Last night the US administration sent yet another shock wave to the Indian IT by announcing changes to the H1B visa program again. Amongst the broader posture of clamping down aggressively on the number of visas issued, the Trump administration has issued two interim final rules (IFRs) that dictate additional requirements of increasing minimum wage (significantly) and the specialized skill sets. These rules also call out the changed definitions of specialty occupation to the employer-employee relationship and, most importantly, the third-party worksite.
Of course, this isn’t the first time the Trump administration has gone down this road, and only a few months ago had announced rules on similar grounds. While this and other measures are expected to eventually help the US economy make space for its citizens and people, we at Greyhound Research believe we need to put this announcement in perspective.
1/ Timing of this announcement is no surprise and was rather expected
The US presidential elections are around the corner, and such a crackdown on the H1B visa program was only expected. So, no real surprises here, honestly. The Trump administration has been known to use the H1B visa issue to garner support – essentially ride the masses’ underlying emotions to keep all possible jobs within the US and not allow outsourcing on most accounts. While that may work flawlessly to win an election, but ultimately when the rubber hits the road (read when the US companies need the talent), such decisions not only stand to hurt these companies but also the economy at large and the country’s ability to innovate.
One must question the viability of these latest announcements on H1B by the Trump administration. We at Greyhound Research believe, if Biden were to win, we could expect a significant reversal (if not fully) to these recent changes.
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2/ The Indian IT has been investing for a while to change the delivery mix
The suddenness of this and other recent announcements does make for news, but the fact is that Indian IT has been making some significant bets over the past few years and is more than well prepared to handle such shock waves. Not sure how many are aware but most Indian IT firms have been aggressively investing in the US community by working with colleges and recruiting from them. Also, there are numerous examples of how companies like Infosys, HCL, and others have been investing top dollars in acquiring local companies in the US to ensure their ability to localize offerings and also be seen as a real contributor to society. The Indian IT players have also been investing in near-shore centers in Canada and Mexico.
We have to appreciate the Indian IT firms for their ongoing investments in the US market as a sign of their commitment and contribution to the country and the community. We at Greyhound Research believe this appreciation is long overdue.
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3/ COVID-19 has only accelerated the expected change in the delivery mix
More than anything else, the pandemic has proven that organizations don’t need a lot of resources to be present physically in an office setting. This has meant that a lot of work that was previously done on-site has, in the past months, been executed from either near-shore locations or being executed out of homes in a host of countries, including India. This is a revelation for many IT leaders who never considered this possibility in the past.
We will see the US companies use a lot more of near-shore and offshore facilities hereon. We at Greyhound Research believe, more than anything else, this will only mean higher reliance on Indian IT firms in the longer run.
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4/ COVID-19 has meant higher investment in IT and hence need for IT partners
Another essential outcome of the pandemic has been the realization that those organizations that are serious about being relevant in the current times (and post this) will need to invest in technology aggressively. There are enough and more examples of how technology has been put to use by US organizations in the past six months to improve customer experience and connect and, more importantly, ensure the efficiency of their back-end processes spanning supply chain, finance, and more. To put this in perspective – when COVID-19 brought the global supply chain to a grinding halt and most consumer products were increasingly becoming unavailable, many organizations used data and other technology assets to plan and procure these products most efficiently. Not just that, there are bucket loads of examples of where technology has been used to deliver goods to consumers in a contactless manner. Such sweeping changes only mean that organizations will become a lot more technology-dependent and need the right technology partners.
The Trump administration needs a reality check on the ability to provide for most skill sets from the US alone. At Greyhound Research, we believe, no single company can have all the skills in-house or depend on one partner alone.
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5/ More than the Indian IT firms, this will impact the US companies
Skilled foreign workers who come to work in the United States by the route of H1-B visas, and the Indian IT firms that bring them in don’t just directly supplement the US IT industry with specialized skill sets, they also contribute indirectly to other industries. Often H-1B workers bring their families along and thereby get additional business for different industries like Real Estate, Banking, Hospitality, to name a few. Amid this pandemic, it’s critical to remember that most US-based companies (including many Fortune 500s) are highly dependent on India IT Services firms. These companies actively outsource for both skills and cost advantages; it’s not just the latter that drives the decisions. Changes in the H-1B visa arrangement will add immense cost pressures on these companies. Not to forget, if the Trump administration were to take a more uncompromising stand on the issue, it would also make the existing locally available skill sets more expensive.
So either way, whether the US-based companies use local resources or use partners, they’ll need to spend more. Not sure that prospect truly appeals to the management and boards of these US-based companies planning to invest in IT further.
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6/ Indian IT should expect more complexity, scrutiny, and additional costs
We at Greyhound Research believe given the looming uncertainty in the US on regulations that can be potentially cleared over the next few months, IT Services firms can expect delayed decision-making and hence even longer sales cycles. Of course, this uncertainty won’t last for long, and the election results will significantly impact what happens next. However, if these IFRs were to be actualized, the pressure and scrutiny on US-headquartered companies will increase, and they will be required to furnish far more documentation than before. With a capping of 12 months on the visa, the companies can be expected to spend a lot more time and money on furnishing additional documents to prove the need for an on-site resource with specialized skill sets. Of course, this can well mean that Indian IT can expect clients to renegotiate existing contracts. This might well mean smaller and more expensive deals (on the back of increased cost of delivery) here on. These pressures also indicate the need for Indian IT Services firms to make incremental investments and local hiring in the US.
Irrespective of what you believe, important to note Indian IT firms recognize H1B is not an immigration tool. And, it’s not an entitlement. It is a way to get the right skills at the right place for the right purpose. No more, no less.
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While there are always cases of companies abusing laws to get their way but to assume and taint that an entire industry uses H1B to sneak people into the US is an exaggeration. The Indian IT firms, realizing the long-term changes in the delivery mix and changing stand of the government, have done the right thing by investing money locally in the US. Now, it’s the government’s turn to give these firms the due credit and offer them the much-needed room for operating locally without being seen as the companies that steal jobs of the American people.
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