Tougher immigration laws make Indian IT firms consider contingency measures

A pending immigration legislation in the United States, which (in its current form) might upend the Indian outsourcing business model, has IT companies scrambling for damage control.

Leading IT services firms are putting contingency plans in place, scouting for acquisitions that will improve their U.S. workforce numbers, and employing green cards to send workers overseas. 

S.D. Shibulal, CEO of India’s second-largest IT services company Infosys, told analysts at a recent meeting that it is considering setting up local and same time-zone development centers and boosting local hiring. Infosys is running pilots on certain projects to test the efficacy of a larger offshoring component, Shibulal said.

India’s largest outsourcing firm, Tata Consultancy Services, is increasing hiring of U.S. residents and green card holders. The company recently hired 174 college graduates in the United States.

The impending legislation, if it goes through the House of Representatives in the fall, could be the dark cloud for Indian IT companies who are gaining from U.S. Dollar-Rupee exchange rates after the Indian currency’s recent tumble. The industry is forecast to grow at 13-14 percent rates this year.

The U.S. Senate has already passed the bill that allows more skilled workers on short term visas (H-1B) at higher visa costs, while imposing a limit on the number of workers who can be deployed at client locations inside the United States. The bill awaits the House of Representatives approval to become an Act. Large Indian IT companies with 15 percent or more such workers could be banned from placing these workers on customer sites.

The ultimate form and the timing of the law are as yet uncertain. In its current shape, it is likely to hit several Indian IT services companies who get a bulk of their revenues from U.S.-based customers. Top firms make between half and two-thirds of their revenues from the U.S. market. Infosys, for instance, earns over half its revenues from servicing American customers.

A JP Morgan Chase estimate suggests that the tighter rules could set the industry back by $8 billion.

India’s technology outsourcing industry, whose exports totaled $75 billion this year, has thrived on a ‘global services delivery’ model, where a legion of workers in India create software programs and teams of expert workers are then sent to customers sites in the United States and elsewhere to support and maintain this software. Until now, H-IB and L-1 visas were employed to place Indian workers on U.S. client sites.

The move will not impact similar IT companies that have huge operations in India but are headquartered in the United States, as these companies -- including IBM and Accenture -- have legacy workforces there. 

The legislation arbitrarily singles out India-based IT service providers by making it difficult to get visas and deliver business contracts, said Ameet Nivsarkar, vice president of global trade and development at Nasscom, the country’s IT industry trade body. “The contemplated legislation will make it expensive and challenging to move people across borders,” said Nivsarkar, who added that 96 percent of Fortune 500 companies are serviced by specialists from Indian IT companies.

                            IT companies have developed customer relationships over decades and build up intrinsic knowledge of customer’s businesses. “There is a lot of value we provide,” said Ganesh Natarajan, CEO of mid-sized IT firm Zensar Technologies. The investments made by Indian companies to build these relationships are at risk.

There are four levels of potential impact, said Natarajan. The contemplated five-fold rise in visa fees will affect all Indian IT companies. The move towards having at least half the workforce in the United States being American citizens or permanent residents will also affect several companies. Natarajan concluded, “The potential clause against outplacing visa holders on client sites could be very damaging, though companies do not expect to see the overly-restrictive clause in the final bill.”