Q&A: Peter Allen, TPI
Speaking with SSON's Sarah Clayton at the 13th Annual Shared Services Week 2009 in Orlando, Peter Allen speaks about the future of offshoring for US businesses as the global recession takes hold. Will the government start supplying more tax and training incentives to keep jobs in the US, which has a predicted unemployment rate of 10%?
SSON: Peter what effect is the global recession having on US appetites for global offshoring right now?
Peter Allen: Well, I would say there is a formal impact and an informal impact. For those companies that are recipients of government investment; whether they are in finance or automotive, the senior executives are truly taking a pause in their adoption of increased offshoring. They are continuing to outsource and often those outsource providers are delivering services from offshore locations. But, distinct offshoring initiatives that are held out as a replacement to US based domestic workers with those in lower cost locations, are taking a pause. That is the formal reaction to the perceived implications of receiving US government investment.
But I will tell you that the informal reaction among the senior executives in many companies, is really to take note of the rising unemployment in this country [USA] and the effect on communities and families and on employees; those executives are not impervious to those decisions.
Now on one hand they need to drive costs down but they are sensitive to the impact on their employees and their communities. Related to this are real concerns about predictability of currency and valuation of currency relationships. We’ve seen the value of the dollar as compared to other currencies in which operations might be conducted whether they are captive, offshore or outsourced turn upside-down. So, what might have previously looked to be a favourable currency exchange when a center was created in India three years ago has a very different economic footprint today.
And the final component is the sensitivity around taxation. Not only is there the concern about the continuation of the India tax incentives to encourage business in India, but there is an expectation that the US government will be almost forced to encourage domestic employment. Whether those are tax free zones or other training or redeployment incentives that help to create a domestic delivery platform. We know many of the US States are looking at this and we know that the dialogue is underway with private equity firms looking at carving out back office operations as well as service providers that are trying to encourage a broader base of service delivery.
SSON: Do you see much discussion at federal level?
PA: Really we don’t see it formalized yet, but we are sensing that there is an expectation that there will be some federal programs for re-training and for subsidiszng the establishment of a broader capability. If you think about it, with unemployment that might reach 10% in this country, we now have available capacity of intellectual human capital to service the needs of corporations.
We have a pink collar workforce of working-class women who are ready to hit the market. We have displaced workers across industries, knowledge workers, not just blue collar workers.We have buildings with office space and even if you look at the base closure program in the US military, you’ve got facilities that may well be deployed to delivery platforms that would suit back-office services like accounting, human resources or contact centers. I think you look across that equation and all of the pieces are falling into place that may well create a domestic capability that didn’t exist previously.
SSON: Is this a US-specific situation or do you see this happening with Western European countries?
PA: It seems to have more near time energy in the US and it could just be the American reaction to the ‘threat.’ I think most consumers and business executives are really feeling threatened by the economic conditions. And they are looking at actions that are really about survival for their businesses and preserving a standard of living. It’s not so much about a creation of wealth but maintaining an asset base that will allow them to pursue the American Dream.