FAQ: Data shows overseas shift for U.S. IT jobs

If the Grassley/Durbin bill is approved, Indian firms will have to hire more U.S. workers

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The 50% figure cited by Mittol is important because Indian firms may have to hire more American workers if legislation introduced by U.S. Sens. Chuck Grassley, (R-Iowa), and Dick Durbin (D-Ill.) is approved. Among the bill's requirements is one that requires Indian firms to balance their workforces around a 50-50 rule that would limit visa use of the visas to no more than half of a firm's U.S. workforce.

Will the Grassley/Durbin bill force Indian firms hire U.S. workers? Yes. But Indians will do other things, as well. In its annual report released in April, TCS said that to "counter possible protectionist tendencies" it is "refining the business model to reduce the amount of work at customer locations and move work to other remote locations and hiring of more local nationals in key markets...." In short, it will do a little of both: push more work offshore and hire more American workers. (See page 61 of TCS' annual report PDF.)

Infosys Technologies Ltd. CEO S. Gopalakrishnan told investors this month that the Grassley/Durbin 50-50 rule would mean bringing back to India some of its visa workers "and replace them with people hired locally in the market," according to a transcript of his conference call on Seeking Alpha. Another strategy suggested this month by Fremont, Calif.-based offshore firm iGate Corp., is hiring Mexican nationals who can travel freely into the U.S. under North American Free Trade Agreement (NAFTA) rules by using a TN visa. The majority of iGate's labor force is in India.

But even if the Indian firms hire more U.S. workers, it's not going to stop the shift in jobs away from the U.S. Offshore firms will continue to move work to low-cost regions as will Western IT service providers.

Is this offshoring shift by U.S. firms a sign of declining IT opportunities in the U.S.? The changing onsite/offshore ratio at IT services firms doesn't speak to the broader trends; it's just a subset of it. IT jobs overall hit a new high in November, according to one measure of IT employment, before declining when the economy nose-dived. IT employment has declined about 5% over the last year, according to the TechServe Alliance, formerly the National Association of Computer Consultant Businesses.

This data doesn't say what happened to the workers who were displaced by U.S. companies or Indian firms in the offshore shift, or the displacement of U.S. workers by H-1B holders, as the government pointed out in recent court papers.

David Foote, who researches IT employment and the labor market trends, can point to data showing a net gain in one key area of IT services hiring, management and technical consulting, and he sees reason for optimism about future hiring trends. From April to June, some 1,200 management and technical consulting jobs were added, based on government data. That is the job category most likely represented by IT services firms. Foote believes that clients of IT services firms still want workers with industry knowledge, which continues to drive hiring, as well as different kinds of workers with business knowledge.

Ron Hira, an assistant professor of public policy at the Rochester Institute of Technology and author of Outsourcing America, believes a jettisoning of the American workforce was not an inevitable outcome. The services firms "could have chosen to compete with better technology, investing in their American workers, and better management. These are all strategic choices that could have been made. They wouldn't have been easy, but, instead, the executives chose the route of cheaper labor," he said.

This chart shows the shift in offshore headcount for 12 companies between 2006 and 2008.

This chart shows the shift in offshore headcount for 12 companies between 2006 and 2008. (Blue indicates the percentage of jobs outside the U.S.) The Indian firms, represented by the five companies to the right, have the bulk of their workers overseas. But U.S. IT services firms (shown on the left) have been gradually closing the gap. Source: Everest Group Inc.

Click to view larger image

Copyright © 2009 IDG Communications, Inc.

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