US visa move to hit Indian IT firms-12/08/2010

12/08/2010

US visa move to hit Indian IT firms

Bangalore: The companies have started increasing the number of American employees in US workforce.



The increase in H-1B and L-1 visa application fee would partially affect outsourcing to Indian information technology firms, said analysts.

The US legislation is expected to impact operating margins of most Indian IT firms between 0.5 per cent and 0.75 per cent. According to a recent study by Religare, visa costs account for 0.3-0.5 per cent of revenues of Indian IT firms. This may force them to recruit more locals as part of their US workforce, taking a hit on their bottom line.

Indian IT services companies use about 12 per cent of H-IB visas in a year, while the rest are used by Microsoft, IBM and Accenture, said industry body Nasscom. At the individual level, Indian IT giants like Infosys, Wipro and TCS are the biggest H-1B visa users.

Contrary to the popular belief, H-1B visas constitute an insignificant number of jobs. According to a March 2010 report by a non-profit public policy group, National Foundation for American Policy (NFAP), only 0.06 per cent of the American labour force was H-1B visa holders for the financial year 2009.





The US Senate, while passing the Border Security Bill last Thursday, proposed to increase the application fee for H-1B and L-1 visas from $2,300 to $4,300. With this, US lawmakers will be able to part-fund the $600 million needed for tightening border security.

"The economics of outsourcing fundamentally does not change too much, though it may impact operating margins. But, it impacts the stock market sentiments and the (Indian) market has taken the high margins of Indian firms for granted," said Amneet Singh, VP, global sourcing of analyst firm Everest Group.

During the last couple of years, demand for fresh H-1B visas has dropped with a decline in the number of outsourcing deals. Take the case of Infosys. The number of H-1B visas for 2009 were just 440 -- a drop of almost 90 per cent from 4,559 in 2008. For Wipro - though the company topped the list for the number of H-1B visas awarded in 2009 - it was down by almost 26 per cent to 1,964 from 2,678 in 2008.

The drop in H-1B visas is also evident in the number of applications. Every year, from April 1 to October 31, the window is open for H-1B applicants. When the demand was at its peak in 2007, the US Citizenship and Immigration Services (USCIS) closed the window the very first day it opened.






"With falling demand, the window is open longer. In 2009, the limit was absorbed only in December. This year, out of the 85,000 H-1B visas available, only 28,000 applications were received," said Ameet Nivsarkar, VP, Nasscom.

Analysing the USCIS data, the NFAP report said, "In FY 2009, less than 6 per cent of H-1B visas went to Indian technology companies. In FY 2009, 25 India-based firms had forwarded only 4,809 new H-1B applications. The number of new H-1B visas used by Indian technology firms fell 70 per cent between FY 2006 and FY 2009." Indian IT firms have started increasing the number of American employees in their US workforce. Though the percentage of local Americans hovers around 5-10 per cent, this number is rising. Infosys, for example, employs around 12,000 people in North America, including about 1,300 US citizens and permanent residents. In one year, the company intends to hire another 1,000. Similarly, about 5 per cent of MindTree's strength are in the US, of which 30 per cent are locals or green card holders. India's largest IT services firm, TCS, has grown the headcount of its Cincinnati centre to 350, and the company is hiring locals from campuses. Since 2004, TCS America, the subsidiary of TCS, has invested around $135 million in Ohio, Michigan, California and New York.

Business process outsourcing (BPO) firms have also been hiring locals. "We have grown our US headcount seven-fold in the last two to three years. To increase or reduce the US headcount depends on what the customer wants and what the business requires," said Aparup Sengupta, MD and CEO, Aegis. The firm has 4,500 employees in the US.

Source: Business Standard