Business Today


twitter-logoGoutam Das | Print Edition: March 18, 2012

Between hectic parleys with customers and presentations at Nasscom's India Leadership Forum in Mumbai, Helen Huntley takes a few minutes off for some coffee and conversation. "Farmshoring is on the rise," says the Vice President of research at market intelligence firm, Gartner. Huntley, who spoke at the software lobby's flagship event, is referring to a new trend among American companies. Wary of outsourcing jobs , they have begun setting up operations outside metropolitan areas in the United States, where labour is cheaper. Milford, a suburb in Cincinnati, Ohio, is one such place. In a presidential election year, when US unemployment is still high , at over eight per cent, farmshoring is resonating well with the American public. Clearly, the sustained rhetoric against outsourcing by US leaders on both sides of the political divide is taking effect.

That political pressure, combined with a stringent visa regime, is also forcing large Indian IT firms to hire more locals. Currently, there are around 25,000 US nationals and Green Card holders working for Indian IT companies, estimates Mohandas Pai, former board member and HR chief of Infosys. That is a tiny fraction of the industry's 2.8 million workforce. But the number is set to rise - Indian companies may have to hire about 10,000 Americans every year or lose business opportunities, say industry watchers.

Tata Consultancy Services (TCS) has already begun ramping up its headcount. Since 2009, it has increased hiring in the US by 200 per cent. The firm has created 4,700 jobs thus far, of which 2,200 are short-term hires. In January, it opened a centre in Santa Clara, California, indicating that more hiring is on the way. Infosys employs about 2,000 US citizens. The majority - about 1,200 - was recruited last year. The firm is looking to hire another 1,500 in 2012, says board member V. Balakrishnan.

US President Barack Obama
US President Barack Obama

April 2009: Senators Richard Durbin and Charles Grassley introduce the 'H-1B and L-1 Visa Reform Act', seeking to limit the number of H-1B and L-1 workers in a company's workforce. It fails on the Senate floor.

May 2009: Criticising the US tax system, President Barack Obama says: "It's a tax code that says you should pay lower taxes if you create a job in Bangalore, India, than if you create one in Buffalo, New York.

Aug. 2010: Senator Charles Schumer calls Infosys a "chop shop" (a place where stolen cars are dismantled and their parts sold).

Aug. 2010: US-Mexico Border Security Bill, which seeks to finance border security through higher visa fees, passed. Visa charges rise by $2,000 per application.

Sept. 2010: Ohio Governor Ted Strickland proposes a ban on offshoring of government IT projects and other back-office work.

Sept. 2010: Nine Senators introduce 'The Creating American Jobs and End Offshoring Act'. The Bill fails.

Dec. 2011: Representatives Tim Bishop and David McKinley introduce the 'United States Call Center Worker and Consumer Protection Act'. It requires BPO agents to disclose their location and can penalise US call centres failing to report any offshoring.

Jan. 2012:
US Vice President Joe Biden calls for more "insourcing" of jobs. Imitates an Indian call centre employee's accent during a speech in New Hampshire.

The others are doing likewise. HCL Technologies has already announced plans to create 10,000 local jobs in Europe and the US over the next five years. Cognizant plans to hire people from 25 American campuses this year. Wipro does not reveal US personnel numbers, but sources within the company say it employs close to 3,000 US nationals.

In part, all this is happening because changes in the US visa regime have hit the industry hard. Many Indian employees have been denied L-1 and H-1B visas. L-1 visas are used to transfer employees with 'specialised knowledge' into the US while H-1Bs are used to send coders on temporary projects. According to the National Foundation for American Policy, a public policy research body based in the US, denial rates for L-1B visa petitions filed with US Citizenship and Immigration Services rose from seven per cent in fiscal year 2007 to 27 per cent in fiscal year 2011. L-1B visas are a sub-category of L-1 visas. In addition, 63 per cent of L-1B petitions in 2010/11 were temporarily denied or delayed. Denial rates for H-1B visa petitions increased from 11 per cent to 17 per cent between fiscal years 2007 and 2011.

Indian IT companies may have to hire about 10,000 Americans every year to avoid losing out on lucrative business opportunities in the US

Ganesh Kalyanaraman, attorney with The Chugh Firm, says his company has seen a 25 to 30 per cent drop in H-1B visas cases since 2008, with Indian IT companies filing far fewer applications. Law firms are engaged by service providers to ensure compliance with US regulations.

"Two top-tier players could not execute critical projects in the December quarter because H-1B permits were not processed quickly enough. The opportunity-loss consideration weighed more towards hiring US nationals over the past two quarters," says T.R. Madan Mohan, managing partner of outsourcing advisory Browne & Mohan.

Infosys, in fact, faces a probe in the US on visa misuse. The firm has been accused of using the cheaper B-1 business visitor visa to send its staff on long-term work to the US. H-1B is the appropriate visa for long-term work. The industry has been quick to defend its record. Nasscom President Som Mittal says the total number of jobs Indian IT supports in the US, including indirect employment, adds up to 280,000. (Indirect employment is jobs created in other parts of the economy, such as hospitality and travel.) But that looks like a stretch.

Apart from political pressure, new business realities are also forcing IT companies to hire more Americans. Many are going up the value chain and services such as consulting will see the number of foreign hires rise over time. "It's a 50:50," says a senior Wipro executive, who did not want to be identified. "While coercion has worked, projects such as change management require us to hire locally. About 25 out of every 100 hires in a large-scale ERP integration would be US citizens."

But there's a catch. High-cost hires can, theoretically, play havoc with the margins of companies. Many of the local hires are experienced people who cost 15 to 20 per cent more. Nevertheless, some firms are already working on different levers to offset the hit. "There may be higher billing since more consultants, domain experts, project managers and front-end people will be recruited locally. Overall, the impact on margins is possibly within half a percentage of revenue - not too high," says Pai.
(From left): Darcy Antonellis, Aruna Jayanthi, Avinash Vashistha
(From left): Darcy Antonellis, Aruna Jayanthi, Avinash Vashistha

Women constitute more than 30 per cent of the Indian IT industry's workforce. However, only about five per cent are in leadership positions. Many drop out at the mid-level, when they become mothers, or when their life priorities change. As a result, the industry loses some great talent.

BT and Nasscom organised a roundtable on the issue at the recently concluded India Leadership Forum. The panellists - Aruna Jayanthi, CEO of Capgemini India; Avinash Vashistha, Chairman and MD of Accenture India; and Darcy Antonellis, President of Technical Operations at Warner Bros - debated over how to improve the "pathetic" numbers. Business Today Editor Chaitanya Kalbag moderated the roundtable.

"Sometimes, it is a matter of breaking biases people have; not just men but even women themselves," said Vashistha. Why not link a manager's, or for that matter, even a chairman's pay to the number of women in senior positions, suggested Kalbag. "Some level of targets will help. But there need to be checks and balances," responded Jayanthi. Such a move could open the floodgates for poor talent if managers just want a bonus, she warned.

At Warner Bros, high-potential women are made to manage projects with chairman-level visibility, said Antonellis. "This has helped them feel confident about their abilities and learn to communicate better." All the panellists agreed that the industry was opening up to the idea of giving women flexible work options. That could see more of them rise to senior positions in coming years.

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