It will see domestic IT firms hiring more Americans, increasing offshoring, automating low-end jobs to save margins; It will crimp their margins by 2%-3%.
US President Donald Trump's administration tightening the H-1B visa programme rules on Tuesday is likely to push domestic information technology (IT) services firms to hire more Americarease offshoring and automate low-end jobs as they try to protect their margins while adapting to the new US immigration regime.
Trump Tuesday signed an executive order for making the H-1B visa programme more stringent to stop "visa abuses".
"Right now, widespread abuse in our immigration system is allowing American workers of all backgrounds to be replaced by workers brought in from other countries to fill the same job for, sometimes, less pay. This will stop," the US president said while signing the order.
Anirbhan Gupta, industry leader, technology practice, global HR consultancy firm Aon Hewitt, said Indian tech companies such as Infosys, TCS, Wipro and others had already started tweaking their business models based on hints they had picked from the commentary coming from various US government agencies.
"Some of them (IT firms) had started their journey some years ago. They wanted to be seen less as job snatchers and more as multinational organisations. This (executive order) reinforces the decision. They (IT firms) are saying we'll have to increase our US footprint by hiring more people there (US)," he said.
Currently, most firms have an onsite-offsite employee ratio of 20:80, which contribute a 50:50 wage bill for the mix. This means that onsite techie is paid two and a half times of what an offsite resource costs.
Gupta said, hypothetically, if Indian IT firms doubled their onsite ratio to 60:40 mix, it could potentially crimp margins by 2%-3%.
"So, if you increase your staff mix with more onsite workers, your wage bill will increase and hit your margins. Today, IT business is not in a place where pricing can go up. Therefore, increase is human resource costs have to come at the cost of margin," said Gupta.
Another eventuality of different geographies clamping visa rules to protect jobs in their countries could be higher level offshoring, instead to near-shore or onshore execution of projects.
"If Europe also implements similar rules, it could drive greater offshoring. Today, IT firms are putting people onsite because the overseas clients want it. But does the client want proximity at a higher cost? This could actually push more jobs outside," said Aon Hewitt's technology expert.
He said this could happen because there is an acute shortage of engineers, science and technology executives in the US. According to him, even the small percentage of American techies that are available do not want to do the transactional jobs that IT services companies have as majority of their jobs.
Gupta also expects the change in immigration laws across the globe to spur atomisation in low-end jobs in the IT services sector.
"There is also the entire wave of automation that is coming which will replace the low level jobs. Trump's action, in isolation, may mean bad news but in combination with automation, it could see IT services companies automating many of the transactional jobs that could actually improve their margins," he said.
According to the US Labour Department, the H-1B visa that is an employment-based, non-immigrant visa for temporary workers, the three occupations that account for a large part of it are computer systems analysts, application software developers and computer programmers.
The Trump administration has noted that many of the jobs performed by H-1B visa holders would be filled by Americans and that computer programmer may not to qualify as specialist.
The order inked by Trump will not change the current rules but will attempt to replace the existing lottery system with merit-based one, restricting visas to highly skilled professionals.
There is also expectation of doubling of the minimum salary of H-1B visa holders to $130,000.
WAGE IMPACT
- Most companies have an onsite-offsite employee ratio of 20:80, which contribute a 50:50 wage bill for the mix
- The onsite techie is paid two-and-a-half times the salary of that an offsite one
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