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US immigration bill could slow Indian outsourcers

Kay Johnson | April 24, 2013
Low cost efficiency put India's outsourcing companies at the heart of global business and created a multibillion dollar industry that for years has skated over criticism it was eliminating white collar jobs in rich nations. Now, the industry's long-held fears of a backlash are being realized in its crucial U.S. market.

The rapid rise of India's information technology outsourcing industry has been a success story in a country better known for its stifling bureaucracy and biting poverty. In under a decade, outsourcing companies had created more than 2 million jobs and in 2012 contributed 6.4 percent of India's GDP, according to the National Association of Software and Services Companies, based in New Delhi.

That success has reflected the ability of India's companies to develop cheap software using Indian designers at home, where wages are far lower than in the U.S. But that makes it necessary, the industry says, to bring the Indian designers and experts "on site" to the U.S. where they are putting the systems into place.

Indian outsourcing companies now use more than one-third of the 65,000 high skill visas allowed under U.S. regulations. The U.S. branches of Indian outsourcers rely on bringing in their own tech experts from home, saying they are most familiar with the software and other technology developed in India to streamline American companies' payrolls, record-keeping and other outsourced functions.

While American companies also compete to obtain the foreign guest worker visas, most are not as dependent on the visas as Indian companies, industry representatives said. Still, it was an American company, New Jersey-based Cognizant Technology Solutions, which was the No. 1 user of the guest worker visas, with nearly 9,300 in 2012. Cognizant also has a significant workforce in India.

"Lack of talent in the United States and the abundance of talent in countries such as India" is the reason for high demand for foreign tech worker visas, said Ameet Nisarkar, senior vice president of NASSCOM.

He said unemployment in the U.S. tech industry has been at 4 percent or below, even during the worst days of the global recession, and so high tech companies need to bring in foreign talent.

The proposed new visa regulations _ hammered out in negotiations among the eight U.S. senators who drafted the bill _ would raise the H-1B cap from 65,000 to 110,000 initially to satisfy technology companies who argue they need the foreign workers.

However, seeking to prevent undercutting American salaries, the bill would require those foreign workers to be paid more than under current law, impose steep fees of $10,000 per visa on big companies with more than half of their staff under such visas and starting in 2014 completely ban new H-1B visas for large firms with more than 75 percent of staff as guest workers.

Sandeep Muthangi of Indian brokerage IIFL Capital says the draft provisions could increase wage costs for Indian companies by 12-15 percent and bring profit margins down by a full percentage point. Mumbai-based Tata Consultancy Services, India's top outsourcer, earned $2.6 billion in the fiscal year ended March and had a profit margin of 22 percent.


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