By David Rutchik
Seizing on the combination of political expediency, a certain degree of xenophobia, and a U.S. unemployment figure that remains stubbornly near 10 percent, Congress has initiated both rhetoric and legislative initiatives aimed at impeding the offshore outsourcing industry. Despite these efforts, however, the offshore outsourcing industry continues to prosper as U.S. companies avail themselves of a critical tool in their arsenal to remain globally competitive.
Outsourcing: High Economic Stakes
It is undeniable that the outsourcing industry represents a significant component of the global economy. Forrester Research expects 2011 global business and government spending for IT outsourcing alone to top $254 billion. The Indian portion of that total in 2010 was nearly $64 billion, according to Nasscom, the Indian outsourcing industry trade association. Meanwhile, foreign companies use H1-B and L-1 visas, issued by the U.S. Citizenship and Immigration Services division of theDepartment of Homeland Security, to enable foreign nationals to work legally in the U.S. for a prescribed time period based upon needed, specialized skills. Technology companies are traditionally the largest users of such visas, with the Indian-based outsourcing providers topping the list. According to recent USCIS data, the three largest Indian outsourcing providers – Infosys Technologies, Wipro, and Tata Consultancy Services – were among the top recipients of H1-B visas. These three companies, all of which trade on the U.S. exchange as ADRs (American Depositary Receipts), together account for nearly 10,000 H1-B visas annually.
U.S. Government Initiates Visa Restrictions
Whether truly attempting to quell U.S. unemployment concerns or championing an issue expected to be popular with the U.S. electorate, U.S. lawmakers have introduced several initiatives that translate to more hurdles for offshore outsourcing providers to compete effectively in the U.S. One such effort introduced dramatic visa fee increases as part of a bill to increase U.S.-Mexico border security. A portion of the Border Security bill (signed into law in 2009) substantially increased the H-1B and L-1 visa application fees for firms utilizing the visas for more than half of their U.S.-based staff. The provision ostensibly was included to raise $640 million a year to support U.S.-Mexico border security reinforcement efforts, but it was largely perceived by the Indian IT community as a means to discriminate against outsourcing firms.
Under the new law, individual fees for H-1B visas soared more than seven-fold, increasing to $2,320 from $320 per visa application, with the anticipated cost to Indian offshore outsourcing providers expected to exceed $250 million annually, according to CNN’s Indian unit, IBN Live. Indian providers decried the new legislation, with Wipro Technologies founder Azim Premji stressing that the recent American decision to clamp down on H-1B visas for skilled workers would reduce foreign investment in the U.S. and make it more difficult for U.S. exporters – hurting American workers’ job prospects.
These views are countered by the Center for Immigration Studies, which states that there is no cause and effect relationship between H1-B visas and U.S. job creation, saying that, on the current trajectory, the U.S. will approve enough H1-B visas for computer workers to fill nearly 80 percent of the computer jobs it creates each year. But even with similar statements and increased political rhetoric (e.g., Sen. Chuck Schumer’s reference to Indian IT outsourcers as “chop shops”), President Obama himself seems to be recognizing the value provided by the offshore outsourcing industry. Upon returning from a trip to India in November, he stated that the relationship “is not just a one-way street of American jobs and companies moving to India. It is a dynamic, two-way relationship that is creating jobs, growth, and higher living standards.”
Outsourcing Industry Rises Above Political Pressures with Little Impact
Ultimately, recent political activities have had a marginal impact on the outsourcing industry and have mostly signified a growing discontent with the inability of the U.S. government to generate enough jobs to meet the expectations of its citizens. The reality is that U.S. companies have grown too accustomed or dependent on the high-quality, low-cost technology support that these visas enable. And despite statements suggesting that the industry is feeling the pinch, outsourcing service providers’ 2010 revenue grew at the fastest pace in recent years—more than 10 percent—and is expected to continue, according to the Industry Association of Outsourcing Professionals’ Global Outsourcing 100 data. A recent Gartner survey also found that up to 85 percent of companies expect to maintain or increase their spending on outsourcing services.
As the dust settles from the recession, companies will continue to be mindful about how they utilize their limited resources. Outsourcing has the potential to do more for less, by more efficiently leveraging resources than trying to support outsourced functions in-house. Beyond economic efficiencies, companies who outsource tend to realize productivity gains as employees concentrate on their core objectives and outsourced resources provide best-in-class support. Until a model develops that can deliver more value with less resources, outsourcing will remain a fixture of the U.S. business environment, despite political interference.
David Rutchik is a Partner with outsourcing advisory firm Pace Harmon, where he represents multiple Fortune 500 clients in their outsourcing, offshoring, strategic sourcing and other critical business transformation initiatives. Tim Taylor, an Analyst with the firm, contributed to this article.