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.
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.
“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.
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.
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.
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 Timesreported 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.
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.”
“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.
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 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.
It’s the time of year when we turn our attention to reflecting on what happened over the the past 12 months and weigh the significance of the year’s events. I think we can showcase 2013 in five primary aspects.
1. Market growth
First let’s think about the market itself. We began the year expecting more robust growth, but I was disappointed in the first two quarters. The developing markets did not sustain their level of growth as in previous years, so we saw a drop-off in the developing markets space.
However, the market has gotten stronger over the year. So taken as a whole, I think it’s disappointing in light of our expectations, but we certainly are finishing with growing momentum. We’re seeing signs of growth in the United States, Canada, UK, Germany and the Nordics.
Net-net, 2013 brought a modestly positive level of growth but didn’t meet expectations.
2. Changing of the guard
This year the differences among the Indian heritage firms emerged more distinctly.
Cognizant and TCS are setting a torrid growth pace.
We have seen the rebound of the smaller firms such as Virtusa and Syntel outperform even Cognizant and TCS.
HCL doubled down on infrastructure and is preparing to try to accelerate its BPO and apps offerings.
TCS seems to have made its growth and platform plan work.
Infosys is going back to its roots in labor arbitrage.
On the MNC side, IBM made strides to close the gap that Accenture had opened up in the transformation space. Big Blue made a commitment to increase its consulting and transformation expertise.
We also saw the rise of the Big Four and significant steps forward by the audit-related consulting and integration practices. The largest of the four, Deloitte, is playing an increasingly prominent role in major transformation. E&Y and PwC are taking steps to join them with PwC buying Booz Allen consulting and E&Y coming out with an audacious growth plan to get to $51 billion by 2020.
Due to these significant differences in both growth and product offerings, the industry players are no longer moving in lock-step.
Furthermore, the industry has almost uniformly taken an increased interest in building industry-oriented offers and verticals and has shifted down that path.
It has been a fairly quiet year for major acquisitions. Although there seems to be plenty of interest in inorganic growth, 2013 did not show big movements in that regard.
4. Impact of cloud
In the past 12 months we saw central enterprise organizations, CIO, CTO and shared service organizations taking tangible steps to embrace the cloud or next-gen models. Although that has had a very modest impact on revenue, it’s clear that they have moved from a “watch” to a “drive” posture. Where previously cloud was almost the exclusive providence of the business stakeholder units, 2013 showed that the enterprise is prepared to take a more active role in those decisions.
Although cloud had some modest impact on the industry in terms of growth, it foreshadows significant changes in the future.
5. Immigration and H-1B visa reform
Immigration reform and its associated H-1B visa reform raised its head and had a bigger impact than we anticipated. Service providers found that it was harder to move talent around globally. It became more difficult to get U.S. visas; and in the iGate-Royal Bank situation it became harder to get visas into Canada. Certainly the thresholds and scrutiny were raised around talent entering the UK and Europe.
The year brought the rising prospect of structural changes to immigration legislation; if enacted in the U.S., Canada and Europe, it would further complicate the free movement of labor. The net result is that it would not destroy the labor arbitrage model, but it would make it more expensive and lower the profit margins for some providers.
There is uncertainty and potential risk around the law, if enacted by Congress, raising further barriers for the movement of talent. Already we have seen two major developments in 2013.
First, the GICs (Global In-house Centers) or captives continue to solidify their situation and incrementally increase their influence in the industry. The industry experienced the normal handful of exits, but there were more than offset by new starts of GICs or captives.
More importantly the past year saw the GICs deepen their value proposition to their parents; they became more self-confident, extended their reach into more important functions and started taking over some third-party management functions that hitherto were executed out of the parents’ domestic operations.
A second aspect of industry change linked to immigration this past year is re-sourcing — moving work from low-cost locations into higher-cost locations. There has been a lot of talk about this. Although we saw little evidence that it happened in a material way in 2013, I think the prospect looms that at least some adjustments will be made.
As the industry matured and can better segment workloads, it is clear that the one-size-fits-all offshore talent factory does not fit every situation. Buyers are becoming more selective about what goes into those talent factories and what work is done domestically or in close proximity to the origination of the work.
The net result of that is, although 2013 did not bring a shrinking of work, we saw a reallocation of work. The actual numbers have continued to grow and increase, but buyers intentionally put more work into a right-sourcing model. So there was a modest overall impact on this in 2013, but it is something to watch in the future.
Of the five areas described, if I were to select the one that likely will have the greatest long-term impact on the industry and greatest impact in 2014, it would be immigration and H-1B visa reform. If Congress enacts the law, it could have a very significant impact on the industry. And if Senator Durban were to get his way with the H-1B visa provisions, it would go a long way toward leveling the cost advantage that the Indian heritage firms have over the MNCs.
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.
I’ve blogged before about the impending immigration reform, with its accompanying H-1B visa reform and onerous provisions that will reshape the global services industry. Congress is now halfway down the path to deciding on immigration reform.
The scuttlebutt in the global services industry is that immigration reform is dead and there’s no need to worry about H-1B visa reform any longer. But we think it’s too early to take that position.
Let’s review where we are. The Senate passed its version of the bill, and all the onerous H-1B provisions that are unfavorable to the global services industry remained intact. The bill is running into opposition in the House. But that doesn’t mean it’s dead.
The Republican-controlled House is taking an approach of dealing with immigration issues in a series of separate bills rather than one large piece of immigration reform. If these indeed make their way through the House, its cumulative version will have a substantially different structure than the Senate version.
It remains to be seen whether or not the bill will pass. But there is tremendous pressure on Congress and on the Republicans to break their deadlock and get something done, especially immigration reform. We think it’s a mistake for the services industry to underestimate the extremely strong political pressure.
At this point there is still a significant likelihood that the legislation will move through the House in a piecemeal fashion. The contentious issues such as border control and path to citizenship, which are central issues for Republicans, likely will be dominate the House version of the legislation.
If the House manages to get to a politically acceptable position regarding border control and path to citizenship, we believe they will will have little political support or interest in confronting the Senate on the H-1B visa reform issues. As mentioned in our earlier blogs on visa reform, no constituency is vocal in lobbying against the scalding provisions targeting the Indian service providers whose business models heavily depend on H-1B visas.
Therefore, if the House passes its version, we think there is a distinct possibility that the onerous provisions in the Senate’s version of H-1B visa reform will slip through, unopposed, into the eventual legislation.
This is potentially the worst scenario for those who are against the onerous visa reform scenarios.
We believe these provisions still have a strong pulse and the targeted Indian service providers should still be concerned and look at potential mitigation strategies.
The U.S. Congress took steps last week that bring proposed immigration reform — and associated H-1B visa reform — even closer to passing into law. The Senate Judiciary Committee passed the full bill on a bipartisan vote of 13-5. They also agreed to key compromises that, if passed, raise the annual cap on H-1B visas from 65,000 to 115,000 and remove the provision requiring recruiting American workers before foreigners. It gives a green light to Silicon Valley giants and other U.S. tech firms and squelches the hopes of the large Indian service providers that the language in the reform provisions might be softened. The tech companies now seek to influence six GOP senators to vote to pass the bill out of the full Senate with a large majority, which would increase the odds for it passing in the House.
In addition to the potential impacts we outlined in those blog posts, Senator Hatch last week added an amendment that brings L-1 visas into the net for reform and prevents Indian firms from using L-1s to dodge the troubling aspects of H-1B visa reform. For employers with 15 percent or more U.S. employees on L-1 visas, the amendment states they will be prevented from placing those workers at client worksites. Further, they will be unable to assign L-1 visa holders to “labor for hire” arrangements.
Unless the trends reverse, the legislation will uproot the business models of the large heritage Indian service providers. At stake: increased costs and margin hits along with constraints in placing H-1B and L-1 visa holders on site in U.S. clients’ locations.
Aside from praying that the proposed legislation falls apart in the House, there’s no “silver bullet” for eliminating the negative impacts to the Indian providers. So in this third post in our series on H-1B visa reform we present risk-mitigation strategies and our analysis of the likelihood of those strategies succeeding. We worked closely with Rod Bourgeois of Bernstein Research and Jeff Lande of The Lande Group in developing the thinking in this analysis, which also draws heavily on Rod’s presentation at his 10th annual equity analyst conference. We sincerely thank Rod and Jeff for their insights in this analysis.
What mitigation strategies are available?
Our analysis breaks down the H-1B reform provisions into six major aspects (shown in the blue rectangles in Exhibit 1). With the exception of two aspects, we suggest one or more mitigation strategies (green rectangles) for the impacts to the Indian service providers.
Let’s look at the likelihood of the above mitigation strategies. This is not an exhaustive analysis, but these factors are the primary ones of concern for the Indian firms.
U.S. clients lobby. It is possible that the big U.S. clients of Indian providers might lobby Congress to change the language of the 15 percent ratio of H-1B holders to U.S. employees due to their concerns about significant disruption to their operations and talent access. However, our research indicates this has not happened to date, and we don’t believe it will occur.
Political factors. India’s government could eliminate its protectionist policies limiting the sale of U.S. tech products in India with the hope that, in turn, this strategy would influence Congress to water down the 15 percent ratio provision. However, there is currently no U.S. political force stepping up to help the Indian firms.
In fact, our observance is that it may be more important politically to pass comprehensive immigration reform than it is to avoid bilateral issues with India.
Although the U.S. tech firms were allies of the Indian firms initially in the visa reform debates in order to increase the “pie” of available visas, this is no longer the case. Presumably the reason for their about-face in support is that the proposed higher cap on available visas and greater share of the “pie” of visas going to U.S. firms meets their visa desires. We have observed statements by such tech firms as Microsoft and IBM in support of the Senate’s visa reform provisions and in support of putting pressure on India to change its protectionist policies.
Staffing model alterations. The proposed ban on eligibility to apply for new visas (triggered by a 75 percent ratio of H-1B or L1 visa holders to U.S. employees, with the ratio dropping to 50 percent after FY 2016) limits the access of Indian firms to new visa holders.
If these restrictions become law, Indian firms could respond by increasing their offshore staff or increasing their nearshore staff in locations such as Canada or in U.S. rural areas and low-cost states (e.g., Louisiana, Mississippi, Alabama). We believe their offshore staffing mix is already at optimal levels.
Alternatively, they could hire subcontractors from companies that primarily operate in the United States that are below the visa headcount threshold ratio.
Or they could acquire businesses with high levels of U.S. staff and rebadge them. However, there are well-known risks in achieving return on investment in acquisitions of services firms. But let’s assume Indian firms decide to take this risk. At what point does an acquisition clearly make sense for an Indian IT firm? Where is the break-even point for low-margin work with high headcount? Would it break up the business of some firms into sub-businesses?
We also note that the proposed legislation includes language stating that if 90 percent of an employer’s visa holders have applied for Green Cards, they would be removed from the visa headcount ratio calculation. However, we do not believe this mitigating factor is feasible to pursue.
Higher wages. The proposed reforms require that, for new visa holders, employers pay higher wages for H-1B workers than they currently pay. We assume this also will necessitate higher wages to existing workers, especially since they have more tenure and relevant experience. The only mitigating factor we see for this provision is for the House to draft wage requirements lower than the Senate’s proposed requirements.
Increased application fees. The legislation also increases visa application fees to $10,000 per visa for employers with 50 or more employees if more than 50 percent are H-1B or L1 employees. As a point of reference, a fee of $10,000 on 5,000 visa applications ($50 million) equates to 3.2 percent of Cognizant’s current operating income. Note that 5,000 applications are fewer than Cognizant’s FY2012 level but similar tot FY 2011. The Indian firms could mitigate the expense impact by using fewer new visas.
Another mitigating factor is that the language in this provision could be watered down in the House and/or during conference. However, we believe it will remain in the legislation because Congress needs to raise funds to ensure the bill is cost neutral.
Pass costs through to clients. Another strategy for mitigating the financial impact from visa reform is for the Indian firms to try to pass the costs onto clients by renegotiating contracts and/or raising prices. For reasons detailed in our second blog post in the series, we do not believe this strategy would succeed.
Although the Indian firms will likely need to consider all of the above mitigation strategies; however, as shown in Exhibit 2, we believe the tactics with the highest viability are the tactics for staffing alteration.
Fortunately the top Indian firms have substantial inventories of visas that they can use to mitigate the short/medium-term impact if Congress passes the immigration/visa reform into law.
The BPO side
We believe that building U.S.-based platforms for vertical-specific BPO markets is a viable strategy for growth among the Indian firms as this would add U.S. headcount that would help lower the ratio for visa holders vs. U.S. employees.
In addition, many of the BPO players are in the position to rebadge their clients’ staffs in order to drive a higher ratio of U.S. staff. It’s fairly easy to transfer a visa to another employer; thus the Indian firms could transfer their visa workers to their clients or even to other services firms.
Possibility of joint ventures
We believe an interesting and creative mitigating strategy is for large U.S. or multinational service providers to create joint venture structures with the Indian players. This would ensure that current U.S. clients of Indian firms would not experience major service disruption. It would also enable the U.S. players to organically capture market share that the Indians otherwise would lose due to visa restrictions.
Due to the contentious issue of undocumented immigrants, the comprehensive immigration reform and related visa reform might not be passed into law. Even if enacted, there is still a possibility that the House’s version of the legislation will water down the restrictions in the Senate’s version. However, if it passes into law at close to its current version, the visa reform provisions will cause a seismic shake-up among the Indian service providers that are aggressive users of visa workers.
Stay tuned. We’ll keep you apprised of significant changes in visa reform impact to providers and customers in the global services industry.
Check out Peter’s other blogs on immigration reform here and here.