Tag: immigration reform

Three Truths about H-1B Visa Reform | Sherpas in Blue Shirts

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.

Truth #1: It’s not over til it’s over

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.

Truth #2: India stands to benefit from the legislation

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.

Truth #3: Indian service providers must address the issues

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.

Are Rising Costs the Only Impact Immigration Reform Bills Will Have on the Services Industry? | Sherpas in Blue Shirts

When U.S. congressmen Darrel Issa and Scott Peters at the very beginning of 2017 proposed a bill that would increase H-1B visa holders’ wages to US$100,000, experts in the industry were positive that IT service providers would be able to manage it, as they were already bearing costs between US$75-85K. But less than a month later, U.S. Congressman Zoe Lofgren’s introduction of the “The High-Skilled Integrity and Fairness Act of 2017” – a bill that aims to double the minimum salaries for H-1B visa holders to minimum US$130,000 – eroded 5 percent of the Indian IT service providers’ market.

Although U.S. President Trump’s subsequent congressional speech talked about merit being the criteria for visa allotment – and many businesses rejoiced that he made no mention of minimum wage as the deciding factor – it’s fair to assume that the minimum wage might still end up near US$130,000 in a merit-based lottery system.

But cost is only one of the possible impacts of visa reforms on the parties directly and indirectly involved in the services industry. Let’s take a look.

Impacts on service providers

A landed resource might continue to be indispensable for projects when his or her role is primarily that of liaison with between the client’s business units and the provider’s offshore resources (due to time zone differences and established comfort levels) or if he or she was engaged for unique skills or insights. Landed resources serving as liaisons for business units could more easily be replaced by local resources.

H-1B visa reforms are expected to trigger a refocus on driving efficiencies through automation and digital process transformation. This will accelerate the transformation in service providers’ years’ standing talent acquisition operations and processes. The requirement for different skill sets, coupled with cannibalization of traditional revenue streams, paint a less than rosy picture on falling traditional revenues and increasing costs.

We might also see higher consolidation in the outsourcing industry, especially for mid-sized firms, as service providers may look at economies of scale and inorganic account expansion to counter slowing growth and keep cost of operations in check.

Impact on enterprises

U.S. companies might have to bear the brunt economic impact of the demand-supply mismatch. Enterprises today use H-1B resources for a variety of reasons, some to manage their GIC operations. A raise in the average wage will cause inflationary pressure on IT resource costs, restrict supply of talent, and create increased poaching of resources between companies. In other words, enterprises might be forced to hire landed resources at a cost much higher than the perceived value, or lose out on business efficiency and growth, thus creating a vicious cycle that the current administration hopes to break.

Impact on the education sector

The education sector might be most immediately impacted by any stringent visa reform going through. Enrollment of non-U.S. nationals in Master’s programs could plummet, given the likely challenge in finding jobs after graduation. This situation has already been observed in the U.K., where tight visa guidelines have compelled students to return home once they are done with their education. The rest of Europe, which has relatively less stringent visa requirements, might become a hot destination for the Indian student diaspora as demand for technical expertise increases significantly.

In India, it’s clear industry veterans and current leaders are questioning their own hiring tactics and the sustainability of the low cost model. While some have expressed that retraining their current force is difficult as people in senior and middle management are low quality, others have condemned the IT industry as a whole by accusing them of carteling to keep wages low.
This might not float well with new graduates, who increasingly look for jobs at start-ups entering the disruptive digital space. These new companies are offering higher wages and a culture more suited to millennials than do IT service providers.

While it will be wait and watch until we know what clauses in the proposed bill become law, it’s clear that any combination of the above and other impacts will force providers and enterprises to make some major decisions to remain at the top of their game.

Impacts of H-1B Visa Applications Suspension | Sherpas in Blue Shirts

There’s a new stake in the ground for H-1B visa reform. Beginning on April 3, 2017, the US Citizenship and Immigration Services (USCIS) will temporarily suspend premium processing for all H-1B visa petitions. Large U.S. tech firms stand out as firms that will suffer disruption from the suspension, but the impact will be felt most heavily among India’s service providers, all of which typically use the premium processing option.

The announcement stated the suspension may last for six months and impacts visa applications for FY18. A premium processing fee of $1,225 expedites the normal three to six months wait for visa decisions to 15 days. While there are several potential impacts, two rise above as the most significant threats to business in the near term:

  • The suspension is more likely to affect current visa extensions than new applicants. Thus, it could cause staffing gaps, especially since there is already a large backlog of applications for visa extensions.
  • It may hinder Indian providers’ ability to obtain the large number of new visas they desire, so they are likely to rev up their applications in coming months.

Based on the current political climate with an “America First” focus, one could assume that the Trump Administration is the proponent of the suspension, but the USCIS announcement didn’t specify a reason other than the current backlog. However, visa laws are outdated and H-1B visas have been a candidate for the reform “chopping block” for several years. So, what can we glean regarding the progress of visa reform from this recent move?

I believe the suspension could usher in an ideal opportunity to revise the visa program later. Undoubtedly, another outcome that will emerge is increased media attention on Indian service providers versus US jobs, as they historically heavily exploited the visa laws. As I recently blogged, Everest Group already is seeing evidence of businesses postponing or cancelling plans to outsource work to Indian service providers.

Finally, it’s clear that visa reform is still teetering as the existing proposals have not garnered enough compromise and support in Congress. What will be the Trump effect on moving the proposals forward? I’ve watched and blogged about this important issue since May 2013 and will continue monitoring the potential impacts of proposed visa reform.

U.S. Domestic Locations for IT Services Delivery: Your Trump Card amidst H-1B Uncertainties | Sherpas in Blue Shirts

As part of President Donald Trump’s immigration reform efforts, the recently introduced legislation could make hiring H-1B visa holders significantly more expensive. The legislation calls for more than doubling the minimum salary of H-1B visa holders to $130,000.

The technology sector is the largest consumer of the visa. And about 70 percent of the 85,000 visas issued every year go to Indian workers employed by technology and outsourcing service providers to provide IT services to leading American enterprises.

Such a massive hike in the proposed minimum salary for H-1B visa holders is forcing enterprises and service providers alike to rethink their talent strategy from offshore to onshore. Factors such as adoption of agile methodology and regulatory requirements are also driving up the demand for onsite resources, and those will likely need to be sourced locally from within the U.S. as the landed resource model become challenged.

This increased focus on onshore resources has both enterprises and service providers alike considering the merits of potential U.S. locations. The landscape of IT services delivery from within the U.S. is complex, with more than 150 leverageable locations. The help simplify the view, Everest Group has classified delivery locations in the country into various tiers based on socio-economic status, maturity of IT services delivery, talent availability, and operating costs.

US Domestic Sourcing for IT Services

Deciding on the best location for U.S.-based IT services delivery must be based on a business case that considers multiple factors, and perhaps some trade-offs. For example, Tier-2 locations offer the twin advantage of moderate operating cost and breadth and depth of skills, but you might have difficulty attracting resources with extremely specialized skills to move from a Tier-1 city such as San Francisco to Dallas or Atlanta. And although Tier-3 and 4 locations are suitable for low-cost transactional IT services delivery, they may not be appropriate options if you need, or anticipate needing, more advanced skills.

US Domestic Sourcing for IT Services 2

While the proposed legislation hasn’t yet become law, turbulence and disruption of this potential magnitude demands significant research and pre-planning. As Benjamin Franklin, one of the founding fathers of the United States said, “By failing to prepare, you are preparing to fail.”
For more information on this topic, please read the following Everest Group reports.

Obama Goes to India | Sherpas in Blue Shirts

What could be the implications for global services from President Obama going to India?

It’s clear what the United States wants. We want to sell technology and nuclear equipment to India. And the U.S. wants to move India out of the China camp geopolitically into the U.S. camp. The U.S. wants trade and joint efforts in the areas of climate change and energy.

What does India want? They’re also focusing on trade. One of the key flagship industries for India has been outsourcing and global services. Of particular interest is protecting the spectacular growth of the Indian heritage firms such as Infosys, TCS and Wipro and allowing the next generation to flourish. In that important area, what could they ask of Obama?

It’s clear that with two years left in Obama’s term without a Democratic congress, there is a limit to what President Obama can agree to. But there is something big he could agree to that’s within his administrative powers. He could agree to direct the U.S. immigration service to be more flexible in how they interpret the visa laws, specifically around H-1B and L-1 visas.

Obama goes to India

As written, the immigration laws include a great deal of ambiguity, giving much discretion to the immigration services on whether to grant visas and the degree of freedom that companies or individuals have in what work they can do under those visas.

This is an area that is clearly within Obama’s ability to affect, and it would be a substantial win for India. So, Mr. Modi, I don’t know if you have asked for this – but you should.

And in no way would such a move hurt the U.S. It would not only help India but also help the U.S. economy with competitiveness. There simply isn’t enough U.S. tech talent and we have to rely on Indian talent if we’re going to be competitive in driving cloud and other new service models. The agreement could even be constructed to fit in with Obama’s ongoing pressure on Republicans to reform immigration laws.

So it’s a win for both countries.

Impact of Canada’s Foreign Workers Program on Global Services | Sherpas in Blue Shirts

“Putting Canadians First” — the title on the document explaining changes to the nation’s Temporary Foreign Worker Program —makes the Canadian government’s intent clear. Canada is forging ahead with adjustment to its immigration policy. The result will increase costs for global service providers in two important dimensions.

At this point, it’s now very unlikely that meaningful immigration reform will happen for the next two years in the United States. But Canada is moving forward, and components of its reform will make it much more difficult for service providers to utilize temporary foreign workers.

Two cost impacts to service providers

Canada’s immigration reform will increase the cost of transitioning new work to the global services model, particularly for India-based firms.

  1. Knowledge transfer. First, reform will raise the cost of knowledge transfer and effectively change the traditional knowledge transfer structure used by the Indian firms. Current practice is to send to Canada teams who will be doing the work to consult and learn from the existing teams and then return them back to India or other locations replete with sufficient knowledge to continue doing the work.

    Consequently, they will have to rely on in-country resources, which will make the knowledge transfer slower and more complicated.

  2. Landed model. Reform components will also increase the cost of the Indian heritage firms’ landed model — their employee base that resides in Canada. By making it harder to send Indian nationals to live in Canada, it will raise their cost of getting the visas, which will make it more likely that they will need to hire Canadian nationals to do the work.

    Everest Group’s analysis is that it could increase their costs by up to 20 percent for their Canadian landed model.

Impact on competitiveness

Neither of these two factors will stop the process of sending temporary foreign workers into Canada. However, it will slow down the process and also be more expensive for service providers than their current structure.

The “Putting Canadians First” reform of the Temporary Foreign Workers Program will not stop the Indian service providers from competing effectively in the Canadian marketplace. But it will complicate their business and modestly raise their costs to compete in Canada.

We do not believe that these changes will materially affect the multinational service providers such as CGI, HP or IBM. They already have substantial presence in Canada and have large existing workforces there. In fact, the net result is that the Canadian-based multinationals’ competitive posture will be slightly improved due to these immigration changes.


Photo credit: Ian Alexander Martin

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