Immigration Bill, Are You Really Prepared

Last month I was in the US aiming a direct communication with some of the top Offshore Buyers. About 60 odd representatives participated in this debate belonging to fortune 200 firms that bring business to Indian IT. What interested me most was the talk that went around Immigration Reform much more than anything else. This gave enough motivation for me to write a piece on what really has made Immigration reform a much appalling subject on either side of the seas.

What does the Reform Really Say? (And Mean)

Provisioning, or well not-so-provisioning, the reform speaks of three significant takeaways viz:

  • Limiting the proportion of H-1B/L-1 Visa workers to 50% to that of US employees
    -Our estimations show that current visa workers account to 60%-75% of that of US employees, clearly a big number that will either downsize a firm or expand it considerably
  • Modify the computation of prevailing wage benchmarks, along with this, increase application fees for H-1B and L-1 Visas
    -This clause will severely affect margins and hence the billing rate as I see a very likelihood of Indian firms re-strategizing around this
  • Limit outplacements on H-1Bs if they exceed 15% of total workforce
    -This would infer that offshore centric firms with an estimated 35%-60% of their US workforce would not be able to place their workers at client site
  • Going by the clauses, it is clear that this will have a chain reaction that will engulf both the buyers and the vendors. An interesting point to note here is that both the buyer and vendor will have to re-strategize till they completely adapt to this reform. Also note the deadline: FY17, Starting Oct 2016!

How will the Reform Impact Provider

Before explaining the scene let me do a walk through with an example of a leading IT service provider in India. TCS employs about 27000 staff in US of which 9000 of the population are US Citizens and Green card holders, the remaining approx 18000 are H-1Bs and L-1 combined. Should the bill gets passed in 2017, TCS’ US staff size would be estimated 35000-36000. This means it will need 18000 US citizens which includes 9000-10000 new recruits. This doesn’t stop here; TCS will have to stop issuing any H-1Bs in coming two years. Clearly a huge hit, as constraints like talent acquisition, billing rates, margin pressures and similar others are bound to affect its operations onsite.

On generic note, the provider community is likely to get face-to-face with two major setbacks:

Firstly: Local hires, as it seems the option for the situation, will cash-up more on wage costs. Though not to tag a notorious, but still onsite-local-crew will bring inflexibility in governance which not only lead to miss-management, but also underutilization of resources.

Secondly: The wage benchmark will get surpassed which means providers will have to pay more for US-based staff, not to forget the ‘visa’ price hike. Thus will be a huge blow to cost margins, as clear as a crystal, the cost of onsite placement will notch-up significantly.

On a broad spectrum, the business model established over years of iterations would need a serious over-haul. And the hike in ‘visa’ fees will only accentuate on-site deployment cost. It will be a rather hap-hazard race to maintain margins.

Will it Really Stir Discomfort Among the Vendors?

Desperate times may need desperate measures. But from where I see, there are a couple of options that vendors will look for.  Let’s analyze couple of options that vendors would/might/will retaliate:

Option Method Success Possibility
1 Vaguely termed as ‘use your connections’, try to leverage industry association to induce Law Makers for some leniency This will be a huge minority as one can expect a limited support from buyers to Indians in this scenario
2 Leverage your clients to support you especially in the outplacement clause; as they will equally be burned entities from the reform This might be a rare scenarios and we are expecting a them to go against the bill moreover against the Government, which would not succeed either
3 Seemingly inapproachable, but possibly taking help of Indian Government to intervene Well, this will lead to a geo-political negotiations and success will purely depend upon how Indian agencies open up sectors like Retail for US firms
4 As briefly mentioned earlier, firms can opt for some large scale acquisition ranging from $200M to $500M for 2000-3000 local head count It will definitely be a big leap but will bring in much awaited growth. So expect onshore Mergers and Acquisitions to go up
5 Make your onshore employees green card holders This may get started an time sooner

It does seem a tough road ahead but adopting the right option can undoubtedly scale-up the business effectively. Growth seems certain but will involve a greater risk to be tackled in a smart way.

But Is the Bill Really Feasible?

Throughout the talk we see both the parties viz the buyer and the provider might be equally wounded. On one hand vendor evaluation on local grounds will increase – notching up cost of services to buyers. While on the other, providers will be under heavy limitations and that only means a lower margin or in a worst case scenario, loss of important pipeline in near future. Let me just elaborate this further with two scenarios that will get you a clear idea on the feasibility of this reform.

Scenario one: Comply with the Bill

Expecting service buyers to continue working with existing Indian suppliers will not only put pressure on the billing rate but will also hamper margins significantly.  Why so, for every H-1B/L-1 work permit a firm adds, it has to recruit a local counterpart. With 3.5% Tech Unemployment and limited number of comp science graduates, it is really difficult to meet the industry demands. One may say the 3.5% may fulfill much of demand, but what should also be focused that skill set pool is diverse and hence cherry-picking select talent will again create a huge void to fill. And even though 2 years until 2017 still the gap will significantly be difficult to bridge.

Scenario two: Clients change their model & leverage local US firms

In this scenario MNCs based out of US will have significant advantage as resource base will be abundant.

How Will Clients React?

I see the situation seem equally turbulent for clients as we see for vendors. The big picture now seems that they aren’t much aware about the IT function as much as they are aware of its clauses. Hence it’s more of likelihood that they will sort help of legal counselors, CFOs and sourcing heads in this situation. The current projects due completion before the trigger dates will go on unfazed but decision about long term and large project would lag behind. Thus they are likely to adopt one of the following approaches

  Approach Possible Outcome
1 Call in vendors and ask them their strategy details in times of passage of reform Almost every client has considerable amount of awareness, hence validating provider on their strategy along with risk by finding out how many each firm has people on work permits
2 Just Wait and Watch Nearly 30% of clients are still clueless about their next foot, hence are dormant at this point
3 Consider In-sourcing Nearly 10-15% of folks I interacted with, showed inclination towards in-sourcing. But I believe that firms will face local recruitment crunch killing this initiative shortly after inception
4 Support service providers in tackling the situation However Unlikely that top firms would go against the bill but they could have some back room discussion.
5 Review possibility of leveraging local IT service firms Though not actively  explored today, might become a key option if the bill gets passed as is.


It’s however interesting to note that neither US firms (buyers) nor the service providers are sure about their next move, but as time is moving fast, there is much likely hood of dramatic changes in the strategy of both the parties. M&A might go high in number, Indian firms will start hunting for acquiring US based firms or will start campus drives in colleges across US and similar other activities.

But Then, A Word of Caution:

I have been asked on several occasions about the severity of impact that this reform might generate. But all that boils down to few simple yet tricky questions. The impact is however governed by parameters like available recruitable talent pool in US, cost margins, billing rates & negotiations, flexibility in project management, project size, current visa holders, such food for thoughts will definitely be taken into consideration. So keeping this thought in mind few questions that firms have to answer are:

  • Will there be some part of clause that will be relaxed? Especially outplacement clause
  • Will the Congress pass the bill As Is? Or it gets rejected opening up next round of process giving Indian providers much time to think?
  • Are these clauses are truly feasible? Is there enough employable staff locally?
  • If Indian firms do not comply with the bill, what will be its impact on end user clients?


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