Offshore costs rise with H-1B rejections

The effort in the U.S. Senate to increase the H-1B visa cap may begin to deliver benefits immediately to Indian IT outsourcing firms, according to Hong Kong-based CLSA Asia-Pacific Markets, an equity and financial services group.

In a recent research note, CLSA sees Congress “taking a more reformist and accommodative stance moving away from the anti-business immigration rhetoric which dominated the US immigration discourse through 2011-12.”

CLSA blames “anti-immigration rhetoric” for high H-1B and L-1 rejection rates by U.S. authorities. Visa application rejections are exceeding 40% plus, it says.

With a shift toward “a more accommodative business migration policy,” the U.S. Citizenship and Immigration Service “would lack the political support required to sustain such high rejection rates.”

But this is where CLSA’s report gets interesting.

High visa rejection rates means that Indian outsourcing firms can’t deliver all the visa holding personnel they need to customer sites in the U.S.  That leads to higher costs for Indian firms.

CLSA’s data shows that per month capita onsite salary costs have risen sharply over the past two years. A drop in L-1 and H-1B visa rejection rates should help Indian firms to deploy offshore staff, as well as “help control subcontracting costs which have shot up," it says. 

In 2010, these monthly per capita costs were in the range of $6,900; they are now more than $8,100, a 17% increase.

"Local hiring is driving costs up and that process is irreversible," wrote CLSA.

While local hiring is irreversible an increase in the H-1B cap "should help Indian techs calibrate local hiring better," wrote CLSA.  The report doesn’t say why these costs are irreversible, but there is one theory from industry analysts. As Indian firms develop more sophisticated and higher value services, analysts believe they will have more people on-site.

I don’t know, however, if CLSA has the picture right in believing an “accommodative stance” is emerging in the U.S.

For sure, CLSA appears to be standing on firm ground. The U.S. Senate has a bill with 10 co-sponsors that will raise the H-1B visa to as high as 300,000. It is a clear sign that things are changing for tech.

But that bill is an industry wish list. If it goes anywhere, restrictions on offshore firms may be part of the deal making. This may include raising salaries by knocking out the lower tier prevailing wage levels and by imposing the so-called 50/50 hiring rule, which would require offshore firms to hire at least half their workforces locally.

With unemployment still near 8%, approving legislation that may lower the costs for offshore outsourcers, as well as reduce visa enforcement, will be a very tough sell for many lawmakers.  They may see H-1B restrictions as a good thing if it forces offshore firms to increase local hires. They may even do this even as they give Microsoft and other U.S.-based tech firms all the visas they want.  

From CIO: 8 Free Online Courses to Grow Your Tech Skills
Join the discussion
Be the first to comment on this article. Our Commenting Policies