One of the nuggets in the hubbub over IBM's layoffs is a lot of the cuts may happen in locales such as India where strategic outsourcing deals — call centers and data centers — are staffed.
Welcome to the new IT world order. Outsourcing used to be in. Now automation and cloud computing may just undo the outsourcing boom of the early 2000s.
One of the likely areas for IBM to cut jobs would be in strategic outsourcing where the Big Blue acquires assets and people from another company and then runs the infrastructure. Those deals, which often feature losses in the early years of an outsourcing agreement, are increasingly risky for IBM. Those deals also happen to be labor intensive.
If IBM is cutting more manual technical positions offshore it's likely a bevy of others — HP, Perot Systems, Accenture etc. — will follow. Why? Offshore outsourcing is cheaper than U.S. labor, but automation, virtualization and orchestration is even cheaper. Why use a human when you can automate? Indian IT companies see the future and are increasingly trying to move up the stack to more high-value tasks.
Add it up and we may just be starting to see the labor equation shift. IT kills jobs just as much as it creates them. So far, emerging markets have largely used technology to create jobs based on labor arbitrage. Going forward, emerging markets like China and India are going to have to face a stark reality: They will have hundreds of millions of people that will ultimately be automated out of the picture.
- For India, automation and self-healing IT will be a threat.
- For China, all that low-cost labor in technology manufacturing plants could ultimately be completed by robots in the U.S.
- For call center-centric areas, people could be replaced by IBM's Watson.
In any case, you get the idea: Global sourcing of labor was a nice ride. In the future, that labor pool will be automated too.