Mexico Outsourcing Will Soar Under Schumer Law

In its Haste to Gouge India, Congress Neglects to Consider the TN Visa

By Kirk Laughlin

In what could be one of the most extraordinary examples of the self-defeating consequences of slapdash, politically inspired protectionism, the new Congressional border bill which partly takes aim at Indian outsourcers is likely to trigger a nearshoring bonanza – with Mexico poised to become a major beneficiary. But wait, isn’t Chuck Schumer (D-NY) who is a key sponsor of the bill, going to protect U.S. jobs? Actually no and we’ll explain why.

Taking Aim

First, let’s take a look at the bill itself which is designed to strengthen the Southwest U.S. border by hiring more law enforcement and deploying more high-tech tools to monitor illegal immigration. In order to fund the $600 million project, Schumer and co-sponsor Sen. Claire McCaskill (D-Mo.) are taking aim at companies like Wipro, TCS and Infosys which depend on non-immigrant “H1B” visas to transfer highly skilled workers from countries like India to come to work in the U.S. The bill would raise the visa processing fee by $2,000 per visa, a huge hike which has been called “discriminatory” by leaders from the India outsourcing industry.

The issue gets very interesting however when you take a step back to realize that Congress has basically exempted the TN Visa (borne from NAFTA)  from falling under the new levy, effectively emboldening the pursuit of highly skilled nearshore labor to supplant those inflicted with the onshore visa surcharge. The non-immigrant TN Visa enables Mexican nationals to transit without hassle in and out of the U.S. In addition to its close proximity to the U.S., the TN Visa stands out as one of the most compelling attractions of nearshoring to Mexico, and continues to be one an important value-enabler for companies like TCS,  Infosys, Dell, HP and Accenture among others.

An interesting side note: Infosys – which was directly embroiled in the Schumer bill controversy when Schumer referred to Infosys as a “chop shop” – recently told us that Mexico has a bright future for the firm. It appears the firm now has every reason to further expand operations in Mexico, given that it would effectively be penalized by bringing more workers onshore.

The NAFTA Professional TN visa has no cap,  is good for three years and can be extended

Unlike the H1 visa which reaches a cap sometime during the year and restricts further visits during that year or the L1 which requires sometimes complicated justification of domain expertise, the TN visa enables the free flow of employees to and from the US. The NAFTA Professional TN visa has no cap,  is good for three years and can be extended.

Adjusting Business Models

Further evidence that Mexico will win big when visa complications are put in place came two years ago when Phaneesh Murthy, president and CEO of IT services firm iGate, said during a conference call: “We will probably utilize a higher growth in our Mexican center by having more people come from Mexico to the U.S., where they don’t need the H-1B because of being part of NAFTA.” said Murthy, according to a transcript on the financial site Seeking Alpha. “So, I think our business models will change and we are ready for those changes in business model,” he said.

Mexico has somewhere between 500,000 and 600,000 IT professionals and the country graduates approximately 65,000 IT students a year. Both Guadalajara and Monterrey landed on Nearshore Americas ranking of the Six Leading IT Cities in the Nearshore Region.

The other consequence from the Schumer Bill (which was received congressional approval today) is that Indian outsourcers may think twice about bringing Indian nationals into the U.S., which may result in the U.S. collecting far less that the $200-$250 million it is projecting to fund the border programs.

Finally, it is the U.S. companies themselves – who are battling to compete in a fiercely competitive global economy – who really hold the cards. The Schumer bill does nothing to inspire long-term strategies to compel U.S. companies to keep jobs in the U.S. What it does do is pass along an increase to their operating costs in an assortment of mostly back-office, non-strategic functions – from application maintenance to business processing activities.

Of course economic reality will trump the politically charged motivations of the bill – which conveniently is being pushed through Congress to maximize the impact during the Fall election season.  And economic reality will be the driving force behind what is likely to become a huge boost for Nearshore outsourcing – and classically what Schumer had least hoped for.