BackH1B visas: Business as usual after short-term flap
While profit margins of Indian IT firms may be impacted in the short term, it will be business as usual even after the ink dries on Donald Trump's putative order on H1B visas
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Those of us watching Indian tech firms are glued to our news sources with bated breath, waiting for the axe to fall—or rather the fat pen to yet again be committed to paper—on an executive order to come out of the White House, this time on the H1B work visa programme that the US runs for special workers to be brought in on a temporary basis in sectors where the country has a shortage of skilled workers.
In recent years, this visa programme has become synonymous with outsourcing firms which have large Indian workforces and which use the programme to move Indian workers to the US to work on technology projects for their clients. Some estimates say that firms with Indian operations (including US-based companies such as International Business Machines Corp. and Accenture Plc.) currently have over 300,000 employees in the US on H1 visas.
In actual fact, the visa programme has been used extensively in the past to bring in varied types of workers—for instance, it was heavily used by US healthcare firms just a few years ago to recruit and move Indian nurses to the US at a time when that country was facing a shortage of skilled nursing staff. Many nursing institutes mushroomed in response in the rural areas of states such as Kerala which supply a disproportionate number of nurses to the medical profession.
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The alternate tightening and loosening of restrictions on the H1B programme are not new. Previous administrations—including President Barack Obama’s—have used curbs to balance the number of skilled workers admitted each year to the US, either by capping the number of visas issued each year—or by ordering consular staff in India and other offshore countries to go slow on the actual processing of these visas by consigning applications to an extended—and delayed—administrative review. Visas delayed are visas denied—since the projects that these professionals were to have worked on would have had to limp on without their expertise.
The primary difference this time around is that a legislation has been introduced in the US House of Representatives which calls for more than doubling the minimum salary of H-1B visa holders to $130,000.
Estimates vary, but the consensus opinion is that Indian technology workers on H1B visas in the US currently make around $70,000 per year. Complying with the new floor will increase on-site costs per worker by the difference of $60,000.
The Indian majors have already signalled that they can continue operations without much of a hiccup using a combination of local hiring and more expensive H1B visa workers. Their estimates range from 200-to-300 basis points of impact to their margins, and much of this should have been priced into the equity markets already. (One basis point is one-hundredth of a percentage point.)
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Interestingly enough, automation will also come to the outsourcers’ aid. Many of the deals I have been recently associated with are seeing the on-site to offshore ratios change from the prevailing standard of 20% on-site with 80% offshore to a ratio of about 10 on-site. The remaining 10% are middle managers whose main job is to assign their offshore underlings to work on specific pieces of a project’s effort. This is the component that is most susceptible to automation since the routing of work can now be done by an automated process—and this kind of automation is now routinely being pitched in the renewal of outsourcing transactions, effectively halving the on-site resource requirements.
This, in turn, will mean that the number of Indian H1B workers that these companies need to have in the US at any given time will actually go down in the medium to long term, thus reducing the impact over time on the outsourcers’ profit margins.
The Indian IT industry has dealt with such restrictions before, and while there has been immediate impact to projects in many cases, the industry has still managed to deliver. While profit margins may be impacted in the short term, it will be business as usual even after the ink dries on Trump’s putative order.
Siddharth Pai is a world-renowned technology consultant who has led over $20 billion in complex, first-of-a-kind outsourcing transactions.
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