What the H1B Visa Proposals Mean for Indian IT Firms

New US proposals regarding H1B visas are being branded as bad for Indian IT firms. But there might be a silver lining

Published: May 25, 2013 06:41:03 AM IST
Updated: May 15, 2013 01:26:36 PM IST
What the H1B Visa Proposals Mean for Indian IT Firms
Image: Getty Images
The proposed immigration bill has just been introduced in the US Senate, and, to be a legislation, needs several clearances from various panels, members of the Senate and House of Representatives and the president

Some of the proposals related to H1B visas in the US Senate’s comprehensive immigration bill have triggered a sense of panic among Indian IT services companies. If passed, the IT companies fear they will have to spend more, sacrifice margins and perhaps even lose the competitive advantage. Nasscom, the lobbying body of software companies in India, has argued that the proposals are discriminatory and go against the idea of free markets. Its officials hint about a trade war between India and the US over this issue. The truth, as always, is more complex.

Changes to the bill
The proposed bill spans about 800 pages and is the result of endless negotiations by lobbying groups. It has just been introduced in the US Senate, and, to become a legislation, needs clearances by different committees, 100 members of the Senate, 435 members of the House of Representatives, and finally the president. This means that there could be amendments to the bill.

Dents in profits
Indian IT companies are worried, not without reason. The proposals will increase visa expenses by three to five times. At present, an H1B visa costs $2,500. Companies might have to pay higher wages to H1B visa employees, and, over time, employ at least one local person for every H1B visa holder. Hiring locally increases wage bills and introduces inflexibility in terms of utilisation rates.

Wipro CEO TK Kurien said the procedural impact could slow down companies. Kotak Securities reckons the new regulations would hit margins by at least 1.85 percent in five years on account of local hiring and another 1.5 to 2 percent on account of onsite utilisation rates. In all, it could have an impact of 3 to 4 percent over five years.

Hasten globalisation of IT firms
IT services companies have changed over the past few years. The top five are multi-billion dollar companies, with features of MNCs (global clients, US stock market listings). They are moving from offering just software services to a broad range of business solutions, many of which demand a higher proportion of local talent. In fact, the proportion of non-Indian employees has been growing, in part because of acquisitions abroad. “This has been relatively slow and successful in certain areas,” says E Balaji, CEO of Randstad India. The new visa regulations would act as a catalyst.  

Convincing investors
The traditional IT services model based on adding headcount (hiring more people in proportion to revenues) and cost arbitrage (hiring employees at lower wages in India) is fast losing steam. Margins will drop as companies expand delivery centres in or around their markets. “The old model is broken and the new one will have lower margins,” says Siddharth A Pai, partner and president, ISG Asia Pacific. One of the biggest challenges before firms is to convince investors about an era of lower margins. This task will be easier using external shocks, rather than broader trends.

More off-shoring
Although the proposals in the immigration bill do not mean to promote off-shoring, it could turn out to be one of the unintended consequences. Higher visa costs and local hiring will make onsite work more expensive, and incentivise IT companies and their clients to opt for less onsite work.

(This story appears in the 31 May, 2013 issue of Forbes India. To visit our Archives, click here.)

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  • Vengaiah

    Hello, What ever the changes proposed by US government are absolutely justified. Current system allows only IT companies to get professional on H1b . And most IT companies exploit the employees by just placing them in clients location. Clearly bodyshoping where there is no value addition by the IT companies at all. This system will allow companies directly hire a foriegn worker on H1b because more quota, There by benefits directly flow to employee where he is not exploited. In current situation due shortage of skilled person (beware i am talking of skilled person , but not H1b professional ) End employers are in compromising situation and hiring sub skilled h1b empoyees, there by wasting their important resources like time and money. And most important loop hole is many IT companies sell H1b applications to employees. Which is clear violation of law. If there is more then there would not be this position. Request US government to introduce a bill which is lot more beneficial to US companies and HI b Employees but not IT companies. Thanking you Vengaiah

    on Apr 17, 2014
  • Indian Visa

    They recently are confronted with higher expenses, that is the reason offshoring exists regardless. Granted, a few parts will be offshored, however I anticipate numerous will remain inland. http://www.indianvisa.info/

    on Sep 24, 2013
  • Indian

    US wants access to Indian Retail, Insurance and the list goes on... I do not understand the logic behind fighting for around 100k H1B jobs when most of the Top Tech Companies have Indians in Top Position. What Pandit did to CITI? What Indra Nooyi did to PEPSI? Why Bill Gates and Folks behind Google and Facebook say Indians are important for America\'s Growth? How many Indian Kids WON Spelling Bee in last 10 years? If you have answers to these questions.. You will have answer to H1B/L1B Visas so called exploitation. No Offenses for frankly speaking the FACTS

    on Jun 15, 2013
    • Vengaiah

      Hi Indian, Your concern is true. But with proposed changes will actually benefit in individuals ( h1b professionals ). But it is negetive affect on IT companied with lot of H1b professionals. My understanding is most of the IT companies earning depends on how much they pay to the resource . So actually they do want the costs to go up. Current system allows fair amount derserved the highly skilled labour. Who has been deprived by it till now. My feeling is that it will help Indian diaspora more then any one else.

      on Apr 17, 2014
  • Kashif Aftab

    The key point in this article is the most unintened consequence of this bill, more work will move offshore. Think about it when US business are faced with higher pricing what do they tend to do? They will send work offshore! Badly thought out plan.

    on May 31, 2013
    • John80224

      They already are faced with higher costs, that\'s why offshoring exists in the first place. Sure, some roles will be offshored, but I predict many will remain onshore.

      on May 31, 2013
  • Dr.a.jagadeesh

    Excellent post. The proposed changes in the issuing of H-1B visas, the highly sought after US work permits, will badly affect the Indian IT firms which depend heavily on these work visas. If the employer has 50 or more employees, and more than 30 per cent but less than 50% are H-1B or L-1 employees (who do not have a green card petition pending), the employer will need to pay a $5,000 fee per additional worker in either of these two statuses, the outline of the bill said. In case the employer has 50 or more employees and more than 50 per cent of these workers are H-1B or L-1 employees who do not have a green card petition pending, then the companies will have to pay a $10,000 fee per additional worker in either of these two statuses. As such, large Indian IT companies like TCS, Wipro and Infosys will have to pay $10,000 for each additional H-1B employee they would be hiring. Such a thing will not be for companies like IBM, Intel or Microsoft who are based in the US and majority of their employee are American nationals. In case of companies like TCS, Wipro and Infosys, which are headquartered in India having large off-site offices back home and depend on a small strength in the US, will be affected by such a provision. Dr.A.Jagadeesh Nellore(AP),India

    on May 30, 2013