Barriers to entry

When an organisation engages an offshore outsourcing provider, it is sometimes the personnel, rather than the work, that changes continent. Indian IT companies, for example, will often send employees over to a client’s home country to work on their premises.

This practice serves many purposes. It allows the customer to take advantage of the Indian IT industry’s deep talent pools without the burden of international collaboration. For the offshore provider, it immerses those employees in the client culture, allowing them to provide a better – and therefore more highly valued – service. “They learn the business in a way that they can’t do from India, so the quality of work is improved,” says Peter Bendor-Samuel, CEO of outsourcing consultancy Everest Group.

Now, though, changes to immigration rules on both sides of the Atlantic place this practice under threat. In the UK, the government has proposed a cap, from April 2011, on the number of non-EU citizens working in the country, while in the US the cost of a migrant worker visa recently doubled to $4,500. The Indian government and IT industry are palpably concerned about the impact that these measures might have.

On a recent state visit to India, however, prime minister David Cameron reassured Indian companies that, whatever changes are made to the immigration system, allowances will be made for skilled Indian IT workers who wish to work in the UK.

Nevertheless, such a cap could adversely affect Indian IT companies in two ways, says Bendor-Samuel. “It will mean they have to hire more UK nationals to do the work, and it will take them longer to assimilate that work,” he explains. “This will probably make them less efficient, as they will need more people in both India and the UK just to do the same amount of work.” This, Bendor-Samuel argues, will in turn impair the competitiveness of UK businesses that use offshore IT services.

Unknown outcomes

Martyn Hart, chairman of the National Outsourcing Association, says that it is difficult to predict what effect an immigration cap may have on the IT outsourcing industry, or on the UK economy. It may encourage UK workers to train in core development skills that a high-cost economy cannot sustainably support.

“Training up UK people to do a job which we can’t do economically may be the wrong way round,” he says. But by shifting the burden of managing international relationships to the customer, it may encourage UK businesses to develop offshore IT project management skills that are more valuable on the global market.

So far, debate between the UK and India on the topic of skilled immigration has remained cordial. The same cannot be said of the barbs traded between Indian authorities and US politicians over the matter.

While debating a recent bill to raise the cost of an H-1B migrant worker’s visa from $2,000 to $4,500, US senator Charles Schumer said the bill would raise funds from “foreign companies known as ‘chop shops’ that outsource good, high-paying American technology jobs to lower-wage, temporary immigrant workers from other countries. These are companies such as [Indian IT services provider] Infosys.” Infosys responded that it was distressed by this, adding, “Infosys is a good corporate citizen, pays its taxes and is law abiding.”

Companies headquartered in India account for 12% of all H-1B visa applications, and according to Everest’s Bendor-Samuel, the Indian IT firms feel as though the bill – since passed into law – was specifically designed to affect them. “What really sticks in their craw is the way it’s been crafted to target Indian firms,” he says. “Its impact will clearly fall heavily and disproportionately on the large Indian providers.”

However, the impact may not be all that disastrous. The Indian government itself estimates that the increase in H-1B fees will cost the combined Indian IT industry around $200 million per year. This is a drop in the ocean: in its latest financial report, Indian IT giant TCS alone reported sales of $1.8 billion and profits of $487 million.

Other factors will have a greater influence over the financial fortunes of the Indian IT industry and the price of their services, Bendor-Samuel believes: “Wage inflation, rupee appreciation and the ongoing focus on price sensitivity of the US and UK markets are going to be much more of a focus.”

Peter Done

Peter Done is managing director of Peninsula Business Services, the personnel and employment law consultancy he set up having already built a successful betting shop business.

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