Would stringent and costly H-1B visa regulations in the U.S. steer American clients of technology services to send more work to India? Logically, if it costs more to keep a job in the U.S., moving more jobs to India to keep a lid on costs could be a natural consequence. It is not yet in evidence, however, and could take a while to show up if it happens.
“The hypothesis that offshoring could increase is not wrong; but there are some nuances to it,” said Siddharth Pai, a technology consultant who has advised on more than $20 billion of outsourcing deals, and now works as advisor to CEOs, investors and boards. Cost-cutting is prevalent among clients of technology services, he said. “There is hesitation [among clients] to make decisions. The offshore-onsite mix is changing for the same amount of work.”
“Now, there is a move to automate certain pieces of work that occur in the U.S. Without offshoring necessarily increasing, the mix is changing to 90:10 due to automation,” Mr. Pai said. This compares with the rule of thumb of 80:20.
‘Poaching to begin’
Nasscom, the industry’s apex body, has said that Indian IT services firms are unable to find critical skills (referred to as STEM – or Science, Technology, Engineering and Mathematics – skills) in the U.S. “In the absence of new talent with STEM skills, Indian companies will start poaching green card holders and citizens from each other in the U.S.,” Mr. Pai said.
Even if clients want to send jobs offshore, there are some that just have to be located in the U.S. “That offshoring may increase is not a natural consequence of visa curbs in the U.S.,” said S. Mahalingam, former CFO of TCS and director at Kasturi & Sons, the publishers of The Hindu . “Some kinds of jobs such as production support may be outsourced. Others, like programme manager, technical architect or a specialist have to be onsite.”
Further, with the need for digital technologies (related to mobile, cloud, social or data analytics) increasing among U.S. clients, and the stress on automating mundane tasks, visa curbs are not the only issue that IT vendors have to deal with. “Three or four things are happening simultaneously. There is little visibilty,” said Rostow Ravanan, CEO of Mindtree, a mid-sized IT services firm.
Mr. Ravanan categorises projects into ‘run the business’ and ‘change the business’ for clients. “For the former, there is severe price pressure. Automation is key.” In projects that aim to ‘change the business’ for clients, onsite presence is required. “Since it is transformation kind of work, you need to be close to the client. There is need for more people to be onsite, especially in the first 1-2 years.”
With protectionist noises also being made, decision-making is delayed due to uncertainty among clients. “Volume [of business] is affected,” said Mr. Ravanan.
Protectionist noises could also have a long-term impact. “An H-1B onsite resource typically comes back to India and helps grow the offshore team,” said Mr. Mahalingam. With a local being recruited, “the transfer of knowledge does not happen. So, the ability of the vendor to offshore more declines.”
Mr. Pai is not as sceptical about the prospects for offshoring. “What Indian IT firms need to do is follow the example of Japanese car companies,” said Mr. Pai. “Japanese manufacturers faced flak for exporting cars to the U.S. but not creating jobs there.” This led to setting up of factories by these firms. “This did create local jobs, but how many, is the question.”
Indian IT firms, he said, will localise but more to cater to perception issues. He exhorted Indian firms to up the ante on public relations. “Japanese firms spent significant amounts of time and money in lobbying and in PR, to create the impression of doing their best for the local economy. Indian IT firms should do the same.”
For Mindtree, the digital opportunity is throwing more business its way. “The digital business, constituting 40% of total revenues, is growing at twice the rate as our overall business. Deal sizes in digital are twice as much now versus two years ago.” Sales cycles have lengthened in some cases, but that is of little concern, said Mr. Ravanan. “Unlike the traditional business, decisions on digital are not based purely on cost,” he reasoned.
Employee impact
The impact of these developments on staff addition is unavoidable. IT firms have hotly denied reports of large layoffs. “We have seen the end of the factory model where an IT firm makes, say, 1,000 offers in a single campus,” said Mr. Pai.
He also highlighted that those who did not add value would find their jobs in jeopardy. “If they do some really mundane kind of work or are merely pushing emails from the client to the development team, it would be hard to retain them.”
However, he said doomsday predictions of 5-6 lakh jobs being lost in the IT industry over next two years or so are far-fetched.
“There won’t be a sharp drop in recruitment growth but there would be a steady decline.”
