Possible Impact of Change In H-1B Visa Regulations On Indian IT Firms

Possible Impact of H-1B Visa Regulations On Indian IT Firms

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“Opportunity often comes bundled among difficulty, like a needle in a haystack.”

What is the H-1B Visa?

It is a work-visa for highly skilled foreign nationals to work in the USA for a period of 3 to 6 years.

  1. India is the top user of H-1B visas – as much as 86% of all such visas extended to technology firms in 2014 went to Indians.
  2. In 2017, Congresswoman Zoe Lofgren submitted a bill titled High-Skilled Integrity and Fairness Act of 2017​, which if passed, would mean more than doubling the minimum wage of an H-1B holder from $ 60,000 to $ 130,000.

Why the new regulation?

This is being done to tackle the hiring and under-payment of skilled workers from outside the USA which is seen as an economical replacement for hiring skilled American workers who demand higher paychecks.

It is important to note that the bill is a ‘proposed bill’, meaning – it has a long way to go in being executed.

That said, we can predict the possible impacts and not definitive impacts since it is in its proposal stage and not execution stage. 

Impact on Indian IT Firms

At first look, it seems like Indian IT firms will be massively impacted if the bill is passed.

It is important to note that:

  1. There are both negative and positive impacts.
  2. Most of the IT firms could have preparatory plans in place to brace the impact.

Breaking down 1 & 2 separately underneath.

Negative Impacts

  1. Cost – Sending a skilled worker Onshore to the US is going to cost double than that of yesteryears.
  2. Operating Margin gets hit – Operating Margin is the proportion of the revenue of a company which is left over after paying the variable costs of production (wages, raw material, etc). It represents how well a company is able to pay its investors. Supposedly, operating margin could get hit by as much as 3 percentage points. This is a big number considering the revenue of these firms being in excess of billions of US Dollars. This calculation has been done on the basis that the cap of salary for an H1-B visa holder stops at $ 100,000 as claimed by a research analyst at a leading Securities firm.
  3. Stocks get hit – On the day of release of the proposal of the bill, the stocks of the IT majors plummeted. One can only fathom how it would be hit if/when the bill gets passed.
  4. Rework budget and business model – They would need to hire Americans instead of bringing Onshore Indians. This ramp-up of local hiring will mean increased investments in the recruiting process and a lot of rework.
  5. Employees’ demands – With the ticket to the US on an Onshore assignment looking bleak, the hard-workers in the companies will start to demand some other opportunity instead, or maybe even a pay raise or a promotion to make up for the lost opportunity.

Positive Impacts

  1. Diversity – Ramping up local hiring in the US means a more diverse workplace for the companies.
  2. Pastures Anew – Considering the fact that the US will have semi-closed doors for all practical purposes post successful implementation of the bill, companies will try to get into the emerging markets in other regions like EMEA and APAC. In the long term, over a period of 5-10 years, the revenue generated could rival the likes of existing big customers, all depending on the business development strategy adopted.
  3. Voluntary Reskilling/Learning Of Employees – In the absence of an Onshore opportunity to the USA, employees will have to reskill themselves and learn new technologies to get other opportunities. And they will start doing this on their own – survival instinct. A multi-skilled workforce is a big plus for any company.
  4. Crème de la crème Workforce – Having said point 3 above, it is noteworthy to say that, given the reduced number of H-1Bs possible in the future, all the employees eligible will work extra hard to secure that $ 100,000 paycheck. And when competition is really tough for positions within the company, the company really is the winner in the end – only the best of the best get selected.

Yes, it does look like the negative impacts outweigh the positive impacts. Only time will tell.

Preparatory Plans

  1. Given the dynamics of US politics from Republican President to Democrat and back again to Republican and the nature of immigration policies always having been in the back of the head of the USA from as way back as 1990s, most of the IT firms will have plans/ideas in place for such business exigencies.
  2. Also, noteworthy to say that the current minimum wage of $ 60,000 for an H-1B worker was legislated in 1998. Which means, it has stayed the same for nearly 20 years. That said, any change going forward could last the same duration as well, specifically because of the hurdles that a ‘proposed bill’ has to cross in becoming executed.

Points (a) & (b) are valid enough to suggest that IT firms could have preparatory plans in mind.

Two of them are shared below.

  1. Near-shoring – Nearshoring refers to a company contracting a part of its work to an external company located across national borders within its own region. It includes the neighboring countries that are often bound by similar financial and legal constraints that provide social and economic stability within a region. These regions also have the same feature of economical labour as in the case of Offshore. So near-shoring would further reduce the cost.
  2. Ramp-up local hiring in the USA – This has already been started, with Infosys hinting at hiring more Americans for the jobs overseas.

Having said all this, it is yet to be seen how and when and if the bill is passed and the regulation is made official.

Until then, we can have preparatory plans and predictions in place, most of which do hold true and are genuine. 

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One Comment

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  1. Great work and very informative. In the backdrop of Gremany rising the minimum wages last year,companies are thinking twice before they hire or send them Onshore which will cost them more than the existing.

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