The Indian IT industry will be cautiously following the US immigration bill to be introduced this week by the US Senate, with the objective to provide for comprehensive immigration reform, increase visas for skilled workers; and beef up border security.
Passage of the bill could be a boon to high-tech companies like Intel Corp. or Facebook Inc., who would be able to hire more highly skilled workers from abroad. But the US immigration bill is likely to impede the operations of the Indian IT services cos.
The IT services industry grew rapidly in the 1990s. Due to the Y2K hype, businesses were apprehensive about their IT systems and so there was demand for IT service providers. Once the Y2K hype was over, the customers became conscious of their IT spending. Consequently, the suppliers had to hire overseas, particularly in India, and that paved way for the off-shoring trend that is currently seen.
Indian consulting firms like TCS and Wipro introduced off-shoring by charging lower prices per consultant. These firms basically enjoyed the labor arbitrage due to large number of consultants working in India enjoyed and competed in terms of pricing. Big IT consulting houses like IBM and Accenture had to hire IT professionals in India and charge similar prices per consultant.
In order to maintain their cost advantage, besides deploying a large pool of offshore resources, the Indian IT services companies also paid lower wages to employees travelling to the U.S on H-1B or L-1 visas, as compared to equivalently skilled Americans.
The proposed US Immigration bill proposes wage parity between guest workers in the U.S. and equivalently skilled Americans. As such the Indian outsourcing companies that have a large no of on-site employees on US work permits, will need to pay them higher salaries. This will negatively impact the cost advantage that the Indian IT services companies have enjoyed so far.
As per the proposed bill, the companies will have to pay a $10,000 fee per additional worker if the employer has 50 or more employees and more than 50 per cent of these workers are H-1B or L-1 employees without a green card petition pending. Domestic companies like TCS, Infosys and Wipro will have to pay USD 10,000 for each additional H-1B employee they would be hiring.
On the positive side, it will also enable 11 million workers in the US including 2.4 mill Indians to obtain American citizenship. Another proposal is to award residency to those who earn doctorates from U.S. universities in mathematics, engineering, science or technology.
Management of Indian IT services companies are concerned about the increase in compliance cost and higher turnaround times, which would fundamentally affect competitiveness and the margins of these companies.
As it will take a few more months for the bill to be implemented, the Indian government, and outsourcing industry will be closely following the debates. Meanwhile the Indian IT services companies may need to look at revamping their business models to remain competitive.