On June 27, 2013 the US based consulting firms Accenture, Deloitte, and IBM’s profit forecasts were nudged, while the forecasts for off-shore firms like Infosys and Wipro took a major hit. This was the day that the Senate passed the Border Security, Economic Opportunity, and Immigration Modernization Act of 2013 (a whopping 1200 pages). If passed by the House of Representatives and signed by the President, this bill would wreak havoc on the India based outsourcing firms, create enormous opportunities for US based firms, and likely result in higher cost for outsourcing for US based customers.
The form of the bill that passed senate would have a dramatic impact on H-1B visa holders. In the consulting world, H1-B visa holders are the employees of firms that are located in the US. For Accenture, Deloitte, and IBM, customers might see a different rate card for these “off-shore / on-shore” resources. For companies like Wipro and Infosys, these tend to be the core of the employee base in the US.
It is important to understand 5 crucial points in the H1-B visa bill:
1. The annual cap of H1-B visas would triple from 65,000 to a maximum of 180,000. While on the surface this would appear to be a good thing for companies like Wipro and Infosys, it will be the other 4 points that will flip this from a positive to a negative.
2. The bill would prohibit companies that have more than 15% of their US employees on H1-B visas from placing these associates at other locations other than their own offices. When you combine this with point 1, it does not make sense to bring over more associates if you cannot place them at customer sites. For Accenture, it means that they can grow the off-shore / on-shore operations given the large current US base of employees.
3. Caps will be put in place as to the number of employees a company can have in the US on H-1B visas. In 2015 the cap would be 75% and decrease to 50% in 2017. This will put the pressure on Off-shore firms to hire more US citizens driving increased competition for jobs and hence higher wage rates. For customers of these firms, this means higher prices.
4. Higher wage requirements for H1-B workers. Companies would be required to pay workers 100% of the average prevailing wages as determined by the Department of Labor. It is estimated that this would raise the average prevailing cost of a worker by 5-15%. Once again, this means a slash in profits for Wipro and Infosys, or they must pass these increases on to customers.
5. Application fees would be increased for employers with H1-B and L-1 visa holders in excess of 30% of their workforce. Average rates for application will more than double for some companies to an average of $5000 per application. These cost increases will need to be absorbed or passed on to customers.
Summing it all up, while this bill is great for US citizens in the IT industry, it will significantly reduce the competitiveness of the India based consulting firms and increase the pricing power of companies like Accenture, IBM and Deloitte.
This bill will have some serious lobbying against it as it is brought for vote in the House. But with the growing consensus regarding immigration reform, this is something that CIOs need to keep a close eye on as it relates to cost control. Customers of all outsource firms should consider:
- Compromising on short term rate increases in favor of longer term rate locks with all system integrator consulting firms.
- Improving the overall skill sets of their own associates to utilize collaborative technologies that will increase the enablement of truly off-shore workforce.
- Consider the possibility of real estate arrangements with Indian based outsourcers that would allow them to lease property in the customer’s location and possibly exploit a potential loop hole in point 2 from above.
The one thing that is for certain, if this bill passes, the cost pressures on CIOs will increase.