

Source: Computerworld

 

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