New Bill increases the cap on H-1B visas, but makes it expensive for IT companies to send engineers abroad
By: Deepa Kurup July 28, 2013
Twenty-six-year-old Manikandan H. has been working in the technology sector for four years. A senior software engineer at an Indian tech major, he’s considered taking a sabbatical to do an MBA but decided against it. What holds him back, like thousands others, is the hope that he’ll get an ‘on-site’ project and can relocate to the United States. “All my cousins are there; many have got naturalised.”
The immigration Bill, approved this week by the U.S. Senate with a 68-32 vote, could put a damper on his aspirations. Already, Mr. Manikandan says, over the years, his company has reduced the number of engineers it sends abroad. “When I first joined, if you were good, you could more or less look forward to an on-site stint. Things have changed a lot now.”
Indeed, as IT company heads have gone on record over the past year or two, these companies have shored up their on-site “local hires”.
Among the many immigration reforms the bill proposes — yet to be approved by the House of Representatives — is a section on the H-1B visa. This non-immigrant permit forms the backbone of the famed Indian outsourcing model, allowing companies operating in the U.S. to temporarily hire workers from outside the country.
While on the bright side, the new Bill increases the annual cap on H-1B visas drastically from 85,000 to 1,80,000, it also makes the permit much more expensive for Indian IT companies. The “outplacement clause” significantly increases the H-1B visa fees (reportedly by about $5,000) and requires companies to pay higher wages to those on the visa, depending on the percentage of U.S. citizens the company employs.
This means that Indian tech companies, which are already facing margin pressures given the grim global macroeconomic environment, will find it cost-intensive to send workers abroad. U.S. policymakers hope these companies will find it more cost-effective to hire local talent, rather than fly workers in from India.
This, analysts say, will expand their (the Indian IT companies’) budgets on wages and benefits, as those on ‘short-term projects’ aren’t billed comparably to those who work in long-term jobs.
Besides, these on-site stints are a critical part of the global services delivery model, where members of teams that have worked on the outsourced projects, and are thus familiar with the work, are sent abroad to help deploy or service clients, says a senior executive from a Bangalore-based IT services firm. “This face-to-face portion of any services job is key and it won’t be easy to replace that part of the project. So, invariably companies will be forced to spend more on this part. It may not produce the desired result of Indian IT companies being forced to hire U.S. citizens; it’s not that simple,” the executive said.
Indian tech companies, led by industry body NASSCOM, have lobbied hard against the move that’s being labelled protectionist. They have argued that the Bill offers an unfair advantage to U.S.-based IT firms. But, it isn’t that this debate is settled, even in the U.S. technology community.
A section bats for expanding the visa programme as it allows for highly skilled workers to contribute to the U.S. economy. The counterargument is that the ones entering the U.S. aren’t as highly skilled; instead companies are only employing them to drive down wages in the tech sector.
In an editorial in The Washington Post, announcing the launch of a political action group on the issue called FWD.us, Facebook CEO and IT industry poster-boy Mark Zuckerberg wrote: “Why do we kick out the more than 40 per cent of math and science graduate students who are not U.S. citizens after educating them? Why do we offer so few H-1B visas for talented specialists that the supply runs out within days of becoming available each year, even though we know each of these jobs will create two or three more American jobs in return?”
Many tech heavyweights in the U.S. have thrown their weight behind this argument.
Implications for sector
Research and analyst firms have said the Bill could have a crippling effect on the Indian outsourcing/services industry. According to a recent report by J.P. Morgan, the outplacement clause will negatively impact the Indian economy and have adverse implications on the employment this sector generates. And, given that jobs in this sector have already stopped growing at the pace this industry is used to, this is cause for worry.
The same report also noted that over the past few years, Indian IT companies have shown a better track record of creating jobs in the U.S. than American peers such as IBM and Accenture: it estimates the number of jobs created in the past seven years at 30,000 to 40,000 (not inclusive of green card holders) even as U.S. tech firms have either reduced workforce or maintained status quo.
Ankita Somani, research analyst (IT/telecom) at Angel Broking, says the Bill is “structurally negative” for IT companies and “will have a negative impact on margins”. “It is detrimental to the global outsourcing model as a whole.”
She adds that the Bill is unlikely to be passed through the House of Representatives as there “is a significant lobby against it”. “Both companies, be it the vendor or the client, stand to lose if this goes through. It is unlikely to be made into legislation so easily.”
Companies get ready
On their part, Indian IT companies claim they have been “preparing” for the Bill. Considering that most, presenting their quarterlies this month, spoke about the pending Immigration Bill, it appears that they are preparing for the worst.
When asked why the company wasn’t revising its annual guidance after buoyant quarter, Infosys representatives listed the impact of the Bill as one of the factors that contributed to an “uncertain fiscal environment”. S.D. Shibulal, CEO Infosys, said the company was working towards mitigating the effects of a “possible fallout”. “We are watching this carefully. We already have increased hiring among U.S. residents and green card holders, and are in discussions with our clients,” he said.
Mr. Shibulal also alluded to possible acquisitions to shore up the numbers of local employees.
Wipro spokesperson Suresh Senapathy told presspersons here on Friday after announcing the results of the quarter ending June that provisions in the Bill that “are harmful and not necessarily in the nature which encourages international trade and commerce” may not find a place in the final Bill.
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