Outsourcing firms warn of H-1B visa cutbacks

SEC filings show H-1B needs could be hurt by uncertain political climate

In filings with the U.S. Securities and Exchange Commission, companies that use H-1B and L-1 visas are alerting investors that it may become more difficult to obtain them in the future. Some firms are also noting that they don't know whether President-elect Barack Obama and the new Congress will help them get adequate numbers of visas.

Bangalore, India-based Wipro Ltd., one of the largest users of H-1B visas, warned in an SEC filing shortly after the November presidential election that the "increasing political and media attention" directed at outsourcing may lead to legislation that restricts visa use or "imposes disincentives" to expanding offshore programs.

During the presidential campaign, Obama repeatedly promised to "stop giving tax breaks to companies that ship jobs overseas" and to provide incentives that help companies keep jobs in the U.S. Since his election, Obama has not unveiled a detailed plan for H-1B visas.

But Obama has nominated supporters of increasing H-1B visa caps, such as Arizona Gov. Janet Napolitano, to cabinet posts. In addition, members of his transition team, such as Google Inc. CEO Eric Schmidt, have long been vocal about the need to boost H-1B limits. In fact, India's major high-tech trade group, the National Association of Software and Services Companies (NASSCOM), issued a statement the day after the election noting its support for many of Obama's policies, including expanding the H-1B program.

For some companies, visa numbers are substantial. For example, in its SEC filing, Infosys Technologies Ltd., also based in Bangalore, said that almost 7,000 of its employees held H-1B visas at the end of September. In addition, Infosys said that 1,500 of its workers held L-1 visas, which are used by multinational firms to transfer employees. A year earlier, 7,700 Infosys workers had either an L-1 or H-1B visa, the company said. Infosys also repeated warnings made in earlier filings that its "reliance on work visas for a significant number of technology professionals makes us particularly vulnerable" to changes in visa laws. Infosys is one of very few outsourcing companies that included specific H-1B numbers in SEC documents.

Smaller firms also said that legislation aimed at changing visa laws could hurt them. Pittsburgh-based IT services provider Mastech Holdings Inc., which has operations in India, said in in an October SEC filing that unless Congress "substantially increases the annual H-1B quota," its pool of workers could be reduced. About 40% of its U.S. workforce have H-1B visas, Mastech said, adding that it employed 619 consultants at the end of June.

Robert Meltzer, the CEO of VisaNow.com Inc., an immigration services provider in Chicago, said that many of the companies may be most concerned with potential legislation aimed at the L-1 visa, which has no cap. The H-1B cap is currently set at at 85,000, including 20,000 set aside for advance degree holders.

The L-1 visa gives companies a lot more flexibility than H-1B visas, Meltzer said. The companies may be concerned about potential rules aimed at limiting use of the L-1 visa, and imposing H-1B-like prevailing-wage requirements. "That could have a big impact on their business," he added.

At the same time, Infosy CEO S. Gopalakrishnan earlier this month told reporters in India this month that the company plans to scale back hiring because of the economic turmoil. The firm still expects to hire 25,000 people in the fiscal year ending next March, but it is apparently not setting targets for fiscal 2010. Infosys officials didn't respond to request for comment on these reports or on whether the hiring plan would affect its need for H-1B visas.

What is occurring in the outsourcing market during the downturn is, in some ways, paradoxical. The Indian firms say they see a softening IT services market, but surveys and anecdotal reports are showing that the need to cut costs may be spurring demand for outsourcing.

John Delaney, an attorney and co-chair of the technology transactions group at Morrison & Foerster LLP in New York, said that his firm is seeing increasing demand for outsourcing services even during the economic downturn. He cites an observation by a colleague that the "firm's sourcing group is as busy as our firm's bankruptcy group these days."

Delaney noted that interest in outsourcing is particularly strong in the media and retail industries, which had been slow to look to offshore services providers.

"The focus of today's outsourcing deal is almost entirely on saving money," said Delaney. Clients also wants deals completed quickly and are showing more interest in China, which promises greater cost savings over India, he said. The Indian firms may be feeling a pinched on the H-1B cap because of the trend to put more of their workers in the U.S., in order to strengthen relationships with client and project governance, he said.

Meanwhile, U.S. IT services providers are also shifting work overseas without the reliance on H-1B visas that Indian-based firms have. For instance, Dallas-based Affiliated Computer Services Inc., which only needed three H-1B visas in 2007, announced last month that it plans to move "more complex, higher-paying" jobs to other countries.

Copyright © 2008 IDG Communications, Inc.

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