Trump's H-1B visa shock: IT deals likely to be revised after new rules

Information technology deals, that are in the process of getting signed or will be up for renewal next year, are likely to be renegotiated as the US unprecedentedly hiked the H-1B visa fees to $100,000 from next year in a huge blow to India’s flagship export industry.

 

Experts say that such prohibitive costs may force IT services companies to keep their prospective visa employees in India. On the other hand, they will have to step up their near-shore contingencies in Canada and Mexico and fast-track plans to hire more in the US, both will add on to their cost and impact their already-pressured margins.

 

Deals worth about $20 billion were up for renewal this year, Business Standard reported in March. Some of the major deals still to be closed include TCS’ deal with Star Alliance and Nielsen, Infosys’ with Daimler and GE Appliances, Wipro’s with German energy company E.ON and Brazil’s Petrobras and HCL’s with Chesnara.

 

Gaurav Parab, principal research analyst at NelsonHall, an industry research firm, said he expects a complete withdrawal of H-1B visa applications by IT firms from March next year, which means for upcoming contracts, the resource mix will have very few people travelling from India on H1B.

 

“Such resources onsite, have a higher billing rate than those on-shore in India. So those roles, and some of them are important and need client intimacy or access to client locations, will now be staffed by either consultants or we will have those who are already onsite to take them over. So renegotiation will definitely happen and when you combine that with AI based efficiencies there will be pressure on revenues,” he explained.

 

Margins of such companies are already under pressure because most deals involve improving efficiency and lowering cost – an already crowded area. Add to it the impact of artificial intelligence (AI) and Gen AI, tools used by service providers to bring about those improvements and passing on some of those benefits to clients and the situation becomes a double whammy.

 

Gaurav Vasu, founder of UnearthInsight, estimates that if contracts are renegotiated, it will impact margins of the larger players by 30 to 50 basis points and 100-300 basis points for mid-tier players. “Onsite, offshore mix will definitely change more towards outsourcing and price impact will be passed onto IT services vendors,” he said.

 

On the other hand, such a black swan event may benefit incumbents because clients may prefer to extend current work than rebid which will ensure that no new H-1Bs are needed.

 

“But if they want to have newer scope, they would push for more offshoring and therefore, reduction in costs. On the other hand, providers too would be pushing for this model. But for resources which must be added on H1B for client work, that will require price renegotiation. Providers will want an uptick to absorb costs but buyers would want them to absorb,” said Yugal Joshi, partner at Everest Group.

 

The challenge, thus lies more with the mid-cap players and their soaring growth over the last few years could be challenged in the coming years.

 

“The IT services giants will swallow much of the cost for platform-critical roles, but mid-tiers simply cannot and urgently need to evolve their delivery models. Writing seven-figure checks for visa entries is not a strategy; it is a slow bleed. Both large and mid-sized providers must rebalance toward nearshore and remote delivery, but survival will hinge on converting spend into US talent pipelines and embedding AI into productized services,” said Phil Fersht, founder and CEO of HfS Research.