H1-B Visa Restriction by Trump Government

The Trump government has been getting tough on the H1-B Visa regime ever since he assumed power in late January. Firstly, Trump put the issuance of emergency H1-B visas on hold for a period of 6 months. These were special cases where visas could be obtained within a month by paying a higher fee. Indian IT companies were the big losers in this move as these visas were critical for the Indian IT companies in giving service commitments to their US clients. Subsequently, Trump has gone a step ahead and removed the categories of programmers and coders from the list of essential service providers that justify a H1-B visa. That puts the entire existing IT business model at stake.

In the meanwhile, the Trump government is yet to muster support for imposing a border tax on jobs and profits exiting the shores of the United States. If that happens, it could have much larger implications for Indian IT companies. Also, once the doubled emoluments for IT workers are implemented the entire onsite model that Indian IT companies follow may come into question. The big question, then, is what is the road ahead for Indian IT companies if these new visa rules are implemented in totality? Tough as the environment appears, it also throws up some interesting opportunities. Here are a few of them…

IT companies will be forced to look for more clients outside the US…

Today while large IT companies have diversified their dependence on the US by including Europe, UK and Japan as key markets, the US still continues to predominate. That is because the US has consistently faced a shortage of manpower in information technology and hence it was the low hanging fruit for the Indian IT industry. That is set to change. With the new visa regime in force, Indian companies are likely to increasingly look at clients across other regions like UK, Japan and Europe and also look to move the mix against the US. That shift had begun a few years back and it is likely to get accentuated in the coming months.

IT companies will look at low cost operating hubs with proximity to the US…

This is a trend that has already started. It will not be too difficult for Indian companies to set up base in countries like Mexico and Canada and use that as a base for sourcing US clients. This will also mean that servicing them will not require H1-B visas and will help the Indian IT companies to circumvent the US visa rules. This will enable the Indian IT companies to offer low-cost solutions to US companies by just slightly tweaking their models.

The big change will be on more of off-shoring of work…

Even industrialists like Anand Mahindra have identified this as the big opportunity for the Indian industry. Over the last 40 years, Indian IT industry grew on the back of its onsite execution strengths. A weak rupee and easy visa regulations were the prime drivers for the growth of on-site execution. Both of that may be changing now. That means Indian IT companies will have to tweak their business model to push more of their routine and low-end jobs offshore rather than keeping it onsite. This will be a major cost saving for Indian IT companies and also profit accretive in the long run.

Only value-added jobs go on-site…

The big change due to the new visa regime could be that only high-end jobs like managerial roles, consultant roles etc could involve onsite placement. These being high-end jobs will anyways not attract any questions for the issue of H1-B visas. Since most of these jobs will be high paying jobs, the worry of matching salaries to US levels also will not arise. This will have two positive implications. Firstly, it will position Indian IT companies on the upper end of the value chain by offering only value-added services on-site. Secondly, Indian IT companies can use this opportunity to substantially reduce their costs and the US on-site purely for value added and high-end jobs.

Make the big shift now…

The Indian IT industry has for last 40 years relied purely on the power of BFSI growth (banking, financial services, insurance) and other sectors like hydrocarbons and telecom. Over the last few years, Indian IT companies have shifted focus to healthcare, manufacturing and design. However, the nature of work still continues to be an outsourcing role. With the world moving towards digital, this is an opportunity for Indian industry to make that strategic shift towards digital and other value added businesses. The days of thriving on outsourcing may have run its course and this may be the opportunity for Indian IT companies to move up the value chain.

While the stringent visa regulations have surely created short term pain for Indian IT, it is likely to proffer some key benefits over the long term. It is time to look at the glass as half-full rather than as half-empty!