Wide-ranging changes have been proposed as part of the broader US Immigration Reforms which cover a gamut of issues ranging from agricultural workers to green card reform & family visas. One part of the reform relates to temporary work visas or H1-B’s and L1’s which are widely used by all IT services companies, particularly Indian-heritage firms. Media and industry reactions to these proposals, while they have been mixed, broadly point to the potential adverse impact on Indian-heritage firms If the proposed legislation becomes a law. This research brief is an excerpt from an interview with Sid Pai, ISG Partner and President, Asia-Pacific, where he decodes some of these proposed reforms.
1. Ramifications of proposed legislation
Question: There has been so much chatter around the proposed H1B visa reforms. What do you make of the key provisions of the proposed legislation, from an outsourcing industry perspective?
Sid: Dubbed the H1-B and L-1 Visa Reform Act of 2013, key proposals to this legislation include reforms to the current H1-B program and an increase in the cap on the number of H1-B visas to 110,000 from the current 65,000. The bill is also expected to include unlimited green cards (permanent resident permits) for science, technology, engineering or math (STEM) advanced degree holders, while increasing the cap of H1-B visas for foreign students pursuing advanced STEM degrees from the current 20,000 to 25,000. At this level, its purported intent is to ease immigration into the US for skilled workers in areas where the US has a skills shortage
2. Impact on Indian IT industry’s operations
Question: How, in your view, will these provisions impact Indian IT industry’s operations?
Sid: In addition to the generally positive moves for easing immigration into the US for skilled workers, certain other sub-provisions have crept into the proposed legislation. These sub-provisions, while probably well intended on the part of Senators Dick Durbin and Chuck Grassley, are actually more harmful than helpful for free trade in the US. The proposed sub-provisions, if passed into law, are likely to impact Indian-
heritage IT companies as they would be required to pay more to buy additional resources or step up local hiring, thereby lending an unfair advantage to non-Indian heritage (American) vendors operating in the United States, as they are unlikely to be impacted by these proposed measures. According to industry bodies and news reports, between 50% and 80% of the US based employees of Indian-heritage companies are on H1-B or L1 visas.
3. Impact of “non-displacement & “outplacement” rules on offshore-centric IT services providers
Question: There are a few provisions related to “non-displacement” and “outplacement” that are believed to be onerous. What could be the potential impact on offshore-centric IT services providers, if these rules get passed into law?
Sid: These would mean that employees on H1B visas may be restricted from working at the customer sites, although they can work from global delivery centers. Consequently, this would mean a business model change for Indian IT companies, as they would be required to step up local hiring to staff projects, which would then reduce the ability to move employees easily and will impact utilization rates. It will also mean that real estate costs for these centers may be passed on to clients, since consultants would be unable to occupy space at client-owned sites.
4. Are American businesses prepared for the consequences of the new proposed visa reforms?
Question: With shortage of IT talent in the US, how do you think will Indian IT providers cope up with the requirements of new legislations? Also, is corporate America aware and prepared for the potential disruptive changes to the low-cost IT model that they have been used to, over the last decade or so?
Sid: Indian providers (both BPO and IT) will either hire more people in the US or acquire companies with employees in the US so that they can overcome some of the more stringent aspects of these proposed laws. They will also attempt to move more work offshore. Costs to corporate America are unlikely to go up in the short term due to the intense competitiveness of the outsourcing market, but will move up inexorably over the long term.