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More Indian IT Companies Hire More Locals In The US

A wave of protectionism is washing over the world. From Donald Trump's America First emphasis to Brexit and rise of nationalists elsewhere. It has meant that Indian Information Technology companies which acted as the services back office to the world face many challenges. Irrespective of the claims to the contrary, a large part of Indian IT's advantage though not the only one was labour arbitrage.

In regular speak, it means that cost of hiring a software engineer in India was a fraction of doing so in the US or the UK. So doing work in India, paying employees in rupees, but billing clients in dollars or euros or pounds made it a very profitable business.

The announcement by Infosys that it will hire 10,000 people in the US (onsite) means that it recognizes the business operating environment has changed in that country. Other Indian players or MNC's who followed the India model, whether they announce publicly or not, will follow suit if they are not already doing that. It is not a voluntary choice.

What does this mean for Indian IT? There are several strengths of the Indian IT players beyond labour arbitrage, including deep domain expertise, relationships with clients built over years and others.

Being forced to hire more expensive workers in onsite locations does not mean their business will end. It just means that the 20 per cent plus net profit margins they have enjoyed for a couple of decades will end.

This is also likely to impact their valuations. Also the great Indian middle class IT dream of an international work stint will also be affected. Hiring, which already has been buffeted by automation and other forces, will take a further hit.

Indian IT has evolved over the years to adapt to technological shifts. The question now is will it do a seamless transition and adapt to change in political and business environment ? How well they do that will determine their continued success.