Congress may push India's IT firms to Mexico with H-1B crackdown

If U.S. clamps down on visas, India's alternative may be Mexico and NAFTA

WASHINGTON -- As Indian firms fight the threat of H-1B restrictions, IT services companies might not leave their fate to politics. In an effort to reduce their need for visas, they may look to increase their presence south of the border.

Indian IT firms have boosted operations in Mexico in recent years to serve Latin American and U.S. customers. One advantage to doing so involves the North American Free Trade Agreement (NAFTA), which enables Mexican and Canadian professionals to work in the U.S. without an H-1B visa.

In other words, Indian firms could send employees to Mexico, and then move some of their Mexican workers to the U.S. under the auspices of the treaty. The Mexican workers would not need an H-1B visa to work in the U.S., though they would need what's called a TN visa. That visa is available to Mexican and Canadian nationals who qualify under a number of professional categories and meet specific education and experience requirements.

If Indian companies set up a visa safety net in Mexico it will be because of concerns about legislation from U.S. Sens. Chuck Grassley, (R-Iowa), and Dick Durbin, (D-Ill.). Of particularly concern is the bill's so-called "50-50" rule that limits the number of workers on H-1B or L-1 visas to half of a firm's total U.S. headcount. The majority of Indian companies in the U.S. have far more people working with visas than not.

The NAFTA benefit -- essentially allowing Indian companies to move relatively lower cost workers in and out of the U.S. without the H-1B visa -- was cited this week by Phaneesh Murthy, president and CEO of IT services firm iGate Corp., in Fremont Calif. IGate has the majority of its 6,500-plus workforce in India.

Murthy told analysts during an earnings call that U.S. visa restrictions could prompt his company to increase work in Mexico.

"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.

Many of the major Indian firms have operations in Mexico. MexicoIT, an industry group in Mexico City, said there are 500,000 IT professionals in the country, with another 65,000 graduating each year from colleges with degrees in IT-related skills. While costs are higher in Mexico than in India, Alfredo Pacheco, CEO of MexicoIT, said the difference is only about 10% to 12%.

Put in perspective, Mexico today is little more than a niche location for the large Indian firms. For instance, Mumbai-based Tata Consultancy Services (TCS) announced last month its third delivery center in Mexico with plans for 500 workers. TCS has 142,000 workers worldwide, but 92% of those workers are Indian, with the rest scattered around the world, according to company data.

Another way Indian firms can reduce their reliance on H-1B visas is to complete more of their U.S. customer work offshore. That's something U.S.-based IT providers have been trying to emulate. Eric Simonson, managing principal of research at the Everest Group, in Dallas, said between 75% and 80% of the workers at the Indian firms work offshore. In its most recent quarter, TCS cited improvements in its offshore ratio; Simonson believes it's because the vendor's customers are "more comfortable with how the model is developing and willing to push the the needle a little more."

There has been no action yet on the Grassley/Durbin legislation. Sen. Chuck Schumer, (D-N.Y.), hopes to introduce a comprehensive immigration reform bill by Labor Day that would bring a different approach to the H-1B visa issue. If there are restrictions on H-1B visas, NAFTA's provisions provide interesting possibilities for the Indian firms.

The NAFTA Professional TN visa is not capped; it's good for three years, and can be extended, according to Anastasia Tonello, a parter at Laura Devine Attorneys LLC in New York. Compared to the H-1B, it is also much easier to get, she said. Technology workers would likely seek TN visas as either computer systems analysts or as management consultants.

Jorge Pinto, professor of international business at Pace University in New York, said Mexico is coming into its own as a technology provider and more Mexican students are studying engineering in the U.S. Although the cost of living in Mexico is cheaper, Pinto doesn't see the main benefit of using Mexican workers as saving money. Instead, it's more a way of having an increasingly educated talent pool that is a short flight away from the U.S. "The advantage is not really cheap labor, it's a much more complicated matter," he said.

Lynn McNeal, a partner at outsourcing advisory firm TPI Inc. in Houston, doesn't believe that Mexico competes as well as lower-cost countries in Latin American, but its proximity to the U.S. already attracts significant investment. "The trend is well under way, regardless of the threat from Congress," he said.

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