I have just returned from spending the last week, at the behest of one of my clients, in a Western capital of finance, allaying fears that foreign institutional investors have about the future of Indian information technology (IT) and business process outsourcing (BPO) services companies. Many of these investors have significant positions in Indian IT and BPO bellwethers, and sometimes look to adjust their positions as the prevailing investment environment changes.
As is apparent to even the casual observer, investing in Indian IT and BPO services firms is fraught with uncertainty nowadays. The mooted legislation around H-1B visas, and the threat of an imminent executive order by President Donald Trump has many investors running scared about the future of Indian IT services.
Look beneath the covers of the visa programme though, and a very different picture emerges. One, Indian IT services companies are less reliant on the visa programme than their American brethren in Silicon Valley, and indeed many other Western firms with operations in India. Two, the automation of middle management functions is reducing the need for the on site presence of workers in the US, and therefore the need for visas, as firms will move to effectively halve the number of workers needed onsite to fulfil IT services contracts with tenures of over five years. And three, the proposed wage floor of $130,000 per year only applies to ‘exempt workers’, that is, workers who do not need to go through regulations laid down by the US Department of Labor before they can be issued a visa.
If a company is willing to subject itself to the current regulations of the Department of Labor, then this proposed wage floor simply disappears. All it needs to do is pay the worker the ‘prevailing wage’, which is a figure far lower than the proposed $130,000 floor for those who are ‘exempt’ from the regulations of this department. More reason then, for us to look at Trump’s pick for secretary of labor, and to examine the nominee’s past to understand how he might shape the policies of the US Department of Labor in the years to come. The man in question is Andrew Puzder, chief executive of CKE Restaurants Inc. which owns the Hardee’s and Carl’s Jr. restaurant brands. In a business model not unlike McDonald’s Corp. and others, the firm has a mix of both franchised and directly owned restaurant outlets, and employs heavily from the lowest rung of the labour pool.
Bloomberg reports that Puzder’s first memo to his managers as CEO of the restaurant chain was cutting: “No more people behind the counter unless they have all their teeth.” And in an interview with Business Insider earlier this year, he talked of the benefits of replacing human workers with robots: “They’re always polite, they always upsell, they never take a vacation, they never show up late, there’s never a slip-and-fall, or an age, sex or race discrimination case,” quoth he.
His firm’s employees quite literally, “flip burgers at the nearest burger joint”—a derisive phrase I have heard used by American businessmen and women when they refer to less privileged workers who have dropped out of college or high school.
Puzder, interestingly, was himself a college drop-out, and by his own account, “spent the next three years attending concerts and marching on Washington.” He spent a few more years selling guitars and other equipment for rock and roll bands, before finishing up his degree and qualifying as a lawyer. Somewhere along the line, his politics also changed—he became a card-carrying member of the Republican Party and donated to the Trump campaign. He writes op-ed pieces regularly for business publications, and runs a blog. He also wrote a book six years ago, along with professor David Newton, entitled Job Creation: How it Really Works and Why Government Doesn’t Understand It. I can’t claim to have read the book, but from skimming the reviews on it, I’m quite certain that it is heavily biased towards free-market economics, and champions less regulation and the free flow of labour. In so far as Puzder’s leanings on the free flow of labour can be divined from what he has already said on the matter, earnest users of the H-1B visa programme can breathe easy.
Meanwhile, on this antipode of the Earth, instead of closing ranks behind current IT services leaders, we have erstwhile industry doyens opining that the Indian IT and BPO services firms need to reduce their reliance on the H-1B visa programme, and to move away from being ‘body shops’. These opinions rest in an outdated view of how the industry functions. While using visas to ship workers to the US may have been the principal way in which these companies earned their revenue when these doyens were at the helm, it is now only one of the many components in what has become a truly global model for service delivery. If reports in the press are to be believed, there is now a power struggle at one of the industry’s bellwethers, stemming from a fallout over executive pay. Not only is this spat ill-timed for an industry that is in a tremulous phase, it reflects an antiquated and hypocritical view of current compensation dynamics. It is quaint that the people professing outrage at high executive compensation blithely overlook the fact that they themselves became fabulously enriched with the use of ‘body shopping’, a term considered as derogatory by today’s Indian IT executives as the term ‘flipping burgers’ is by Americans.
Siddharth Pai is a world-renowned technology consultant who has led over $20 billion in complex, first-of-a-kind outsourcing transactions.