Executive Briefings

Opinion: Trumpism and Global Sourcing

Globalization, a seemingly unstoppable trend until last year, suddenly looks less inexorable as President Donald Trump moves to put "America First," and the United Kingdom leaves the European Union. These abrupt policy shifts are forcing executives to rethink strategies based on global economic integration, particularly cost-efficiency initiatives that rely on outsourcing or offshoring business processes.

Trump's first tariffs on Canadian lumber, proposed visa restrictions, and approach to foreign trade partners in general create new risks for companies that transfer work abroad or import foreign talent. At the same time, limits on global sourcing would add new urgency to a central objective of what we call a Fit for Growth approach — maximizing efficiency wherever possible in line with a capabilities-driven growth strategy.

Many companies that lose access to less-expensive overseas workers will respond by accelerating the automation and digitization of labor-intensive services. Possibly due to changes in the political and regulatory environments, companies may automate lights-on activities that don't support the differentiating capabilities underpinning their "way to play" in the marketplace.

No longer can U.S. companies and their overseas service providers rely on labor-cost arbitrage to drive efficiency. While we don't know how much of President Trump's agenda will become law, it is possible legislation could make offshoring harder, costlier, and even less popular with the public.

Trump's public criticism of offshoring has focused mostly on the manufacturing sector, but there's no guarantee that trade barriers wouldn't expand to include some kind of levy on offshoring of services — one widely publicized transfer of a few thousand American IT jobs to an overseas locale might be all it takes.

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Trump's first tariffs on Canadian lumber, proposed visa restrictions, and approach to foreign trade partners in general create new risks for companies that transfer work abroad or import foreign talent. At the same time, limits on global sourcing would add new urgency to a central objective of what we call a Fit for Growth approach — maximizing efficiency wherever possible in line with a capabilities-driven growth strategy.

Many companies that lose access to less-expensive overseas workers will respond by accelerating the automation and digitization of labor-intensive services. Possibly due to changes in the political and regulatory environments, companies may automate lights-on activities that don't support the differentiating capabilities underpinning their "way to play" in the marketplace.

No longer can U.S. companies and their overseas service providers rely on labor-cost arbitrage to drive efficiency. While we don't know how much of President Trump's agenda will become law, it is possible legislation could make offshoring harder, costlier, and even less popular with the public.

Trump's public criticism of offshoring has focused mostly on the manufacturing sector, but there's no guarantee that trade barriers wouldn't expand to include some kind of levy on offshoring of services — one widely publicized transfer of a few thousand American IT jobs to an overseas locale might be all it takes.

Read Full Article