Hiring Americans can strain margins of IT firms operating in US
Almost two years ago, in an interview with Business Standard, the then CEO & MD of Infosys, Kris Gopalakrishnan, who is currently the co-chairman of the Bangalore-based company, had said that the company was contemplating engaging in ‘extreme offshoring' — in essence, conducting 95 per cent of Infosys’ overall projects outside the US, to reduce dependency on H-1B (non-immigrant work visa) and L1 (intra-company transfers of employees to the US from other locations) visas.
While Infosys never got around to doing this, it probably wishes it did. The recent proposal by the US Department of the Labour (DOL) to introduce new conditions in the labour condition application (LCA) is a big blow to the industry at a time when it was paradoxically expecting simplification of the visa regime that has got more stringent over the years. One of the proposed conditions, for instance, is that employers will have to disclose the names and locations of the clients hiring their workers, which will put them in automatic violation of non-disclosure agreements that are the norm in any contract.
Normally, rhetoric against outsourcing has been a staple of election years in the US. Yet, the current proposal to tighten LCA rules further has shown that the proposed policy is beyond mere posturing. And, if it passes muster, almost every Indian IT services player stands to be adversely affected.
Yet, no one should be too surprised. In some ways, the current LCA proposal is simply the latest in a trajectory of stringent decisions targeting Indian IT. In 2010, the US had increased the application fee of both H-1B and L-1 visas from $2,300 to $4,300. Moreover, according to industry body Nasscom, in last 18 months, the visa rejection rate, mostly of L1 visas, has gone up substantially. According to industry estimates, denial rate of L-1 visa petitions from India, 2.8 per cent in 2008, went up to 27 per cent in FY11 and is estimated to have gone up to 40-50 per cent in the current year.
Adapt or perish
A high rejection rate has meant that companies are now forced to file for a much higher number of visas than they would have otherwise — which, in turn, jacks up their costs. It also means a far greater degree of groundwork for projects there, sometimes years in advance. “It requires enormous planning in terms of how we assemble the right things for a project,” says N Chandrasekaran, CEO & MD of TCS, also the chairman of Nasscom.
But there’s a more significant after-effect. "Indian IT services companies are doing more local hiring. They are hiring green card holders, American citizens of Indian origins, or even local Americans,” says Kris Lakshmikanth, CEO and MD of HR consulting firm Headhunters India. “They are also hiring a lot of people locally on contracts from independent subcontractors who are available in plenty in the US," he adds.
The end result? Infosys' subcontracting costs have doubled to three per cent of its revenue in the first quarter of 2012-13, rumoured to be the highest. Similarly, TCS’s subcontracting cost has gone up from almost three per cent last year to five per cent last quarter.
This effort — to increase Americans in their US workforce — includes boosting campus hiring, as well as setting up newer delivery and training centres. Most of these companies also have set up dedicated HR and recruitment teams in the US. Infosys, for example, has deputed its senior VP and group HR, Nandita Gurjar, to the US to energise its local recruitment drive. The company has also created the position of HR head for the Americas region and has appointed Lisa Kidd, a former director of HR at Hewlett-Packard, to that role.
Wipro, which already employs a vast majority of local Americans in its development centre in Atlanta, has announced that 50 per cent of its onsite workforce will comprise local citizens. HCL Technologies, which has announced a workforce of 10,000 in the US and Europe by 2015, has strengthened its HR and recruitment team in the US with new leaders in place. The company is also deepening its relationship with the US campuses and conceptualising internship programmes to gain visibility. “Our focus is to strengthen our relationship with the universities, so they know more about us,” says Prithvi Shergill, chief human resources officer, HCL Technologies.
Ultimately, none of this is good news for the companies’ bottom lines — which were impacted by as much as 50 basis points, according to analysts, when the visa fees went up. Now, hiring Americans promises to further strain the margins of IT services firms operating in the US, altering the economics of their business for a long time to come.
(With inputs from Pradeesh Chandran)
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