Less than one-half of IBM's revenues derive from sales to customers in the United States. Earlier this week, Indian outsourcer TCS bagged two deals worth more than $30 million in Latin America. Here's why these two facts combined show why American tech services firms have no choice but to continue adding staff in India and China while trimming down their more expensive U.S. workforce.The anti-offshoring lobby tends to forget that American firms--in tech and in most other industries--aren't selling just to U.S. customers. IBM, EDS, HP, and others have sizeable sales opportunities in Europe, South America, and, most significantly, the Asia Pacific region. But those same opportunities await foreign IT services vendors--including Atos Origin, Cap Gemini, Wipro, Infosys, and the above-mentioned TCS.
So imagine if, as some lobbyists and protectionist politicians would have it, strict limits were placed on the ability of U.S. companies to establish offshore operations in places like India and China. Were that to happen, there's no way that these firms could compete internationally with foreign rivals that are either based in or have sizeable operations in countries where skilled tech labor is considerably cheaper than in the U.S.
Indian outsourcers exist, and they're radically changing the economics of the IT services market globally. All the wishing, hoping, and cussing in the world isn't going to change that. IBM and the other U.S. tech services vendors need to radically adjust their cost basis to reflect that reality or they'll be reduced to small, regional niche players. How many layoffs do you think we'd see then?