Cognizant Raises Alarm Over Potential US Anti-Outsourcing Legislation in Annual Filing
In its recently released annual report, global IT services giant Cognizant has explicitly flagged substantial risks associated with potential anti-outsourcing legislation, particularly in the United States. The company warned that such regulatory measures, coupled with persistent negative perceptions surrounding offshore services, could significantly impair its ability to serve clients and adversely impact its business operations and financial performance.
Political Scrutiny and Legislative Threats in Key Markets
Cognizant detailed that outsourcing services to organizations operating in other countries has become a prominent topic of political discussion in the United States, which represents its largest market, as well as in other regions where it maintains client relationships. The filing specifically noted that both federal and state levels in the US have seen measures proposed aimed at limiting or restricting the performance of services from offshore locations. These legislative efforts often seek to impose additional burdens on American companies that utilize such services, primarily addressing concerns over the perceived link between offshore outsourcing and domestic job losses.
"If any such measure is enacted, our ability to provide services to our clients could be impaired," the company stated emphatically in its regulatory disclosure. This marked the first instance where Cognizant has extensively highlighted and called out risks directly associated with offshoring practices in such a comprehensive manner.
Visa Dependency and Workforce Composition Shifts
The company further elaborated that its US operating subsidiary relies heavily on a significant number of skilled workers holding H-1B and L-1 visas. Cognizant cautioned that new laws, regulations, policy changes, or executive orders could lead to higher operational costs and processing delays for these visa categories, creating additional business challenges.
As of December 31 last year, Cognizant's total workforce expanded to 351,600 employees, reflecting an increase of approximately 14,800 from the 336,800 reported a year earlier. This growth demonstrates steady hiring momentum despite the outlined risks.
India continued to account for the overwhelming majority of the company's workforce, with headcount rising substantially to 256,900 from 241,500—an addition of roughly 15,400 employees. In contrast, North America experienced a slight decline to 41,600 from 42,800, while Continental Europe decreased to 14,600 from 15,700. The United Kingdom also saw a marginal dip to 7,800 from 8,200, even as employee numbers across other regions increased to 30,700 from 28,600.
Reputational Risks and Emerging Technology Challenges
Cognizant also highlighted significant reputational risks linked to offshore outsourcing, including allegations of job displacement and concerns regarding the theft or misuse of sensitive client data, particularly involving service providers based in India. These perceptions could potentially damage client relationships and market standing.
Additionally, the company cautioned that the integration of emerging technologies, including generative artificial intelligence, into its service offerings could expose Cognizant to additional operational risks. If these advanced tools fail to perform as expected, the consequences might include cost overruns, project delays, financial penalties, or further reputational damage.
Performance-Linked Contracts and Financial Variability
The annual report further revealed that some client contracts tie a portion of Cognizant's compensation to specific performance metrics such as:
- Cost savings achieved for clients
- Revenue growth generated
- Business outcomes delivered
- Adherence to project timelines
These performance-linked provisions can increase variability in revenues and profit margins. Cognizant acknowledged that such arrangements have previously resulted—and could potentially result again—in significant losses on certain contracts, adding another layer of financial risk to its operations.
