Outsourcing worries

The Trump administration’s move to restrict the entry of skilled workers into the U.S. is worrying Indian IT majors at a time when they are reeling under the pressure of lower margins, tardy growth in revenues, and a slowdown in business.

Inside the campus of an IT services company in Bengaluru. Increasing the floor income level for H-1B visas will take away one of the main advantages BPO companies enjoy.

The old bogey of limiting the entry of highly skilled professionals into the U.S. is back again, this time fuelled by fears that Donald Trump would set in place barriers to their entry. The Indian software services industry, dependent to a large extent on the H-1B visa which allows foreign nationals to work in the U.S., is worried that barriers to entry would increase their costs and make their operations unviable. This fear comes at a time when they are reeling under the pressure of lower margins, tardy growth in revenues and a general slowdown in business that has been characteristic of its performance since the global economic meltdown in 2009.

While the move to amend U.S. legislation that allows “guest” workers to work on a temporary basis has been an existential threat for Indian companies for more than a decade, there is greater anxiety now because it comes in the wake of Trump’s bugle call to put “America First”. Although the immediate fears of Trump issuing an executive order to provide legal firepower to such a move have abated, the industry remains nervous. The leadership of its main lobbying organisation, the National Association of Software and Services Companies (NASSCOM), plans to visit the U.S. soon to discuss the matter with the U.S. authorities and business partners.

The High-Skilled Integrity and Fairness Act of 2017, which was introduced by U.S. Congress woman Zoe Lofgren in Congress, sets a pathway to a “market-based” allocation of visas to companies that are willing to pay 200 per cent of a wage calculated by survey, eliminates the category of lowest pay, and raises the salary level at which an H-1B dependent employer is exempt from non-displacement and recruitment attestation requirements to a floor level of about $132,000 for Computer and Mathematical Occupations published by the U.S. Department of Labour Occupational Employment Statistics. The proposed legislation also removes the need for fresh legislation to review the wage level in the future. It also does away with the quota system that is currently used so that smaller companies and start-ups can also access talent using the H-1B visa route.

Incidentally, this floor, which was set in 1989, is currently at $60,000. In 2016, according to a recent analyst report, Indian IT services companies paid an average of about $75,000, implying that if the new legislation goes through, the wage bill of these companies for this class of workers temporarily resident in the U.S. would have to increase by almost 75 per cent.

For a level playing field

Zoe Lofgren claims that her proposal encourages companies that are willing to pay more for bringing foreign workers into the U.S. While ensuring the availability of talent from a global pool, it would “remove incentives for companies to undercut American wages and outsource jobs,” she claimed. Zoe Lofgren said the removal of country-specific caps on employment-based immigrant visas would ensure a global level playing field for talent coming into the U.S.

Although the Indian software services companies do not give out information on how many of their employees hold H-1B visas, U.S. media sources claim that 86 per cent of such visas in computer-related jobs, and more than 46 per cent in engineering jobs, were given to Indian citizens. Last year, there were 250,000 applicants for this class of visas.

Robotic Process Automation is a technology that is catching the fancy of upstarts who are ready to take on the outsourcing model, which has been the mainstay of the large IT services companies. The promoter of one such start-up, based in Australia, told Frontline that the idea was to use a team of robots to process the work instead of a team of offshore (or the more expensive onsite) agents as it is currently done. The problem is that the existing incumbents, who are heavily invested in the current model, may not want to cannibalise their own business by venturing into the robotic space. Although many of the top Indian IT services companies such as TCS, Infosys and Wipro claim that they are investing and expanding their business through the implementation of Artificial Intelligence (AI), it is unlikely that they would expand their footprint to such an extent that it tramples their existing lines of business. This is in line with Tim Wu’s postulate (author of The Master Switch: The Rise and Fall of Information Empires and the man who coined the term “net neutrality”) that incumbent industrial giants tend to block the entry of more open systems that emerge from technological innovation. The simple point is that if robotics and AI are going to play the highly disruptive role that outsourcing of services have played in the last three decades, it is not going to happen because of the presence of the big companies in the business.

Although the robotics model has not yet taken off, indications are that it would completely undercut the existing mainstream model that is based on cost-plus pricing; in effect, outsourcers offer to provide a service for a fee that is tied to the cost of labour and materials. By taking labour out of the equation once again, as outsourcing once did to certain classes of workers in the U.S.—robotics promises another round of cost-cutting that could leave the incumbents gutted. Since the global financial crisis of 2009, revenues and profits of the IT services majors have been growing at an anaemic pace, at least in comparison with the decade prior to that when they grew at an average annual rate of more than 20 per cent.

The opposition to the move to curtail the entry of skilled professionals has also galvanised a major part of the technology sector in the U.S. As many as 97 tech companies, among them stalwarts such as Apple, Google, Facebook and Intel, have joined hands to issue a legal challenge to Trump’s executive order banning the entry of nationals from seven countries. However, their opposition appears to rest on their fear that restraints on immigrants or any class of workers from around the world inhibits their means of recruiting the best possible talent at the least possible cost. For instance, Uber too is on the list of companies that is challenging Trump’s executive order, even as it battles taxi drivers—whether using Uber’s own service or rival traditional taxi operators—across the world, including in India.

Apple’s CEO Tim Cook, in an email to employees, referred to Trump’s executive order as “not a policy we support”. Although it indicates a first step in the resistance to Trump’s draconian stand on immigrants, it is clearly not enough. Their refusal to oppose the ban because it amounts to racism and is a frontal assault on the long tradition of immigrants’ contribution to social, economic and cultural progress in the U.S. raises the suspicion that their opposition too is founded on self-interest. The opposition appears to rest on the premise that it would be “bad for business” rather than on respect for universal values.