New US Immigration Bill Good Or Bad For Indian IT Outsourcing Firms?

With the Trump administration steering its economic policy towards increased trade protectionism, concerns have been raised about the impact they could have on emerging economies, particularly India, which widely adopted the offshoring model.

These concerns were brought into focus by President Trump’s inauguration speech in January 2017, when President Trump vigorously advanced a more protectionist approach in his “America First” trade position. Trump indicated the outsourcing of jobs abroad had devastated American workers.

“From this day forward it’s going to be only America First,” the newly sworn-in President told the crowd gathered on the National Mall.

Setting the Context for Outsourcing Action

In April 2017, President Trump followed up his inauguration speech with a major policy address, “Americans must know that we’re putting the American people first again on trade… The jobs, incomes, and security of the American worker will always be my first priority… We will no longer surrender this country or its people to the false song of globalism… NAFTA, as an example, has been a total disaster for the United States and has emptied our states — literally emptied our states of our manufacturing and our jobs… We will keep our jobs and bring in new ones.”

According to Reuters, Trump’s senior policy adviser Stephen Miller has advocated scrapping the current lottery system used to manage H-1B visas for a replacement system using visa petitions for jobs that pay the highest salaries.

How H-1B Visas Work

H1B visa is an employment visa category facilitating the entry of temporary workers. An employer must offer each candidate a job and apply for an H1B visa for the candidate with the US Immigration Department.

H-1Bs are a highly valued form of work visa. In 2016, the US Citizenship and Immigration Services confirmed they received 236,000 H-1B petitions in the first five days of the scheme being open, more than three times the mandated cap level of 65,000 visas.

What Changes Are Proposed for H-1B Visas?

Some U.S. senators have proposed reforming the H-1B and L-1 visa regulations. Some of the changes proposed to date include:

• Doubling the minimum salary threshold of H-1B visa holders to $130,000
• Earmarking 20% of H-1B visas for SMEs and start-ups
• Distribute visas more evenly by removing the ‘per country’ cap
• Enforce a “good faith” effort to recruit Americans first for firms recruiting H-1B visa holders
• Replace the computerized lottery system by giving preference to U.S. educated students for H-1B visas
• Ban H-1B visa holder spouses from working in the U.S
• Ban companies with 50+ employees, from hiring additional H-1B employees if at least half its workforce are on H-1B or L-1 visas
• Increase the Department of Labor’s auditing activity to prevent fraud or misuse

India’s Outsourcing Industry a Major Driver of Its Economy

India’s outsourcing industry, worth some $150-billion braced itself for drastic changes to the H-1B visa program as stock prices for listed information technology companies fell initially by nine percent. Indians comprised 70 percent of H-1B visa holders making them the major beneficiaries by far of the existing scheme. Similarly, nearly 86 percent of H-1B visas issued to the IT sector went to Indian workers.

Many Silicon Valley technology companies look to hire Indians for technical roles either directly or via outsourcing firms such as Wipro or Infosys. Indian information technology firms are heavily dependent on a flow of Indian software engineers looking to experience life in the U.S. for the three years of their visa.

Companies such as Microsoft, Intel and Amazon have aggressively adopted the H-1B visa model. Approximately 15 percent of the Facebook and chip manufacturer Qualcomm’s U.S. employees hold H-1B visas, according to recent filings with the Labor Department.

This has led critics of the H-1B visas to complain the system is set up to exploit low-wage foreign workers at the expense of Americans. Hence any changes could significantly affect the leading Indian outsourcing firms such as Infosys, Wipro, HCL Technologies, Tech Mahindra and Tata Consultancy Services.

India’s IT sector accounts for approximately nine percent of India’s GDP and fifteen percent of the MSCI India equity index. Companies such as Infosys generate more than 50 percent of their annual revenue from the United States making India’s IT services a crucial element of India-U.S. trade relations.

A Year’s Grace

When President Donald Trump elected not to prioritize legislative changes to the H-1B visa program for IT specialists, the Indian outsourcing sector was given a temporary stay of execution.

Rather, President Trump executive order titled ‘Buy American and Hire American’ signed on Tuesday 18th April 2017 directed the US secretaries of; labor, state department, attorney general, and homeland security “to suggest reforms to help ensure that H-1B visas are awarded to the most skilled or highest-paid beneficiaries.”

What for India’s Outsourcing Sector?

As the executive order’s initial reporting phase is not scheduled to be submitted to the President until September 2017, there is a window for Indian outsourcing companies to accelerate a strategic shift underway for some time towards an evolved business model, which moves away from H-1B visas.

As Rajesh Gopinathan, CEO of Tata Consultancy Services indicated on TCS’s visa dependency – “We have said that our dependence on visas will progressively reduce as our size and scale increases… We are shifting to a less-visa-dependent model.”

Twin strategies appear to be emerging amongst India’s leading technology service outsourcing firms. Firstly, outsourcing companies are reducing the number of visa applications they make and secondly, they are prioritizing roles requiring high skilled candidates.

As Krishnakumar Natarajan, Bengaluru-based executive chairman of IT services company Mindtree Ltd commented on Mindtree’s visa application number – “The key thing is that we will stop applying for H-1B visas for employees with lower levels of experience.” Natarajan then went on to observe, “Additionally, we will reduce the numbers of visa applications as a whole, and I expect overall industry numbers to fall.”

This strategic shift was further confirmed by Natarajan, “We are going local and building recruitment to reduce dependencies on H-1B visas.”

Final Word

The United States remains India’s most important market its $110-billion IT services export industry. While to date the Trump Administration’s rhetoric has failed to materialize legislatively giving Indian outsourcing companies the opportunity to adapt their strategy. Smaller outsourcing firms may struggle to adapt, to the new operating environment, while the outsourcing majors enjoy the resources to evolve strategically to suit the political climate. In the interim, expect to see an aggressive expansion of U.S. based development centers and localized operations.

– Back Office Pro