It will not be easy for Indian Indian information technology services companies to overcome the difficulties they are likely to face once the proposed US Bill on H1-B visa restrictions becomes a law. Infosys co-founder NR Narayana Murthy's suggestion that Indian companies should start hiring local hands as a solution may not be a workable one.
US president Donald Trump, in an attempt to fulfill his poll promise of providing more jobs to Americans, has proposed a Bill that increases the minimum salaries of H1-B employees to $130,000. The Bill is likely to increase the cost of the Indian IT firms, which derive 62 percent of their revenue from the US and send many Indian staff on this visa to the US for working offsite.
Murthy in an interview told NDTV that Indian software companies need to stop sending people on H1-B visas and focus on local hiring in the US.
"They (Indian software companies) must recruit American residents in the US, Canadians in Canada, British people in Britain etc. That's the only way, we can become a true multi-national company and in order to do that, we should stop using H1-B visas and sending a large number of Indians to those countries to deliver services," he said.
"I think by and large, the Indian mindset is always to take the soft option. Becoming multi-cultural is a very, very hard option, it's not easy," he added.
Coming from the pioneer of the IT sector, the comments are significant. However, most experts Firstpost spoke to did not endorse his views. According to them, it is not right to say use of H1-B visas by Indian companies is a 'soft option'. One of them even felt that it is a bit ironical for Murthy to say this.
Indian companies including Tata Consultancy Services (TCS), Infosys and Wipro Staff account for around 86,000 new H1-B workers in 2005-14, according to a Reuters report. The US currently issues close to that number of H1-B visas each year. These three firms have long used H1-B skilled worker visas to fly computer engineers to the US, their largest overseas market, temporarily to service clients.
What Trump is suggesting is an increase in minimum salaries and Indian companies can do that, says Dilkash Tasneem, Head, Global Mobility and Immigration, Thoughtworks India - a software delivery and design firm.
"When we do salary fitment at Thoughtworks in the US, we match it with the peer group in the US. We match whatever our locals US employees get paid with our Indian employees in the US in terms of experience and grade. And this is a policy we follow in any of the countries globally that we are located in," she said.
Need to hire Indians
What US President Trump is saying through a bill about hiring locals and raising salaries for hiring from outside is a problem which doesn't have an easy solution that can be effected through hiring locals. “Local hiring will be good provided these skills exist in the first place,” says Sanchit Vir Gogia - CEO, Greyhound Research.
“The dependency of US organisations on H1-B is very high. You cannot call Indian companies names simply because the US companies too are benefitting from Indian companies and their Indian employees working on US soil,” he said.
A Nasscom report says that the industry pays equal wages to US nationals as well as Indians on H1-B visas. For instance, in 2013, while a US citizen was paid about $81,447 a year, an H1-B visa holder was paid $81,022, with an additional $15,000 on visa and ticket costs for the individual and his spouse/family. US companies hire from India simply because a large number of job openings with requirement of STEM skills (science, technology, engineering and math) are not filled. The report states it is this talent shortage that makes the US companies hire from India.
One of the reasons Indian companies do not hire locally in the US is cultural. Indians are willing to work late hours and can be contacted on phone or the internet. In the US, the work culture is such that employees largely do not respond to calls or mails after office hours and weekends, too. The IT services companies in India are known for long working hours, much beyond the nine-hour shift. So they may find it difficult to adjust to the work culture of the US.
The time zones in which India and US work make it difficult for an Indian Vice President, for instance, to contact his US counterpart in the Indian time zone. It might be early dawn or a little later in the US when establishing contact through phone is not possible and also a time when a white American will not take that call but an Indian would. This renders co-ordination difficult.
These are issues not exclusive to Indian IT firms in the US but also other global IT firms which prefer to bring their own nationals to work there.
India churns out a large number of engineering graduates unlike the US where college education costs are very expensive. However, it is also true that most of our graduates are not employable and have to be trained which is what Infosys, Wipro and other IT firms in India do.
"Indian companies have the expertise to take raw material and make it useful. They have been doing this in India for Indian graduates and can do it in American soil too. That is no big challenge though that will incur costs,” says Kris Laxmikanth, Chairman & Managing Director at The Head Hunters India; and visiting faculty, Institute of Management, Ranchi.
Make US rule beneficial to IT firms, too
Companies like Infosys, however, have been hiring locally in a 'small’ way, said Laxmikanth. “What the US administration is suggesting now has to be mutually beneficial for the US and Indian IT firms too. The US cannot dictate to Indian firm through a rule of law to hire locally without mentioning the minimum number to be hired. Besides, they must also facilitate Indian companies with incentives for real estate to set up offices and with policies that make it win-win for both sides,” he said.
The cost of change in rules in the US will affect bottomlines of Indian IT firms. IT services providers will face a slew of issues from an expected shaving off of margins anywhere in the range of 5-10 percent year-on-year with cost and complexity of doing business increasing, according to a joint research paper by Greyhound Research's Gogia and Anshoo Nandwaani - VP, Principal Analyst.
Given the increased pressure and scrutiny of US-headquartered organisations on outsourcing, the IT services providers can expect requests from clients to renegotiate existing contracts. This might well mean smaller and more expensive contracts (on the back of increased cost of delivery) here on. Besides the looming uncertainty in the US on regulations which will take the next few months to become a rule, IT firms can expect delayed decision-making and hence even longer sales cycles, the research paper said.
All this will mean re-evaluating the business model. Malay Shah, Senior Director with Alvarez & Marsal (professional services firm) says that “Indian IT companies will need to evaluate changes to service delivery model, cost structure, and their investments to increase diversification into platforms, local hiring and markets."
The Indian IT story is not just about a few top IT firms in the US aggressive pushing the envelope. It requires government intervention, points out Gogia. It is the Brand India story that has to be emphasized and brought into focus in the US. It is time then for PM Modi to talk to President Trump and bring about a solution for Indian IT firms.
Published Date: Feb 03, 2017 02:47 pm | Updated Date: Feb 03, 2017 02:47 pm