Four New Sourcing Strategies: Overcoming Regulatory Limitations

May 12th 2017

As the costs of foreign labor and political pressure against offshoring increase, many companies are seeing declining benefits to labor arbitrage. New regulatory pressures are also making it more difficult to hire foreign workers to work locally. H1-B visa expediting is being halted and it is likely that there will be a lowering of the cap on total H1-B visas issued. These two factors are leading to a rapid increase in competition with many companies looking for new opportunities to control costs and deliver better products and services to their customers.

In order to be successful in this new regulatory environment, companies must look to strategies that allow them to source the labor and services they need while controlling costs and increasing productivity.

1. Increase flexibility

Old sourcing models often lock companies into long commitments that aren’t adaptable to changing environments. An uncertain future for sourcing means that these commitments are no longer feasible. Avoid agreeing to price increase clauses that allow outsourcers to raise the price for services rendered in the event that their costs increase. Contracts should also allow companies to shift the work delivery location and terminate services if the deal becomes uneconomical.

2. Invest in recruiting

Local recruiting will become increasingly important as regulatory pressure grows. There is a coming war for talent, and companies that haven’t invested the necessary time and resources into developing a comprehensive talent acquisition system will be left behind. Forming relationships with US-based staffing firms and developing strong recruitment programs is a critical component of future success.

3. Diversify vendor mix

Sourcing models that exclusively leverage offshore labor have an elevated risk profile. In many cases, it makes sense to use a mix of onshore and offshore labor to attain the optimal level of risk vs. profit. In many cases, it may be possible to leverage multi-shore service providers that allow companies to take advantage of multiple locales through a single vendor.

4. Emphasize automation

As the value of labor arbitrage declines, there is increased opportunity to reduce the need for offshore labor by increasing the productivity of the existing workplace through automation. Repetitive, highly standardized tasks with high turnover make ideal targets for automation. Although some automation technologies have the potential to replace human workers, their greatest power is their ability to optimize and accelerate functionality. Virtual assistants, predictive analytics, language translation, data entry and dynamic upsell recommendations are all areas where automation solutions excel. In many cases, these solutions surpass the capabilities of human workers, allowing for increased productivity while reducing costs.

Will automation be taxed?

Many experts are speculating that as automation increasingly replaces a human workforce, governments will begin taxing these automation systems to make up for losses in revenue from income tax. Although this is certainly possible, and perhaps even likely on a long enough timescale, it is not something that companies should overly concern themselves with right now. By the time an automation tax is put in place, it is likely that technology will have progressed to the point that gains in efficiency will far outweigh any tax that could reasonably be placed on the technology. Regardless of what future policy holds, investing in automation today is almost certainly a sound strategy.

Labor arbitrage can no longer be relied on as a viable business model. With increased regulatory pressure and rising wages abroad, offshoring work is becoming increasingly risky. In order to survive, companies must make increasing use of onshore labor augmented by automation. By implementing these strategies, companies can continue to enjoy the cost and productivity benefits of outsourcing while still maintaining low costs.


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