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Immigration Reform Bill Could Aid Indian Outsourcers

30 May 2013

Immigration reform legislation before Congress may provide an incentive for Indian firms to increase their investment and strengthen their permanent presence in the U.S. market, according to research and consultancy firm Information Services Group (ISG) (www.isg-one.com). The H1-B and L-1 Visa Reform Act of 2013 – a component of the Comprehensive Immigration Reform Act of 2013 – is designed to make it more difficult and costly for Indian IT firms to bring in workers to the U.S. on temporary visas, while easing restrictions on U.S. firms using those resources by increasing the annual cap on visas.

"Over the short term, the legislation would likely have a negative impact on Indian-heritage IT companies and give a competitive edge to U.S. firms," said Sid Pai, partner and president, ISG Asia Pacific. "Over the long term, however, the provisions could encourage Indian firms to expand their U.S. presence. Specifically, to avoid the provisions of the bill, Indian companies may step up local hiring and focus on acquisitions of U.S.-based companies."

H1-B visas are commonly used by U.S. high-tech companies to recruit foreign talent. The visas are intended to fill highly-specialized jobs that can’t be filled by U.S. workers. Opponents of the program say the visas are used to replace high-salaried U.S. workers with low-wage employees; proponents of H1-B say an influx of educated foreign workers drives innovation. The U.S. government puts a cap on the number of visas that are awarded every year.

Sponsored by Senators Dick Durbin and Chuck Grassley, the reform act's key proposals include:

  • A requirement that, to be eligible for H1-B visas, a firm must employ local hires for at least 25 percent of its workforce, progressively increasing to 50 percent. According to industry estimates, between 50 percent and 80 percent of U.S.-based employees of Indian-heritage companies are on H1-B or L1 visas.
  • Higher fees for H1-B visa applications.
  • An increase in the cap on the number of H1-B visas to 110,000 from the current 65,000.

The bill is supported by U.S. service providers and businesses, and opposed by Indian firms and the Indian government, that argue it is protectionist.

ISG research shows that Indian IT service providers grew at a combined annual growth rate of 32 percent between 2005 and 2008 compared with just 7 percent for Western outsourcers. To build on this growth, many analysts believe the major Indian service providers will need to expand their presence in their consuming geographies and become more visible local employers in the U.S. and Europe.

"If passed, this legislation could provide the impetus the Indian IT companies need to tweak their existing business models and become more global," Pai said. "It could therefore have the unintended consequence of making the Indian firms stronger competitors in the U.S. market."



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