Commentary
11/15/2013
08:00 AM
Esteban Herrera
Esteban Herrera
Commentary

Don't Forget About Visa Reform

Visa reforms in the immigration bill will have a different effect on US and Indian firms. Both stand to benefit in the long run.



With Washington gridlock and Obamacare grabbing headlines, the issue of visa reform -- front-and-center on CIO agendas a few months ago -- has been pushed to the back burner of late. 

While the ultimate fate of proposed changes to visa regulations for high-skill workers is up in the air, the industry should prepare for a wide range of scenarios.

To quickly review: the comprehensive immigration reform bill before Congress contains specific provisions aimed at reforming existing standards around H-1B, L-1B, and other temporary visas, primarily for skilled technical workers. Broadly speaking, the legislation would increase total visa and green card numbers, while imposing new fees and restrictions (which would primarily affect India Heritage firms) based on the ratio of visa holders to US citizens and legal permanent residents in their US workforce. 

US IT service providers and large businesses generally favor the bill and the visa program as essential to addressing chronic shortages of skilled workers. The legislation is opposed by Indian heritage firms and the Indian government. Both argue that it is protectionist. It's also opposed by US labor groups, which argue that it depresses wages. Since the provisions aimed at skilled workers are but a small piece of much broader-ranging legislation that covers other skillsets and scenarios, no bill is likely to please everyone.

[ Is the US talent pool really as dangerously shallow as some companies want you to believe? Read IT Talent Shortage Or Purple Squirrel Hunt? ]

Without delving into the politics behind the program or the merits or flaws of the proposed changes, it’s worth examining potential impacts of the changes.

Over the short term, the legislation would almost certainly have a negative impact on the profitability of Indian heritage IT companies, mainly because all versions of the bill stipulate some ratio of visa holders to citizens and residents. It would be easier for US providers to gain access to temporary workers, and more difficult and expensive for Indian firms to do so. Indian firms would face disruptions because their existing models rely heavily on temporary workers.

Over the long term, however, the provisions could encourage Indian firms to expand their US presence. Specifically, to avoid the provisions of the bill, Indian companies may step up local hiring and focus on acquisitions of US-based companies. In other words, visa reform could incentivize Indian firms to expand their Western footprint and become more competitive – probably not what the reform champions had in mind. 

Visa restrictions could also spur a rethink of business strategies. According to ISG research, Indian IT service providers grew by 32 percent a year between 2005 and 2008; during the next three years that annual growth rate slowed to 16 percent. In this environment, the India heritage providers face increased pressure to go beyond the labor arbitrage model and develop new industry-focused and innovative software products. The loss of the visa option could speed this evolution.

 



Visa reform proponents argue that the legislation could boost repatriation, nearshoring and rural sourcing, and domestic employment. On the other hand, corporations utilizing offshore providers and the providers themselves could decide that moving additional operations offshore is preferable to the uncertainty, risk, and exposure posed by visa issues. Or, companies could simply transfer in current H-1B visa holders from their providers as employees, rather than lose the institutional knowledge these individuals have acquired when it comes time to renew the visa.

Finally, changes in visa quotas could potentially result in a strategic step backwards in how clients and providers approach the service delivery supply chain. 

As the sourcing market has matured, and as we've moved to a truly global delivery model, many companies have wisely focused on business outcomes rather than on staff-augmentation or labor rates of individual providers. In other words, if a provider can deliver to a defined level of quality at the lowest possible cost, then the company it works with needn't worry about where the work is done or by whom. This perspective allows service providers to use global delivery models, economies of scale, process efficiency and automation. If visa restrictions, regulations and fees around staffing become a concern, the model changes and providers are forced back into the business of micro-managing their geographical distribution of resources.

At this point we're still very much in a "wait-and-see" mode regarding the ultimate outcome of the visa legislation. Given that the high-skill visa issue is tied to the broader immigration reform question, it's likely that the legislation will fall victim to Washington politics and the end-result will be business as usual.

Nonetheless, companies and service providers should keep abreast of the issue and be prepared to respond with alternatives and risk mitigation strategies should visa changes become official.

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