Tag

H-1B

Fresh H-1B memo means more paper trail for Indian IT | In the News

By | In The News

Indian IT services firms may see a higher number of requests for further evidence from US immigration authorities on their applications for H-1B visas, delaying the deployment of engineers on projects on work visa and increasing their cost.

Under the Trump administration’s new visa policy announced on Thursday, companies have to prove that the employees they send to the US on H-1B visas have “specific and non-speculative qualifying assignments in a speciality occupation” for the entire visa period. The memo issued by the US Citizenship and Immigration Services (USCIS) office makes it compulsory to seek evidence on the visa petitioners’ speciality occupation. This, say analysts, would increase red tape.

“We do not believe that the prospect of near-term immigration reform passing is likely. However, there is a wide range of ability to administratively change the existing regulations which will likely further restrict the large Indian firms’ use of non-US labour in their onshore model. This letter is a great example of this happening,” said Peter Bendor-Samuel, CEO of global IT research firm Everest Group. “This memo is a clear example of this current administration looking to constrain us of non ..

Read more in The Economic Times

H-1B Visa Reform Impact on IT Outsourcing Deal TCV | Sherpas in Blue Shirts

By | Blog, Outsourcing

In a recent blog entitled, “Is rising costs the only impact immigration reform bills will have on the services industry?” our colleagues wrote about a variety of potential effects Representative Zoe Lofgren’s (D-CA) “High-Skilled Integrity and Fairness Act of 2017” H1-B visa proposal would have on numerous parties.

Let’s look squarely at the potential impact of these changes on total contract value (TCV). Some of the key IT service providers, especially Cognizant, HCL, Infosys, TCS, and Wipro – all of which rely heavily on “landed” resources to provide IT services in the U.S. – would have some major decisions to make, ranging from tactical, such as recruitment strategy, to business strategy, such as margin cuts.

If passed, the bill would most likely take away the landed resources cost advantage. Having assessed numerous IT ADM contracts in the last 12 months, Everest Group conducted a simulation to represent a typical three-year IT AM deal, using industry standard offshoring, staffing pyramids, and local-to-landed resource ratios. Our simulation showed that the removal of the difference in pricing of local and landed resources alone would result in a 5-6 percent increase in TCV, not taking into account any auxiliary impact on service providers’ cost (recruitment, organizational restructuring, etc.)

H-1B Visa Reform impact on TCVAlready pressed for margins, IT service providers would try to pass the TCV impact on to their enterprise clients. As it is very unlikely clients would be willing to bear the cost increase, it would remain with the providers. As a margin decline of 500-700 basis points would significantly disrupt any company’s financial standing, the providers would need to deploy countermeasures to mitigate this impact.

To reduce the impact on margins, service providers could use levers such as degree of offshoring and staffing pyramids. Our simulation showed that increasing offshoring by about 2-3 percent resulted in a 50 percent decline in the impact of TCV (essentially lowering the increase from 5-7 percent to 2-3 percent) for a typical three-year ADM deal. While the impact on more complex deals might not be easy to mitigate, our simulation demonstrates there is hope for service providers who play smartly and are proactive in adopting strategies to counter the potential impact of any negative reforms.

Another way service providers can drive down their costs is through automation. For example, key aspects of onshore resources’ work include coordination with offshore resources for alignment of work and managing timelines and quality objectives. If automated, these aspects could significantly nullify the impact of onshore cost increases. And with 300-400 basis points at stake, providers might finally have the motivation to adopt automation at the enterprise level, rather than as a deal- or client-specific objective.

It will be very interesting to see if service providers are able to convince the enterprises to share some of the increased cost burden. What’s your guess?

A Pig in a Poke: Trump Administration Policies Could Spell Trouble for Banking Industry | Sherpas in Blue Shirts

By | Banking, Financial Services & Insurance, Blog, Onshoring

Thus far, the banking industry has expressed optimism about the Trump administration’s policy announcements, particularly with respect to potential rollbacks of Dodd-Frank regulations. As evidenced by the positive upswing bank stocks have experienced since the election, the banking industry is thoroughly enjoying the prospects of reduced regulations, expansionary fiscal policy, corporate tax cuts, and increased infrastructure spending.

After suffering a decade of challenges and disappointing performance since the 2008 financial crisis, it is no wonder banks would revel in a swing of the pendulum. This euphoria, however, may be short-lived, because some of the potential policies being floated by the Trump administration – particularly as they relate to global service delivery models – have strong downsides that must not be ignored.

Chief among the downside risks is the Trump administration’s strong position on US job protection. The cost challenges of the last decade have necessarily led banks’ significant use of offshore labor for back-office business processes and customer contact-centers. In many cases, over 50 percent of the FTE involved in business processes and IT for US banks are in offshore locations. This significant workforce is at risk of becoming the next target for President Trump’s bully pulpit.

In addition, the proposed visa reforms and border restrictions will reduce access to skilled technical resources at a cost-effective rate. Or, as Everest Group CEO Peter Bendor-Samuel puts it, visa regulations mean less access to the same cheap labor. Combining that with the draw of Fintech firms fighting for the same talent, talent scarcity will have an overall impact on the ability for banks to compete in the ever more technology-driven arena of banking innovation.

Other risks aren’t as clear but warrant monitoring, including the potential that trade protectionism could ultimately lead to an overall slowing of the US economy, restrictions on the ability to freely move corporate resources internationally, and the tightening of foreign ownership rules.

Everest Group cautions organizations in the US banking industry not to buy a pig in a poke, that is, foolishly revel in the benefits of attractive policies without fully examining the impact of policies that may have damaging repercussions. At the very least, banking institutions should investigate the full scope of the political strategies of the Trump administration, consider the implications, and develop strategies to mitigate the potential downsides of those policies.

We invite you to view a recording of our recent eye-opening webinar hosted by Todd Hintze, Managing Partner, and Mark Lade, Associate Partner on how Trump policies and other growing protectionist policies will impact your operational strategy. You can also read their complimentary viewpoint on the topic titled Navigating the New World (Dis)Order – a must read about this disruptive topic.

Shedding Light on Proposed High-Wage Immigration Changes | Sherpas in Blue Shirts

By | Blog, Outsourcing, Talent

Although US immigration reform is front and center in the media since the Trump administration took office, the US Congress has debated the need to change immigration legislation for years and has introduced significant proposals since 2013. An integral component is the H-1B work visas heavily used in the global services industry. Right now, the details of visa reform are a moving target, but there is a new angle in the shake-up – the proposed benefits are likely to benefit Global In-house Centers (GICs.

CNBC interviewed Congressman Darrell Issa (R-Calif.) this week about proposed policy changes and his discussions with President Trump. Issa stated that Trump believes foreign service providers are gaming the H-1B visa program, undermining the intent of the program.

He explained that Trump may be more favorable toward a policy capping the minimum H-1B salary at $135,000, as opposed to the current minimum salary of $60,000. Two other minimum salary proposals are on the table: $100,000 proposed by Issa and $132,000 proposed by Rep. Lofgren (D-Calif.). In essence, all three plans thus emphasize focus on allowing visas for high-skilled labor, and Issa affirmed that he expects Congress will pass bipartisan immigration reform dealing with high skills this year.

Two Greatest Impacts from Proposed Changes

It’s still unclear, but it’s likely that the changes won’t affect US providers and tech companies to the same degree as the third-party service providers in India. Changes aim to raise their onshore costs. This will significantly raise costs for H-1B-dependent providers such as Cognizant, Infosys and TCS. Although these firms currently enjoy a competitive advantage over Accenture, Capgemini and IBM, the advantage will narrow and potentially go away with the increased costs.

The second greatest impact from proposed changes is the GICs. Notably, the proposed legislation does not impact firms with GICs. In fact, it is likely to make the Indian GIC model (or captives) more attractive, thereby increasing employment opportunities in these Indian firms and giving these providers a greater share of the offshore pie. Why? Because reducing or restricting the available pool of H-1B talent when there is rising demand for US-based tech talent is likely to create wage inflation.

Although rising tech wages in the US will create a tailwind for all offshore models, GICs may benefit disproportionally because, unlike third-party providers, GICs don’t depend on the H-1B onshore model.

Digital Revolution Impact on Job Creation

Visa reform is not the only factor disrupting the labor arbitrage model. The emerging digital revolution holds the promise of significant productivity increases in the existing workforce – often as much as 30-60 percent. Coupled with US companies’ increasing risk of reputation damage for using offshore services, I believe the move to digital services will accelerate, as its value proposition includes the advantage of onshore delivery and relies less on service delivery based on the offshore labor arbitrage model.

H-1B-dependent service providers will likely use digital technologies and business models to offset the impact of rising wages. A short-term rise in employment is probable, given that it takes some time to implement digital productivity improvements.

No matter which side you’re on, the offshore labor arbitrage market is shifting. The US government definitely is moving aggressively in the direction of significant visa reform, especially focusing on high-skilled workers. However, the other items high on the loaded US policy agenda – especially repealing the Affordable Care Act and changing tax laws) could become a factor moving visa reform to a lower priority.

Cost Impact of Immigration and Visa Reform to US Customers Using Offshore Services | Sherpas in Blue Shirts

By | Blog, Onshoring, Outsourcing

Most US organizations have substantially used offshore service providers in IT and business process outsourcing (BPO) to drive cost reduction. But there is currently a great deal of discussion in Congress and the Trump Administration – as well as actions taken by Executive Orders in the last seven days – about changing the H-1B and L1 visas. The changes affect the offshoring services provider as well as US enterprise customers that utilize offshored services. What are the impending impacts?

My company collaborates with Rod Bourgeois, head of research and consulting at DeepDive Equity Research, and together we have followed the proposed immigration and visa reform. Since 2013, I’ve blogged many times about the potential impacts. Rod’s January 25, 2017 report, “IT Services: Update on Visa-Reform Risks Facing Indian Outsourcers,” highlights recent proposals. The essence: it now looks like real change is on its way.

Read more at Peter’s Forbes blog