Outsourcing companies are largely dependent on the legislation of the land from which work is exported. Indian companies are currently being threatened by the new American immigration bill. The threat mainly arises from the limitation on the number of foreign workers that companies in America can employ.
The immigration bill
The immigration bill is currently yet to be passed through the United States Congress. The bill if it does pass through, will make it more expensive to hire foreign workers on H-1B visas for foreign outsourcing firms.
The bill is receiving substantial support from American companies as they will have access to a larger pool of foreign skilled workers. The bill is proposing an increase in the number of H-1B visas approved from the current 65,000 to 110,000. This increase however comes at a cost. Post 2014, companies that hire more than 75 % of their workforce on work visas will not be granted any more visas and post 2016, the percentage of foreign workers will be brought down to 50 %.
Further, the bill states that in case foreign workers need to be employed by a company that already has between 30-50 % of employees on work visas, every additional visa requires a fee of 5,000 dollars. Companies that employ more than 50% of their workforce on work visas will be required to pay a fee of 10,000 dollars for every additional work visa.
The bill also proposes strict guidelines for companies to post job advertisements within the United States.
How does the bill affect Indian outsourcing companies?
While the bill does not specifically target Indian outsourcing companies, they will be the ones most affected by the bill. When the economy slowed down in the United States, a lot of Indian outsourcing companies decided to cash in on the need for cheap outsourcing and set up offices on site. The move to set up offices in the United States was also fueled by the uncertainty associated with the renewal of outsourcing contracts. Setting up of contact centers was largely a move to reassure parent companies of trustworthiness. These contact centers required foreign workers on H-1B visas to staff the offices.
With Indian outsourcing companies being staffed by nearly 50 to 75 % of foreign visa workers, they are the ones most likely at stake. According to a survey conducted by the Confederation of Indian Industry and the India Business Forum, 35 Indian companies responded that they have invested close to 5.9 billion dollars in order to be closer to their American clients.
With such large investments and businesses on the line, Indian companies are jittery and eager for an amendment in the bill before it is passed. The President of the National Association of Software and Services Companies (Nasscom), Som Mittal was quoted as saying, “The people who have drafted this bill have rightfully looked at the needs of the united States, but they have also tried to create discriminatory conditions which act like trade barriers and inhibit the free movement of people between the United States and India. If the bill does go through with the conditions that it has today, it will significantly impact our businesses and our capability to compete.”
Indian outsourcing companies in America often send employees to the client companies for short-term projects. The bill seeks to inhibit these short term projects as well. The bill states that foreign visa workers will not be allowed to work on outplacements or work at the customer’s offices.
With increases on visa cost and the wages consequently, Indian companies are expecting a hit on their profit margins, the reason for existence of the outsourcing model.
The uncertain future
Numerous Indian companies are waiting on the edge of their seats to see how the bill will affect their business. Infosys was believed to have said that they will wait and see like many other companies, the effects that the proposed immigration legislation will have on their business.
While some companies are waiting and watching, some companies and the Nasscom are actively lobbying against the immigration bill and are proposing a few changes. Nasscom was of the opinion that the bill was wholly against the interests of the Indian companies and that the proposed bill as it is would create an unequal playing field for the Indian companies.
The restrictions on the non-immigrant visas were perceived as being unfair. The bill was thought to be targeting Indian companies and it would become instrumental in damaging the peaceful cooperation and trade relations between the countries. American businesses that outsource to Indian companies were also perceived as being threatened by the immigration bill.
The US- India Business council is working tirelessly to educate the American lawmakers of the benefits of the commercial relations between US and India. The Indian Information Technology sector has been a keen benefactor and supporter of the strong trade relations between India and the United States. With the new bill targeting foreign workers, the Indian IT industry might take a hit thereby distorting the trade relations between the countries.
Mr. Mittal of Nasscom was quoted as saying, “This industry is important to the Indian government because it contributes significantly to the Gross Domestic Product and lowering our current account deficit, while creating employment for Indian people. If the bill is passed with the current conditions then our government will consider whatever options they have to react to these protectionist measures.”
If the bill does become law, then Indian companies will have to adapt and change strategies. Eventually outsourcing companies would hire less or move back to India. The workforce in India would increase in inverse proportion to the work force decreasing in the United States.