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H1B Program Overhaul Will Boomerang on the United States

First, a Quick Fact Check:

The Democrats, and not the Republicans (Donald Trump) tabled the High-Skilled Integrity and Fairness Act of 2017. Zoe Lofgren, a Congressman and a Democrat, happened to introduce the bill on the 31st of January, 2017. So, while Trump’s election rhetoric involved an intent to hike H1B visa fees, the actual ‘credit’ for tabling the bill to the US Congress needs to be attributed to his opposition. And, considering the opinion of the Democrats and Trump have happened to coalesce on the H1B visa issue, the proposed bill seems likely to sail through.

Lofgren’s latest bill seeks to overhaul the H1B work visa program by near-doubling the minimum salary to $130K (from the existing $70K). Clearly, the intent is to make it difficult to replace US employees with offshore FTEs. I notice a stream of quasi-experts and analyst firms (with contorted research agendas and questionable opinion) stating this as a “body blow” and the “beginning of the end” for the Indian IT Services sector. And they can’t be more wrong. Here’s why:

Indian IT services firms will shed its client-side ‘travel & tourism’ responsibilities – nearshore will gain prominence

The 80:20 offshore/onshore split of IT FTEs has become the norm across Indian IT services firms. Considering the split between plain vanilla support/maintenance engagements and the transformative engagements that the IT services firms actually happen to execute, one can’t help but admit that the ratio is quite shocking.

Anyone familiar with the dynamics of the IT services sector will admit that onshore or client-side opportunities have always presented themselves as able defense (and rescue) mechanisms for IT services firms, which have long been plagued by knowledge retention concerns caused by atrociously high attrition levels. And onsite opportunities, with the lure of providing a significant upward thrust to the ‘social profile’ of the employee, have almost always come to the rescue of the HR stakeholders. Indian IT firms have, over the last decade, consciously ramped up near shore presence (Argentina, Brazil, Chile, Uruguay) fearing hostile and protectionist policies. It shouldn’t occur as a huge surprise if IT firms were to re-engineer their onshore/nearshore/offshore splits to counter the impact of hiked H1B visa fees.

Impact on the US

While IT services firms may live with a fee hike of around 20 – 25%, a 100% hike in the minimum H1B fee is going to necessitate drastic measures from organizations, including re-engineering a geographic mix of resources with the onshore pool getting progressively leaner. In such an event (of a reduction in the onshore pool in US), the opportunities for the eligible workforce is only going to reduce drastically. The net new job creation for the eligible local workforce may actually be near-zero, if not (worst case scenario) negative!

Indian IT services firms will (finally!!) focus on moving up the value chain

Contrary to popular belief of automation ‘murdering’ IT service providers, it isn’t really a zero-sum game as it’s projected to be. In the near-term, organizations will seek to automate manual, repetitive and mundane tasks to reduce dependence on labor. In an IT context, the middle manager (project coordinator/program manager), L1/L2 support and a certain fraction of the run-of-the-mill testing and maintenance roles which are hosted onshore, are likely to be automated and/or moved to the more cost-effective near-shore and offshore locations. IT service providers will continue to remain relevant in an automated economy, as buyers will expect standardized, preconfigured platforms from service providers with implementation and integration offerings still remaining relevant.

Additionally, Indian Pure Plays (IPPs), which have long thrived on traditional offerings – ADM and Infra Services – will be pushed towards the more disruptive ‘digital’ stacks, including Internet of Things (IoT), hybrid cloud services, cognitive analytics, block chain services and automation. The challenging circumstances will actually bolster the much needed evolution of the IPPs.

Impact on the US

One look at online professional forums such as LinkedIn shows the ‘power imbalance’ in terms of the knowledge pools available to India and the US for upcoming disruptive technologies. Unlike the Indian Pure Plays (IPPs), which have been long resistant to change, India’s dynamic graduate pool have scaled themselves up on the technologies for the future. The United States’ latest move will only expedite the adoption of disruptive technologies such as automation, which drastically reduces the need for traditional IT roles. In effect, in the net new job creation, traditional roles will be negative. And with India well ahead of the US in terms of a ready resource pool in the ‘digital’ stacks, the picture looks rather gloomy for the Trump administration.

The Global Delivery Model and Enterprise Collaboration Tools will emerge as best pals

It certainly is surprising (and disappointing) to notice that the bond between global delivery model and collaboration tools continue to be nowhere near optimum. In the global delivery economy, it remains to be taken for granted that the ‘development’ phase requires a significant proportion of the workforce to be based onshore. With the proposed fees hike, I certainly see the likes of IBM BlueMix, Mendix, Appian, AgileApps (Software AG) gaining a fresh impetus, as the method of application construction is likely to be revised. Expect the fast maturing Application Platform-as-a-Service (aPaaS) market to restructure the traditional offshore/onshore mix that most organizations still conform to. Expect onshore pools to become leaner as IT services providers will look to introduce a certain dash of collaboration in their services portfolios.

Impact on US

Need I say more?

I certainly have my bets on Indian IT service providers shedding their historic ‘lethargy’ to reimagine their businesses. We have already noticed them ramping up investments in nearshore centers and on next-gen technologies (of course they needed to be smart enough to know what was coming). For those who fail to innovate and redefine their value proposition, you may soon see them joining the dinosaurs!

IT & Telecom
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