After decades of a boom in globalisation, global village theory, free trade and immigration across countries, the world seems to have started going back to the sort of glocalisation where protectionism is the new way of life.
With global economic recovery ambling in an unstable way, a backlash against globalisation and some potential measures to protect perceived self-interest by country after country, is looming large and casting a pall of gloom over the global economy.
The June 23rd verdict by Britain this year against leaning on the European Union (EU), stemming largely from the entrenched fear of immigrants making inroads and taking jobs of natives, is a decisive statement against the globalised world. There are indications that the hyper-globalisation across the last three decades is in the process of reversal — and now it will be interesting to see how Trumpnomics will impact it further.
Free Trade Kills Jobs?The new US president will have an opportunity to put the nationalist economic ideas that he had talked about during the year-long election campaign, into practice. The mandate he received represents the resentment among many American workers, who have come to believe that free trade kills jobs and that they and the US economy overall would be better off if more stuff was made at home than in China or Mexico — and outsourcing to India stopped.
The more protectionists vibes I hear, I think about India before 1991. The socialist era made people line up for everything as simple as a phone or a scooter. The quality of life was at the bottom. The reason for all this was trade suspicion and protectionism against the colonial Europeans / westerners. So, more import duties, barriers for trade, policies to protect and grow monopolies of few in domestic industries were put in place. The result — India remained poor, while the world raced ahead. No competition means poor product quality, very few choices for consumers, no technological advances to upgrade industries. The manufacturing wave which China rides on, was missed by India then.
Predicting any direct and immediate impact on the US — India relations or outsourcing is a very tough task – mainly because there will be a lot of difference between the election rhetoric of candidates and the actual decisions taken during the Presidency. Moreover, no President can expect to have any hegemony on government policies. The US Constitution provides adequate checks and balances to ensure that no branch of the government has an e xclusive run on policies.
‘Reshoring’ Gains Momentun
To a certain extent, factories are already moving back to the US, as the trend of “reshoring” from places like China gain momentum. As the economy is growing at a fast pace in India because of the increased cost of manpower — the labour arbitrage to move jobs to offshore locations is slowly going away. And on the surface, the make-it-in-America rationale seems to pass the common-sense test. More manufacturing at home means more factory jobs for Americans and a smaller trade deficit with the world.
The policies Trump would have to implement to make his economic promises a reality, such as tearing up trade pacts, imposing higher tariffs on imports and slapping punitive taxes on companies that move manufacturing offshore — are like India’s policies before 1991. Foreign-made products would become prohibitively expensive, curtailing consumer choice. Factories behind protective barriers would have little incentive to invest in innovation or quality. Trapped in a high-cost environment, they’d have trouble competing in global markets.
It may create a job spurt to start with, but not able to export, and forced to charge higher prices for their wares at home, factories would require only a small workforce to meet demand. They may invest heavily in automation to press costs down, replacing workers with robots on assembly lines. Such policies would isolate American industry from the global trends that drive economic progress.
Outsourcing To India
What will be the direction of the change now, due to new government policies, especially on outsourcing to India, and skill-based visas like H1?
To avoid the high-priced manufacturing back home, more and more companies will invest in industrial automation like cognitive robots. We will surely see robots driven assembly lines and more automated jobs — be it in the US or China, or anywhere else in the world.
India-based IT companies must innovate more on automation technologies. Robotic process automation will be the next opportunity to invest and grow. High-end software and hardware skills will be required to build, manage, maintain and support the automation. This will open new avenues to do business.
Being a specialist is a way forward. The most impacted people from the change will be mundane jobs, which can be either automated or move somewhere else. Specialisation to the core skills of business will see less impact.
Growth In Cloud-based Services Due to easy to consume models of cloud-based services, we will see tremendous growth opportunities in the cloud. These can be supported, managed and consumed all from multiple locations globally — which will be less impacted by any specific protectionist measure by a country. This provides another opportunity for skilled consultants.
Finally, the best way to insulate oneself from mass market trends is to create a strong differentiation and move up the value chain, away from commoditised services, into the expert value area. This requires explicit focus on core domain strengths in the business dimension and specialisation in niche / latest technologies in the technology dimension.
