Offshoring No Longer on the US Agenda?

Although US President Barack Obama, in his November 2010 trip to India indicated a softening attitude towards restrictions on visas for skilled workers and on offshoring generally, life still appears to be tough for Indian companies trying to send personnel to the United States.

Instead, political expediency, job insecurity and a turbulent labor market have led US officials to resort to protectionist measures and voluble rhetoric to discourage the offshore outsourcing industry.

This has often resulted in a tug of war between Indian IT companies and US authorities. For instance, when the Congress passed a Border Security Bill in August 2010 that doubled H-1B visa fees for Indian workers traveling to America to more than US$4,000 per visa, it led to howls of protest.

"It's tens of millions of dollars," said Tata Consultancy Services chief executive N. Chandrasekaran at the time. Indian providers say the legislation is protectionist, and that the American decision to create a hostile environment for skilled Indian workers would ultimately backfire, reduce foreign investment in the US and hurt American workers' job prospects.

It turns out now that last year's visa fee hike may be a precursor to more stringent methods to dishearten Indian IT players. The US has accused Indian IT companies of using visas "unfairly" to send employees from India at a lower cost, which they fear will impact job creation in the US.

Indian companies fear that things will get progressively worse in the politically-charged runup to 2012 elections. They are also complaining that the obstacles being put in their path -- like augmented visa fees, difficulties in getting interview appointments and excessive requests for evidence – are already hampering their growth prospects with margins being affected negatively by 10 to 20 percent.

The grounds on which visas of skilled Indian workers have been rejected lately are totally frivolous, they say. Data released by the Indian media shows that in 2009 only 5,000-6,000 visas were used by Indian firms and in 2010 it was between 12,000 and 13,000. That, point out experts, is hardly a big enough number to affect job creation in the US.

Technology companies are traditionally the largest users of such visas, with India-based outsourcing providers topping the list. According to recent company data, the three largest Indian outsourcing providers – Infosys Technologies, Wipro, and Tata Consultancy Services – are among the top recipients of H1-B visas, accounting for nearly 10,000 H1-B visas annually.

The already tense situation has been complicated by a visa abuse case filed by a US consultant for Infosys last month which accused the Indian IT firm of lack of ethics in sending employees on the wrong visas. The consultant, Jack Palmer, alleged the company was sending employees to work full-time on B1 visas, which are meant only for short-term business. Palmer also accused Infosys of sending low-level, unskilled workers and overcharging customers.

Indian IT companies fear the allegations will ricochet far beyond the present lawsuit, providing fodder for the anti-immigrant lobby to further strengthen its case against Indian companies. In a sensitive labor environment, such a request will find an immediate resonance with the electorate.

Meanwhile, industry reports indicate that H-1B/L-1 visa rejection rates have doubled from 4 percent to 8 percent for larger companies and almost 10 percent for smaller companies. Most IT companies have said this would sizably impact their profitability leading to increased hiring in the US.

This changed dynamics, they argue, will come with its own attendant problems -- like higher wage costs and reduced flexibility in managing onsite staff. The Indians would then have no choice but to hire in the US, which would in turn lead to a higher wage bill and its associated tensions.

Says Vishal Parekh, a Philadelphia-based IT consultant, "Such measures pinch Indian outsourcers where it hurts most – at the heart of the industry's hopes for future growth in its most crucial global market."

Parekh adds that Indian companies have been trying to diversify into health care and other areas and move up the delivery chain to higher-value areas like consulting. "All these areas require workers with visas or US passports which are becoming increasingly difficult to acquire in such a disenabling environment."

However, Nasscom – the Indian industry lobby – feels American fears about India are misplaced. Rather than taking away jobs, the group points out that India's software services exporters have created 35,000 high-paying US jobs in the last five years. Tata Consultancy Services, for instance, sought to hire some 1,000 Americans in the last fiscal year.

However, with US unemployment remaining a stubborn 9.6 percent, India's role as a driver of job insecurity remains. Sen. Charles Schumer referred to Indian IT outsourcers as "chop shops," while Sen. Barbara Boxer's attacks on Carly Fiorina for sending Hewlett-Packard jobs to India and China helped her clinch her California Senate reelection campaign.

The fears about Indian IT companies taking away jobs seem to have leeched into popular culture as well as evidenced by NBC's sitcom, "Outsourced," which tells the story of a Kansas City company that sends most of its jobs to India.

Despite these efforts, however, the offshore outsourcing industry continues to flourish as US companies avail themselves of the services of Indian ones to remain globally competitive.

Indian companies insist that the problem lies elsewhere, notably with major US corporations whose race for low-cost competitiveness drives India's US$50 billion software services sector.

Interestingly, doubts are also being raised whether US politicians are sincere about attempts to quell US unemployment concerns through pro-protectionist rhetoric, or whether it is purely a ploy to garner votes.

This view gained credence with President Obama himself recognizing the value provided by the offshore outsourcing industry. Upon returning from his trip to India last November, he stated that the Indo-US relationship "is not just a one-way street of American jobs and companies moving to India. It is a dynamic, two-way relationship that is creating jobs, growth, and higher living standards."

Ultimately, analysts say such political rhetoric will have a marginal impact on the outsourcing industry. "It is more a growing discontent with the inability of the US government to generate enough jobs to meet the expectations of its citizens," Parekh said.

The reality is that US companies have become too dependent on the high-quality, low-cost technology support that Indian companies offer. A recent Gartner survey also found that up to 85 percent of companies expect to maintain or increase their spending on outsourcing services.

"In today's post-recession scenario, companies have become extremely vigilant about how they utilize their limited resources," says Deepak Hasija, who runs an IT firm in Mumbai and was formerly with Wipro. "Outsourcing has the potential to do more for less, by more efficiently leveraging resources. And till such time that the US industry can come up with a more viable business model, such services will remain a fixture of the US business scenario despite political interference."

Hasija's view is corroborated by Forrester Research, which expects 2011 global business and government spending for IT outsourcing to top last year's US$254 billion. The Indian portion of that total in 2010 was nearly $64 billion. Analysts forecast that given the current market dynamics, India's share will see a quantum leap, protectionism or not.

Neeta Lal is a New Delhi-based senior journalist contactable at neetalal@hotmail.com