From the moment Donald Trump stepped into the Oval Office, he has acted deliberately to restrict the number of immigrants coming to the United States. His administration has not only been cracking down on unauthorized entry to the country but also closing off legal avenues for immigration. It initially curtailed admission from Muslim countries and slashed refugees. Now it has turned its attention to family and skills-based categories—without any new congressional authorization.
Peter Bendor-Samuel, founder and CEO of Everest Group, says, “Almost every major U.S. firm is building some form of digital platform so it can enhance its competitive position….The current skill shortages are going to grow as the demand for digital and IT skills explodes. If this administration wanted to harm U.S. competitiveness, then restricting access to this vital labor would be an excellent approach.”
While the denials of temporary H 1-B visas for high-skilled workers increased steadily in the last few years of the Trump administration, the action hit consulting companies like TCS, Infosys, and Cognizant Technology Solutions harder than IT giants like Microsoft or Google, reports say.
A Forbes report on Feb. 25, however, noted that “a major disconnect exists” between those making U.S. immigration policy – now designed to make it very difficult to hire people with sought-after technical skills – and the role digital platforms play in determining the competitiveness of companies.
It quoted Peter Bendor-Samuel, founder and CEO of Everest Group, one of the world’s top research firms focused on information technology, business process and engineering, as saying in an interview that the U.S. faces an acute shortage of digital and IT skills and these digital transformations and digital platforms require a significant amount of these skills to build and maintain.
Offshore outsourcing can be a traumatic event for employees — both for those who lose their jobs and for those who survive. It’s HR’s job to figure out the real impact it’s having on employees — a task that may benefit from new technology.
In response to the Trump administration, but also for other business reasons, outsourcing firms are making adjustments.
They are increasing their hiring of U.S. workers and investing more in local facilities, said Chirajeet Sengupta, analyst and partner at Everest Group, an outsourcing consultancy and research firm in Dallas.
Some of these changes were prompted by client necessity that resulted from digital transformation efforts — work that involves changes to a firm’s core business model. For that kind of work — which could involve changes not just in tech, but in business culture — outsourcers have to be in close proximity to the business. “You really need to understand the business; you need to understand the business processes,” Sengupta said.
New U.S. Citizenship and Immigration Services (USCIS) data reveal the Trump administration’s crackdown on high-skilled immigration has hit the information technology (IT) services sector the hardest. Such services have been important in making U.S. companies more competitive and increasing U.S. economic growth, which means, according to analysts, administration policies are harming American companies and the U.S. economy.
A major disconnect exists between those making U.S. immigration policy – now designed to make it very difficult to hire people with sought-after technical skills – and the role digital platforms play in determining the competitiveness of companies. “One of the most significant secular trends today in U.S. business is the move to utilize digital transformation to increase competitiveness,” according to Peter Bendor-Samuel, founder and CEO of Everest Group, one of the world’s top research firms focused on information technology, business process and engineering.
The US Labor Department’s recently announced new regulations for H-1B and L1 work visas focus on the Trump Administration’s ongoing effort to tighten regulations and increase administrative hurdles. Viewed individually no new regulation is a show-stopper; but it’s clear that, collectively, they will have a more material effect. Here’s my take on the significant issues for service providers and their customers.
The jury trial in a lawsuit against TCS, filed by US workers alleging discrimination against US-born workers, opened this week. The suit claims TCS shows a preference for hiring Indian workers through H-1B visas when hiring locally in the US, even when trained US citizens were available. I believe this lawsuit is hugely important for the entire service provider industry, not just TCS, but not because of a possible settlement or the amount of damages. In fact, I believe whether TCS wins or loses the lawsuit is almost irrelevant. There’s a bigger implication: the services firms are in a no-win situation that they must now address. Let’s look at why this case is so significant.
First, let me point out that TCS is not the only service provider firm to be sued for discrimination. In US companies, diversity is not only desired, but it is increasingly unacceptable to have a non-diverse workplace. Therefore, it’s perfectly understandable that the service provider firms, which have historically organizations which heavily utilize Indian talent, are easy targets for lawsuits claiming discrimination.
Litigants may not need to show specific examples of discrimination – only the results from a pattern of hiring or promotion. It really doesn’t even matter whether the lack of diversity was intentional or not. It’s just a fact of today’s US workplace that non-diverse hiring practices (for employees, middle managers and leadership) are now problematic. And the scrutiny that the service provider firms face is growing because of the difficult political environment.
It is quite understandable how services firms came to be in this position, and that they got into this situation honestly. They are great firms that were built with integrity with large work forces in India. As they grew, it was natural for the service firms to use H-1B and L1 visas to bring their own employees to the United States for the following reasons:
The natural advantages combined with the economic advantages of importing Indian labor and hiring H-1B workers, resulted in a demographic dominated by Indian labor – but not necessarily a result of discrimination. However, this is a difficult argument to make when the statistics clearly show a skewed labor force.
Clearly, the service firms are at risk and, in all likelihood, will need to address these issues. The demands both ethnic and gender diversity in workplaces. Given the US political environment that now exists, the third-party service industry will likely face increasing demands to change the status quo.
They face a difficult set of choices, since they don’t want to discriminate against their current work force, yet they may need to take significant action to address the appearance of favoritism as well as change parts of their corporate culture, employment policies and benefits structure to bring them more in line with US expectations. If the service firms don’t address these issues, they run an increasing risk that a growing number of companies won’t do business with them.
But it will be difficult and expensive to address the issues. It likely will cause rising costs in the US. The cost to remedy the demographic makeup of the work force is quite high and likely will adversely affect competitiveness and margins. Addressing the issues is also likely to create additional morale and legal issues. They can’t fire people to bring about a more diverse workplace. They must take the interests of existing employees in mind while they move to diversity. Moreover, addressing these changes will take time.
And then there’s the reputation factor. At this time of great sensitivity to discrimination and jobs moving offshore, service provider firms face the prospect of increasing pressure to address these issues. But while doing so, they are still open to lawsuits, and these lawsuits would be expensive to litigate or settle. They can afford the litigation and possible judgments and settlements, however high the costs are. But they can’t afford damage to their reputations, brand and public image.
After Infosys, TCS is now facing racial discrimination charges in the US, its largest customer market. A few American employees, who have lost their jobs, have raised the allegations and TCS will face trial in California starting Monday, reported Bloomberg. The trial begins amid tension and uncertainty over H1-B visa. Many Indian companies have exported manpower, a practice that has not found favour with US president Donald Trump.
Peter Bendor-Samuel CEO and founder of California-based Everest Group, told FC: “TCS along with the other Indian firms are facing a growing scrutiny under a difficult political environment in the US. We have seen similar lawsuits against Infosys and expect to see more against the other firms.”
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 ..
The news about pending immigration and H-1B visa reform in recent weeks plowed anxiety into companies and workers in both the US and India. I’ve closely followed the visa reform movement and blogged about how it was evolving many times since 2013. The buzz in recent weeks was so hot it carried a “the sky is falling” flavor because of rumors of ending the policy of extending visas for workers already in the US. But the US Customs and Immigration Services agency announced this week the policy is not currently changing. So, what does this really mean? I believe there are three truths we should not overlook.
As the Yankees’ baseball legendary Yogi Berra pointed out about apparent wins, “It ain’t over til it’s over.” There is still real momentum to reform the H-1B visa program. President Trump wants change, and now, for the first time, there is bipartisan support for meaningful legislation being enacted. Both parties agree on a narrow scope of reform to the visa program without the larger contentious issues of immigration reform. In addition, mid-term elections loom, and both Republicans and Democrats want to show accomplishment and want to demonstrate they can work together. Although visa reform had a low-odds chance of enactment over the past few years, the probability now has high odds.
Despite the intense rhetoric, H-1B visa reform is not draconian. There will be winners and losers; but in many respects, India stands to benefit from the legislation when it’s enacted.
For example, many workers participating in the H-1B program will receive higher wages and will do more interesting work. The individuals that want to work in America through H-1B visas may find themselves more likely to work for an Amazon, Microsoft, Facebook or Netflix type of company.
From an Indian diaspora perspective, India has the deepest talent pool and the most qualified group of workers wishing to emigrate to the US. India has the largest and deepest talent pool and the most qualified workers. India’s talent pool is highly valuable to the US economy, especially high-tech firms; and the pressure to retain this talent in the US won’t go away.
As I said already, there will be winners and losers when visa reform legislation is eventually enacted. The workers will win, assuming the green card processing backlog clears up by that time. But the Indian service provider firms will clearly lose their ability to use the H-1B visa system to their advantage. That’s not to say that it would preclude them from utilizing H-1B visas, but it would increase their costs. They would have to either pay more for the H-1B workers or pay more when they hire domestic talent.
That said, it’s important to recognize that India’s service providers have many levers to address the issue. Most, if not all, service providers have an adjustment process well underway. Wipro, for example, is leading the way and has been working for years to address this issue.
The legislation, when enacted, will cause downward pressure on service providers’ margins. This alone will not challenge their relative profitability but will at least create a headwind for their absolute profitability. Having said that, their margin gap will narrow only modestly. The truth is, the Indian service providers have envious industry-leading margins and will continue to be the most profitable service providers in the world even after they make the necessary adjustments to H-1B visa reform.