Tariffs disrupt IT: Think local, agile, and AI-ready for the future

In today’s increasingly protectionist global economy, the impact of tariffs and trade barriers is no longer confined to physical goods. They are now extending into the digital realm—quietly reshaping IT services, data flows, and cross-border operations. Although IT services are not directly impacted by tariffs, IT services firms are expected to face the heat in 2025 and should be prepared to brace for a tough year ahead. For CIOs and COOs, this is no longer a distant policy issue; it’s a direct business risk.

The global sourcing model is changing. With the new tariffs and changing geopolitical dynamics, the pace of change will be faster than what anyone anticipated at the start of 2025. The IT industry must turn a page and write a new chapter—one that demands the three R’s: resilience, reliability and reinvention.

Tariffs will force enterprises to reset IT strategy, impacting the IT industry

As tariffs and protectionist policies infiltrate the IT services sector, CIOs are being pushed to the edge. There is an immediate need for CIOs and COOs to re-evaluate long-standing assumptions around global IT delivery. What was once considered a stable, scalable, and cost-efficient model now faces increasing geopolitical and operational risk. You can read more about it here.

Tariffs are transforming IT from a global enabler into a strategically exposed function. For CIOs, this means rethinking how, where, and with whom technology is sourced. CIOs must now shift from cost-optimized outsourcing to resilience-driven partnerships. While IT service providers will continue to play a critical role, they must now demonstrate capabilities beyond traditional service delivery. This includes regional compliance, nearshore capacity, contract flexibility, and embedded AI and automation. The bar has been raised.

At the same time, tariff-induced uncertainty will compress IT budgets and result in a slowing down of the investment cycles. CIOs are being asked to do more with less, and that requires IT partners who can deliver value, not just volume. Outcome-based models, automation-first delivery, and proactive cost-optimization support are no longer seen as differentiators—they’re expectations.

Enterprise buyers must turn this uncertainty into a strategic opportunity

As digital trade barriers and geopolitical shifts redefine the global IT landscape, enterprises can no longer depend on traditional offshore-heavy sourcing models. To remain competitive and resilient, CIOs must recalibrate their strategies—emphasizing partner agility, regional compliance, and automation-driven efficiency. At the same time, the IT services industry must evolve to meet these changing demands and remain an indispensable global partner.

Here’s how forward-looking enterprises should respond

1. Recalibrate global sourcing strategies: Shift from a cost-first mindset to a value-risk balance. Evaluate service provider partners not only for their delivery capabilities but also for their readiness to operate within local regulatory frameworks, offer region-specific support, and build compliance-aware delivery models.
2. Demand flexible, adaptive commercial models: In today’s volatile environment, static contracts don’t work. CIOs and COOs need service providers to offer scalable, responsive engagement models that adjust to both economic cycles and shifting regulatory demands, allowing them to absorb shocks while sustaining value.
3. Prioritize AI-driven and automation-first delivery: CIOs are increasingly seeking partners that embed AI and intelligent automation into their core service offerings to boost productivity and reduce reliance on global labor arbitrage.
4. Seek end-to-end ecosystem support: IT service providers must become strategic transformation partners—helping enterprises redesign digital ecosystems, optimize supply chains, and realign technology operations for long-term efficiency and compliance.

Reimagining India’s IT leadership in a fragmented global landscape

India has long been the backbone of global IT services, delivering agility, scale, and cost efficiency. In FY25, the sector grew by 5.1%, reaching $283 billion in revenue, with exports accounting for nearly $224.4 billion. The US accounts for more than half of India’s $190 billion software exports, making the sector sensitive to shifts in spending confidence among businesses in the world’s largest economy. India, the backbone of offshore IT services, is now at the heart of this conversation—not because of any failure in delivery but because the global sourcing model itself is being tested.

Tariffs and related regulations pose a greater challenge to the Indian IT services system integrators (SIs) than global players due to their dependency on cross-border delivery. These measures can pressure margins and drive costs by forcing more onshore hiring or localized infrastructure. Global SIs, with their distributed operations and stronger local presence, are less exposed but may still face disruptions if tariffs impact India-based delivery hubs.

Overall, Indian SIs have the advantage of being nimble and cost-efficient, while their global counterparts benefit from deeper localization—each well-positioned but with distinct vulnerabilities.

India must now rise to the occasion—not merely as a delivery powerhouse but as a strategic partner in navigating a more complex, fragmented digital landscape. For global CIOs, this is a moment to reassess not just cost and capacity but resilience, trust, and long-term alignment. The next era of IT leadership will be defined by those who rise—not react, but to change.

The Bottom Line: Tariffs are accelerating the need for smarter, more adaptive IT strategies and the global IT industry must rise to meet it.

The era of static, offshore-heavy models is over. Global enterprises will need IT service partners that bring more than just delivery—they’ll need insight, adaptability, and innovation. IT service partners who can evolve with these demands by localizing delivery, embedding intelligence, and aligning with regional regulations will remain essential.

This is the time to reset sourcing strategy, build flexibility into every contract, and future-proof the enterprise IT ecosystem against geopolitical disruptions.