H1B Visa issue: Measures to restrict movement of IT professionals will hurt Indian & American companies

Rhetoric around outsourcing in the technology and services sectors has been integral to American political discourse since the global rise of the Indian information technology sector at the turn of the century. In 2004, Democratic Presidential candidate John Kerry as well as then Republican President George W Bush had made statements against shipping of jobs to locations like India. It was Barack Obama, as Democratic nominee in 2008, who flagged the issue by famously promising to “stop giving tax breaks to (American) companies that ship jobs overseas”, and to provide tax breaks to “companies that create good jobs right here in America.” In between, there were several federal and state bills seeking to cap H1B visas and impose other such measures targeted at foreign companies. It is no wonder that American tech giants like Microsoft and Indian industry associations are known to spend millions of dollars in lobbying Capitol Hill to ward off any potential threat to movement of professionals between the two countries such as visa caps. But this time around, political rhetoric seems to be turning into executive action, going by the reports from Washington. That is why alarm bells are ringing in both the Silicon Valley in California and the Silicon Plateau in Bengaluru.

The global technology business is based on labour arbitrage. For a long time, Indian technology business depended on what is known as ‘body shopping’ model under which software and service companies hired engineers and technicians in India, and sent them to America where they worked on projects of local clients. As Americans got familiar with skills of Indian engineers – and data communication facilities became affordable in the 1990s– Indian firms started working on projects from software factories located in India. In order to further capitalise cheap labour and skills, many American services and technology companies began operations in India. Instead of deploying Indian workers in America through Indian companies, they moved to India. As a result, firms like Accenture and IBM employ thousands of workers in their facilities in India to work for third-party companies in America and elsewhere. In the next logical step, American firms started doing high-end work such as product development and engineering services as well.

Any executive or legal step to restrict movement of professionals is going to adversely hit Indian and American companies equally. If American corporations are forced to abandon cheap outsourced technology workers and hire locals at higher salaries or are prevented from hiring locals in offshore locations, their margins will take a hit and consumers may end up paying a higher price for services and products. The onslaught on outsourcing does not augur well for the American economy as a whole. Consulting firm McKinsey had calculated a few years ago that for every dollar spent on outsourcing, American economy gets $1.12 to $1.14 in return.

For the Indian IT industry, the impact could be much greater because of the timing of the Trump presidency. It has come when the industry is already passing through turbulent times. The full impact of Brexit on business is still unfolding. Traditional software and services model is facing new challenges in the form of social, mobile, analytics and cloud-based technologies dubbed collectively as SMAC. Automation of routine work, which was previously done by human engineers, is yet another blob on the radar. Top software firms are reporting lower profits and have had to scale down hiring in the past two-three quarters. Now with brewing visa troubles, the biggest asset of the Indian IT industry – human capital – is all set to add to the woes. Even if the actual impact of visa restrictions is going to be limited – as claimed by some in the industry – living under clouds of uncertainty will take a higher toll.

The Indian tech business should use the opportunity to rethink its cheap labour-based delivery model and move to enhance productivity of its workers, spend on research and innovation, take to product development, and of course, look beyond America.

Dinesh C Sharma is New
Delhi-based columnist and author of ‘The Outsourcer: The Story of India’s IT Revolution’ published by MIT Press.