Tag: H-1B visas

IT Service Providers Prepare for Potential H-1B Visa Changes | In the News

Given the continued lack of clarity on changes to the H-1B program, the muted response of India’s IT leaders makes sense. “Everyone wants to avoid the attention of the new administration, and their stance reflects this,” says Peter Bendor-Samuel, CEO of outsourcing consultancy and analyst firm Everest Group. “This includes companies like IBM and Accenture which stand to benefit from the changes, but the being seen to utilize this might cause reputational damage in their client base and also make them a target for the administration.

Read more at It World

Latest Visa Reform Proposal: How Bad is the Bite on Services? | Sherpas in Blue Shirts

For those of us who follow immigration reform, particularly with a view to how it would affect the services industry, the latest proposed legislation coming from Senator Grassley out of the U.S. Senate is troubling. If his proposals become law – and one might imagine they would have some possibility, given he’s the chairman of the committee with oversight over immigration – they would be more restrictive to the offshore services model than the previous legislation that the bipartisan Gang of Eight proposed two years ago.

The bad news

Specifically, this legislation would, like the previous legislation, fundamentally challenge the visa requirements, both around H-1B visas as well as the L-1 visas. It would significantly restrict the number of H-1B visas or the ability to leverage the H-1Bs and L-1s that can be used in the landed-onshore model as well as raise the fees for those visas.

Most troubling around this new language is that it would include L-1s as well as H-1Bs, therefore significantly reducing the flexibility of service providers that heavily use offshoring. On its face, this proposed legislation would be a direct challenge to the offshore model that the services industry currently uses. The bark is pretty bad.

But there is some good news: The bark is worse than the bite.

Good news

At least for the next two years, this proposed legislation has almost no chance of becoming law. It is unclear whether it has sufficient support in the broader U.S. Senate and certainly is completely counter to the U.S. House’s point of view around visa reform. It lacks broad support in both the Democratic or Republican majorities.

So why is Senator Grassley bringing it up at this time?

I think Grassley (the existing chairman of the immigration reform committee) and Senator Durbin (the former chairman) put it forward to try to shape the immigration reform debate in the presidential election cycle and force candidates to take positions that may affect legislation after the election dust settles.

Bottom line

Recognizing that there is almost no chance of legislation becoming law before the next president is elected, let’s not dismiss the potential for adverse impacts completely. Legislation, after all, is only part of the equation. There is clearly a growing consensus in the bureaucracy that the H-1B and L-1 visa model needs closer scrutiny, especially for service providers that are aggressive users of the model.

I think we can expect to see the government continue to revisit and tighten down the interpretation of the existing laws. It will be nettlesome and will affect the services model at the margin. It’s likely to create a small but incremental impact on the model; however, I believe it won’t cause a decisive model change.

That’s My Story and I’m Sticking to It! | Sherpas in Blue Shirts

It’s going to happen. I’ve been blogging since last May that the current U.S. immigration status is unsustainable and change will happen. And when it does, here’s what’s at risk: the heavy use of offshore talent in the landed model, as practiced by the big Indian service provider firms. Although at times on this issue I’ve felt like John the Baptist — the lone man crying in the wilderness — I continue to see signs that both political parties are preparing to take action on immigration reform.

The House is now talking about immigration reform again, just like I blogged they would. In addition, The New York Times reported recently that two congresswomen are reaching across the aisle to work on immigration overhaul. (Rebecca Tallent is a key player guiding John Boehner and House Republicans; Esther Olavarria is working with the White House to find a compromise.) And President Obama in his State of the Union address cited independent economists’ assessment that immigration reform would reduce deficits by almost $1 trillion — a top agenda item for Republicans.

Although the prevailing belief in the services industry through 2013 was that immigration and visa reform would not get through Congress, I say again that the pressures are too great and there is a material and growing chance that immigration/visa reform will happen. The political parties are aligning, and I also observe that the lack of strong support for the aggressive use of H-1B and L-1 visas in the landed model continues.

And when it happens, we believe the existing comfortable status quo of using H-1B and L-1 visas in the landed model will come under threat.  I’ve mentioned in previous blogs America’s rise in protectionism. Although this mindset and immigration reform won’t stop the outsourcing model, it will change the economics for the providers that aggressively use H-1B and L-1 visas in their landed model. It will level the playing field and bring their economics more in line with their domestic competitors.  That’s the issue.

Just When You Thought It Was Safe to Go Back in the Immigration Water | Sherpas in Blue Shirts

The spooky orchestral background and thriller tagline — “Just when you thought it was safe to go back in the water…” — from the 1978 hit movie “Jaws 2” brings out our primal fears that something can attack us even though all appears to be safe and when we least expect it. That’s what is happening now with H-1B visa reform.

As we predicted in previous blogs, it appeared in July that the chances were slim for immigration and H-1B visa reform to be enacted in 2013. And House Speaker John Boehner’s November 13 statement, “Frankly, I’ll make clear, we have no intention of ever going to conference on the Senate bill,” seemed to put an end to the bill.

But there are threatening sharks beneath the surface of Boehner’s statement.  Let’s look at these risks and the timing.

Odds are good for reform occurring in 2014

Boehner wasn’t saying he does not intend to negotiate with the Senate on immigration/visa reform; he was just saying that he plans to take a piecemeal approach to the bill’s language instead of a comprehensive language approach. And instead of using the formal conference process, he will use an informal negotiation process to see where the two parties can reach compromises. He stated, “I want us to deal with this issue. But I want to deal with it in a common-sense, step-by-step way.”

Although it will be done piecemeal, the legislation still will have to go through Senators Durbin and Grassley, who authored the onerous H-1B visa language that targets the Indian service providers.

Because of the high chances of success in a piecemeal approach, we believe there is a 20-45 percent chance that in 2014 Congress will pass into law the proposed legislation with the currently drafted onerous visa provisions.

Politics. Another reason we believe Congress will enact the legislation is that Immigration is one of those rare issues that has strong sentiment in both political parties to get something done, although for different reasons. It has genuine bipartisan support and thus strong alignment of interests, so we believe there is a material chance that legislation will come through next year.

Despite the fact that it’s in the interest of both parties to enact the legislation, the Republicans are key to the outcome. If the Republicans gain strength, we see the legislation going through but shaped more strongly with a Republican bias. If they lose strength, we see legislation still going through but along the current lines of the Senate bill with the onerous provisions for H-1B visa reform. Whether the Republicans gain or lose political ground in upcoming months, it will lead to Congress passing immigration reform.

Our perspective is that the only major threat to the chances for passing the law in 2014 is status-quo politics. If both parties are locked in a standoff, it will negatively impact the chances for passing the law.

Timing. If Republicans and Democrats manage to reach compromises, the House could pass one or more piecemeal bills on immigration reform in February or March 2014. This could lead to Congress voting on the bill after the spring primaries, depending on how immigration plays out in the elections.

Impact on Indian service providers

If Congress does not pass comprehensive immigration reform in 2014, Senators Durbin and Grassley could still push to pass stand-alone H-1B visa reform for high-skilled workers.

Given the political sentiment, pressure is likely to ratchet up for the Indian firms even without a stand-alone bill. They will face an environment of increased scrutiny and have to deal with U.S. Dept. of Labor audits of their visa practices at client firms, higher scrutiny of visa petitions and possible higher risk of rejections, as well as increased scrutiny and due diligence by U.S. firms considering moving work to Indian providers.

Furthermore, you can almost hear the music from Jaws 2 and the shark’s teeth when you think of the ripple effects that are likely from the Infosys investigation into alleged visa abuse. How many times will we hear Durbin and Grassley raise t

he specter of “abuse” of visas? In addition, the U.S. Attorney may launch more visa investigations. And the IRS may decide to pursue INFY for underpaid employment taxes resulting from the provider’s visa practices; this could, in turn, lead to “abuse” investigations of other firms.

With a 20-45 percent chance of Congress passing the immigration with onerous H-1B visa provisions, perhaps the tagline for this continuing saga in 2014 should be from the movie, “The Fly” — “Be afraid. Be very afraid.”

The End of Globalization? | Sherpas in Blue Shirts

“Have we reached the end of globalization?” Fareed Zakaria, the host of CNN’s weekly international affairs show, asked last week. He points to two factors — 3D printing and the rise in protectionist policies — as forces that combine to challenge the globalization movement of the last 30 years.

From a services perspective, we at Everest Group have similar worries.

But instead of 3D printing and protectionism, cloud and automation transform the global services world. These forces give rise to compelling possibilities that pose a threat to low-wage service models. The results could be transformative: more cost-effective and higher-quality services without having to reach across borders.

Of course, cloud and automation aren’t a complete substitution for everything companies have sent offshore during the past 30 years. There is, however, ongoing adoption for these more cost-effective models. And I’d wager we’re further along the adoption curve than in 3D printing.

Protectionism, Policy and Posturing

We also see the prospect of protectionism rearing its ugly head in the services world. It’s something we blogged about last year, focusing on immigration and H-1B visa reform. We need look no further than Senator Durbin to see one of the proponents of protectionism.

We believe this trend is far from finished, and we predict more work moving away from third-party providers as a result of the Fed’s comment about outsourcing.

These sorts of political statements and trends create a worrying backdrop that allows other protectionist statements to create more relevance.

Too Early to Worry? No.

It may be too early to call globalization to an end, but these factors certainly present challenges. We’ll continue watching both these trends carefully. Although they are in early stages, combined they can prove a substantial threat to the globalization that has driven the services model since the mid-1990s.

Cognizant Prepares for Inevitable Shift in Immigration Law | Sherpas in Blue Shirts

Cognizant recently made two key announcements. One was that they are hiring 10,000 people in the United States. The other is that they are relocating their operations center from New Jersey to College Station, Texas.

Taken together, it’s evident that Cognizant is doubling down on its U.S. presence. It’s moving to low-cost locations and is expanding its presence.

We also know that Cognizant is likely to be one of the firms most impacted by immigration and H-1B visa reform. We believe these actions indicate that Cognizant is taking a preemptive strike to prepare itself for a day when it won’t be able to use H-1B visas as aggressively.

Although the potential immigration reform may not be directly driving Cognizant’s increased U.S. presence, the announced plans certainly lay the groundwork for Cognizant to address H-1B visa issues should negative immigration law be forthcoming over the next few years.

Photo credit: Cognizant Technology Solutions

2014 Outlook for the Global Services Industry | Sherpas in Blue Shirts

What will be the big stories in 2014 in global services? We believe the main themes of 2013 will continue this year but will take on bigger significance. Whether you’re a buyer or a provider, you need the following issues on your radar screen and need to be prepared for change over the next 12 months.

An expanding upswing

From an economic perspective, it appears that both North America and Europe will continue their slow climb out of the depths of the recession. We expect that to continue to beneficially affect the services sector, specifically in discretionary spend.

Quite frankly, we see the strongest growth coming in the traditional arbitrage labor market. As economies expand, the Indian firms with their talent factories are well positioned to capture a significant portion of discretionary spend as more funding becomes available for IT and projects.

We believe the expanding economy will also influence transformation projects. The large organizations that drive the transformation market are extraordinarily well capitalized at this point, and it makes sense that the improving economy would motivate them to spend some of their cash on transformation. We would always expect cost reduction to drive a portion of the transformation market, but we believe that some of the transformation focus in 2014 may well shift to drive growth and differentiation.

A big push

We continue to see the rise in the influence of business stakeholders, a phenomenon that we commented on fairly regularly last year in our blogs. We believe this trend will continue and the result a push for services more focused on outcomes and functionality and less focus on price per unit. We don’t see the entire market shifting to this, but we believe this shift will be an important part of the market.

The as-a-service models are best positioned to service the shift to outcomes and functionality. Hence, we believe the ongoing rush to cloud and as-a-service will continue and will increasingly reach into the CIO/CTO funding budget to garner more of their share of spend. It’s clear that business stakeholders will continue to drive the cloud surge.

A looming threat

We believe the immigration and H-1B visa reform issue will continue to hang over the industry, swaying ponderously like the mythological Sword of Damocles. Unlike Damocles, who managed to depart the peril and anxiety of the sword above his head in Greek mythology, we think the immigration/visa issue will have an ongoing effect.

Specifically, we believe that there will be no let-up in the difficulty in getting B-1 and H-1B visas, and particularly firms that are viewed with caution will struggle along those lines. We think that the bureaucrats will continue to monitor visa issues and create friction in the visa approval process. This has happened in the United States, and we also see this happening in Canada and across Europe. The increasing friction in the approval process won’t stop the industry’s use of the visas, but it will create irritation.

The unanswered question is whether or not immigration reform will happen. We don’t believe there is strong support for the India-based model or the model of using H-1B or temporary workers on shore.

As we’ve blogged before, we believe that if reform does happen, on balance it will have negative consequences for the industry, particularly for the Indian heritage firms, which aggressively use H-1B and L-1 visas in their onshore mix. It will raise their cost of doing business and bring them closer to the cost base of their MNC and Global In-house Center (GIC) competitors.

A dose of rebalancing

We believe 2014 will bring a move in the banking sector to more aggressively shift work from third parties into GICs or captives. A number of issues are driving this strategy change. The banks want to increase productivity in services and also desire to gain control over key aspects. In addition, there is a regulatory tailwind from the Fed’s recent pronouncements around its concern that the banks have used third parties too aggressively for some delivery functions.

We believe these factors will drive a shift from third parties in the banking sector to GICs. We don’t believe that this will materially drive work from offshore to onshore but more into the type of vehicle from delivering services. The overall proportion probably will not change, but we do see some rebalancing going on with a realization that there are segments of the workload that are better delivered for productivity closer to the customer. However, we believe the ongoing desire to lower costs will somewhat offset the shift.

What will be interesting to watch is whether other industries follow the banking lead. Historically, the banking sector leads market shifts and other industries following after a 9-18-month gap.

Any of this movement in a significant way will have a material effect on the services industry.

A move up

Partly driven by the previous issue of banking leading the shift, our opinion is that the GICs and captives will continue to increase their influence over spend. Those firms with captives or GICs will continue to grow in influence and potentially in size. In addition to their potential to increase the amount of work they do, we also believe they increasingly will be asked to manage some vendor or provider relationships from a low-cost location such as India. We think this, in turn, will drive more focus on price.

The upside

Typically an increased volume of work increases provider’s pricing power. But we think this will be largely offset going forward. In some select areas where there is more and more inclination to view offshored work as less sticky and therefore bid it out on return, we think that mindset will drive down overall prices. But we don’t see that there will be a precipitous drop in pricing in 2014; pricing will be stable to slightly down.

Infosys Moves On, But There Are Chilling Immigration Reform Implications for Others in the Industry | Sherpas in Blue Shirts

The U.S. federal government this week announced a settlement agreement with Infosys with a record fine of $34 million — a penalty Infosys agreed to pay in settlement of the investigation related to its I-9 paperwork errors and H1-B and B-1 visa matters. There is both good news and bad news in this settlement. The bad news reaches beyond the Indian heritage firms and affects the entire industry, including multinationals as well as firms that hold GICs, or captives, or have international work.

The good news

From an Infosys perspective the settlement is good news. It allows Infosys to move on, and undoubtedly its management and stockholders are breathing a deep sigh of relief at finally being able to get beyond these immigration issues overhanging operations during the ongoing investigation. There were no criminal charges nor an admission to criminal activity as to the way it brought foreign nationals into the United States to perform work for customers,  but Infosys agreed that it failed to maintain accurate I-9 records for many of its foreign nationals in the United States in 2010 and 2011 as required by law.

The settlement involves putting audits and other compliance proofs in place. These measures and the agreement finding no criminal wrongdoing will help Infosys to move on and will help resolve concerns of customers, especially those in the financial services space, which are very gun-shy of attracting any more regulatory scrutiny.

Although the $34 million penalty is a record fine, Infosys can be pleased that it is small compared to its earnings and will be largely immaterial on earnings.

The bad news

On the downside, I think the picture for the broader industry is clouded and even chilling. While Infosys is able to move on, the hoped-for relaxing of visa reform has not arrived. Instead, this settlement indicates that a more intense regulatory environment awaits industry players.

The record fine foreshadows ongoing scrutiny of the visas in general and indicates that the immigration authorities are taking, and in the future, will likely take a very narrow view of how service providers can use visas.

It’s interesting to note that the language currently governing the visas is quite ambiguous, and reasonable people could easily differ in their interpretation. But this settlement and record fine signals that a very narrow interpretation will be used going forward and that the government will use penalties to enforce the regulations.

The forceful, negative response of Congress and Senator Grassley’s reaction (“It’s time that the administration and Congress do more to rein in the fraud and abuse to ensure that both American and foreign workers are protected.”) to the settlement is another indicator of bad news for companies that utilize talent outside the U.S. Rather than celebrating a victory for compliance and the significant enforcement of of law, they are dissatisfied with the outcome and are calling for further regulation.

The Congressional reaction is ominous. It does not bode bode well for future legislation and certainly encourages the bureaucrats in the immigration service to take a very narrow view of visas going forward.

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