Trump’s plan for protecting IT jobs raises hopes, fears

Incoming administration may be setting up a three-pronged attack on offshore outsourcing

President-elect Donald Trump is showing a willingness to wage an economic battle with firms that move jobs offshore. He's threatening tariffs and promising H-1B visa reform, but may be offering carrots as well, namely tax incentives.

These actions may be raising hopes among some IT employees who have lost jobs, or are losing them, that the incoming Trump administration is serious about keeping IT jobs in the U.S. But Trump's proposals -- particularly the tariff -- are also raising much uncertainty.

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Trump, in a series of tweets this weekend, reaffirmed plans to impose a 35% import tariff on "cars, A.C. units etc," on goods made by offshore U.S. firms but sold in the U.S.

Trump has left analysts guessing whether these tariffs will apply to offshored IT services, such as application support and maintenance.

Trump also demonstrated interest in using incentives to retain jobs. Carrier's $7 million, 10-year tax break, engineered by his incoming administration, saved about 800 of the 1,400 jobs in the plant. Carrier last week dropped its plan to close Indianapolis plant and move all the jobs to Mexico.

Meanwhile, there are 500-plus IT employees awaiting layoff at Healthcare Services Corp. (HCSC) who may welcome a Trump intervention as well. An India-based IT services contractor, HCL, is taking over their work, and employees are training replacements. The layoffs are scheduled for the first two quarters of next year.

"I'm sure a bunch of us would be very appreciative if President-elect Trump would reach out to HCSC leadership to try to save our jobs," said an IT employee at the insurer, who asked that his name not be used because he is still employed at the firm.

"Even if half of the 540 were saved, that would have a big impact on 270 American families. We're thrilled for the Carrier folks -- we really are," said this employee.

But not everyone agrees the deal is a worthwhile model. "The Carrier deal sets a dangerous precedent for companies to threaten to move offshore in order to request such money," said David Rutchik, executive managing director for business transformation and outsourcing advisory firm Pace Harmon.

At its "ultimate conclusion," said Rutchik, this policy "will encourage companies to say they will move everything offshore unless they get all kinds of government benefits to do otherwise," he said. This gets "the government involved in the private sector to an unprecedented degree for this country," he said.

Marco Pena was one of about 150 IT employees who lost his job at Abbott Laboratories earlier this year after the firm outsourced work to India-based IT services firm Wipro. Pena said he doesn't know if the Carrier deal is a good model that for saving IT jobs, as well as manufacturing jobs, from moving offshore, "but I do know that it worked and it's a good example that something could be done if there is a real sincere effort behind it."

States routinely offer tax incentives to high-tech firms to build data centers and new offices. Even outsourcing firms that use H-1B workers to help move jobs overseas have won state incentives.

In November 2014, North Carolina Gov. Pat McCrory, a Republican, announced an agreement to help Cognizant build an IT delivery and operations center in Charlotte. The company planned to create 500 jobs in the state by the end of 2018 and invest more than $1.4 million.

Cognizant received a grant tied to job creation requirements. The state said that over 12 years, the award "could yield aggregate benefits to Cognizant of more than $5 million." McCrory lost re-election this November in a state Trump won.

Firms that want to outsource IT offshore also hire Cognizant, including EmblemHealth in New York. About 200 Emblem IT employees were told earlier this year that they were losing their jobs. At MassMutual Financial Group about 100 IT employees faced layoffs after the firm hired Cognizant.

But incentives, as in the case of Carrier, are usually awarded on a case-by-case basis. The Trump administration effort appears focused on broader initiatives, namely tariff changes and visa reform, to raise the cost of offshore outsourcing.

The tariff proposal -- if it's applied to services as well as physical goods -- will raise the cost of IT outsourcing. But analysts say Trump hasn't provided the necessary specifics to understand the impact on IT costs if that were to occur.

Trump's "comments are too high-level to know how or if they will affect the services markets," said Peter Bendor-Samuel, founder and CEO of the Everest Group, a research firm and consultancy. But it is possible to imagine Trump "working with a newly protectionist" Congress that changes tax laws to penalize offshoring of services, he said.

In terms of IT services, David Wagner, vice president of research at Computer Economics, says a tariff's impact on services won't be drastic on overall IT budgets. The company's research shows that U.S. firms are spending only about 10.6% of IT budgets on outsourcing at the median, and an even smaller amount would be affected by tariffs, he said.

Trump has also proposed increasing prevailing wages for H-1B workers, as well as restricting the use of visa workers. In theory, it's argued, this will make it more difficult and expensive to move work offshore.

Pena, the former Abbott IT professional, believes the only thing that will have a significant impact on offshore outsourcing is reform of the H-1B visa.

"What I do know is that this is a war on the value of IT professionals in America and our elected public officials are complicit in it," said Pena, who left his job without taking a severance because he didn't want to be bound by a non-disparagement clause. He told his story in a video . "What I also know is that I am a casualty of this war and I am suffering tremendously from its devastation," he said.

Glen Wiley was an IT employee for 29 years at MassMutual. He said he was among the employees given the option of taking a job with Cognizant. Wiley said it wasn't much of choice. He either had to take the job with Cognizant or leave his job without severance.

Wiley left his job.

"As a military veteran I felt that accepting the job was not an option," said Wiley. "To go to work for a company and teach H-1B workers technical skills that would help them replace American workers would be un-American," he said.

"I was fortunate that I could walk away to stand up for my principles. Many others had to compromise their principles so they could feed their families. I was the lucky one," said Wiley. Now he is waiting to see what Trump might do.


Copyright © 2016 IDG Communications, Inc.

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