The changes taking place in the US administration will impact US companies and organizations worldwide. But how will they affect shared services? Sally Fletcher, Head of Digital at SSON, spoke to Lee Coulter, Chief Transformation Officer at Chazey Partners, to get the expert's perspective.
What policy changes do you anticipate from the Trump administration that could impact the shared services and outsourcing industry?
LC: We can probably expect two policy areas that will eventually evolve into regulation: deregulation and America first. The first is a general pro-business stance, particularly regarding deregulation. When Trump was first in office, he set an objective whereby two had to be removed for every new regulation being implemented. This policy worked far more effectively than anybody imagined, and he ended up eliminating a lot of regulatory hurdles. We can expect to see deregulation remain a big focus in his next administration. The top folks on his team have been given wide remits to rebuild the regulatory environment. I expect to see some significant change in regulation with an emphasis on lightening the touch of government.
There is also a focus on hiring USA and work being done in the USA. While this is usually focused on products it could also impact services. US manufacturing has been a topic of significant conversation. I think we will see many policies directed toward re-homing manufacturing, jobs, and investments. An America First Economy push will mean encouraging folks to build here, deliver here, and have more onshore activity.
The Trump Administration & Outsourcing
Given the new administration’s views on trade, how do you foresee international outsourcing relationships being affected, especially with key regions like Asia or Latin America? How can GBS leaders prepare for this?
LC: In the area of trade I think it would behoove GBS folks to become more familiar with the current trade balance or trade imbalance in the countries where their centers are located. In captive locations, we will see very little change so it won’t matter too much. But we do need to look at things like transfer pricing, chargebacks, and the potential cost of rehoming. International tax law is going to drive a lot of that. I think it'll be more of an accounting exercise than it will be an operational exercise. We will likely see a push to keep jobs onshore and nearshore. There are 5 or 6 trade agreements that apply to Latin America like USMCA and CAFTA. Pay particular attention to Mexico, Costa Rica, and Colombia.
I think there we might see some things in the future that discourage outsourcing to Asia notably China and India.
So it is going to come down to what your specific strategy is today. Where do you have locations? Are they commercial relationships or are they captive? If they're captive, watch closely and understand from a finance perspective that you may have more difficulty dealing with transfer pricing. Right now would be a good time to review your labor location strategy and look for diversification. If you have 5000 people in a single country, I would recommend looking to reduce that concentration because it's difficult to respond if a particular trade deal ends up impacting your whole operation and it's 5000 people in one place. My advice to people is is look for diversification, particularly with an eye toward bringing work back onshore or nearshore in the Americas.
How might potential changes to corporate tax policies affect the outsourcing and shared services industry? Could these changes make outsourcing more or less attractive?
LC: I think we're going to see two things driving this. One is we're going to see less and lower corporate taxes; that's already been stated. And I would say there will be generalized support for becoming more efficient as companies by way of regulation reductions in domestic operations. Again, this connects back to your location strategy, and it would behoove GBS leaders to refresh their understanding of tax policies in their delivery locations. SSON Research & Analytics has some good site selection data that can help.
The United States has some amazingly solid places for shared service operations. I‘ve looked in the past at places like San Antonio or in the Poconos in PA. Costs are low and the level of education high. There are some good options. If things begin to shift and change and you needed to rehome 1000 jobs, think about where would you put them in the US. Having a plan will give you time to react if there are changes looming.
I mentioned transfer pricing, which is typically the biggest hammer that gets used in the services industry. I think it likely we will see tax changes with respect to transfer pricing incentivizing US jobs. While trade agreements predominantly focus on manufacturing and products, there's usually some bleedover into services. Your finance department needs to look at accounting practices. If there was a significant change to the transfer pricing regulation and tax law, explore whether it would have an impact. If so, what would you do about it? It's a good time to do some scenario planning.
I know supply chain is an area of expertise at Chazey Partners. If new tariffs or trade barriers are introduced, how would this influence cost structures and supply chains for companies relying on offshore shared services?
LC: I think GBS are going to see an indirect impact and here's what I mean by that. For companies that have large and complex physical supply chains, I think it's likely that we will see lots of dynamism in those supply chains, which will be a stressor on corporate performance, which will then come back to the GBS world to help solve some of those challenges. I don't think we're going to see a direct connection, but if you are in the fast-moving consumer goods space or another space with a large physical supply chain, I think that there's going to be supply chain disruption and the supply chain folks are going to be spending a lot of time and effort to build flexibility into their supply chain. This is an area where GBS might be able to help.
The Trump Administration & Technology
I know technology and AI are passions of yours, and we’ve seen Elon Musk all over the campaign trail, so I wanted to ask what impact do you expect from the administration's approach to technology and digital infrastructure investments and how could that impact automation and AI within shared services?
LC: Elon has been very public in his view that we desperately need to regulate AI; and that it is going way too fast and in way too many directions. I think I can safely predict that there will be a focus on putting meaningful regulation over AI. But as I look at the kinds of stuff that shared services are using AI for I don't anticipate that those areas will be significantly impacted.
In general, I think we can expect technology investment across the board from the new administration, and automation will continue to be a big part of that. I think we'll see a friendly environment for technology investments.
The Trump Administration & Talent
Trump has made clear he’s not a big fan of work visas for jobs that could be filled domestically. How might potential changes in immigration policy affect the talent pool for the shared services industry, particularly for roles that require specialized skills?
LC: I think this is probably the number one area that folks need to pay attention to and have plans for. Tom Homan was just appointed Secretary for ICE and he's been pretty clear that he wants to stop mass immigration. He feels the flow has been so dramatic that we need to stop, look at everything that has happened in the last three and a half years, and then reopen things in an orderly fashion. I think we're gonna see increased scrutiny for visas for a period of time. For this reason, companies need to assess if they have key talent that is currently under one of the many visa programs and get an opinion from an immigration lawyer on whether they think that visa class will be impacted.
Yes, we were already talking a lot about upskilling shared service professionals even before the election, especially regarding the dearth of experienced talent within the digital and AI space. And now obviously this is going to become an even bigger stressor on that talent pool.
LC: It's interesting because, we talk about the build, buy, rent strategy when it comes to talent. As you know, we at Chazey have been talking a lot about AI in the enterprise and talent is always a big part of the conversation. To my mind, the buy and rent options just became less viable and the build option became much more viable. I think we're going to see incentives from the government to build AI talent in the United States. I think companies will likely be able to take advantage of programs that build greater AI talent in the United States.
Looking to the Future of Shared Services
Lastly, what are the 3 most important things shared service leaders can do right now to ensure they are prepared for potential disruptions caused by US Policies?
LC: I mentioned one early on, which is to re-examine your location strategy and look for diversification and ways to rehome jobs to the US. Look for onshoring and near-shoring opportunities and if you have a large organization concentrated in countries that are in the spotlight for trade negotiations, now would be the time to lay out plans to diversify that and bring some of it back home if needed. Dig that location selection binder back out of the archives and call somebody who has some data.
Number two is monitoring the trade negotiations policy and regulatory changes.
Government moves slow so I think we will all have plenty of time to react to potential changes as long as we are paying attention. In most large organizations, typically, either in the marketing and communications department or legal, there is a group that monitors regulation. So it's probably time for a conversation with that group to say, hey, we'd like you to add the following three or four topics to the things you monitor. It’s about getting smarter and paying more attention to what's going on in those areas because I think it's going to be very dynamic.
Lastly, investing in automation and and having the infrastructure that allows you to be fairly agile through the changes that are coming, and one additional point, is around talent. For key talent that you're currently leveraging offshore labor for, examine that and understand whether or not you need to have some sort of a contingency plan. You might need to act quickly. I would expect that there'll be some executive orders on day one and that the new administration will freeze a bunch of things. This could impact business operations that rely on access to key talent by virtue of the different visa programs.
Yes and once they make that switch then the fight will be on for the US talent. If you've got AI skills on your LinkedIn, it's game on.
LC: Yes, US companies will be motivated to build these critical skills and to make the kinds of investments to upskill their folks in these key technology areas, and I think that the government will be incentivizing them to do that. This is going to be an interesting four years.