H-1B visa cuts might not have big effect in U.S.

The reduction this month in H-1B visas might not have a significant short-term effect on companies that use the visas to bring foreign IT workers to the U.S., and long-term the trend toward offshore outsourcing could mean demand for the visas is lower than in the past, say those who track the industry.

"The cut in H-1B visas will not affect offshore service companies, as there are already a large number of H-1B visas issued, and these are valid for three years, and are renewable for another three years," said John McCarthy, group director for research at Forrester Research Inc. in Cambridge, Mass. U.S. customers of offshore service providers are not worried about the cuts either, he said. "Clients usually leave it to the service provider to sort out these issues."

A congressional cap on the number of foreign workers allowed to come into the U.S. on H-1B visas reverted on Oct. 1, the start of the federal fiscal year, to pre-dot-com boom levels of 65,000 visas. Congress did not extend an earlier limit of 195,000 visas. The new cap affects new applicants and not existing H-1B holders working in the U.S. The H-1B visa is an employer-sponsored, non-immigrant visa for a foreign worker coming temporarily to the U.S. to perform services in a specialty occupation.

India's software exporters, among the largest users of H-1B visas, do not expect the cut to affect their businesses. As of March 2003, the Indian software exports industry already had about 120,000 H-1B visas and 15,000 L-1 visas in hand, according to the National Association of Software and Service Companies (NASSCOM) in Delhi.

As a result of the slowdown in the U.S. economy, as well as an increase in work getting done offshore in India, the need for H-1B visas by Indian software companies is falling, said Kiran Karnik, president of NASSCOM. In the year to Sept. 30, the number of Indian IT professionals traveling to the U.S. on H-1B visas was estimated at 30,000, down from 33,000 a year ago, and 77,000 in the previous year, according to NASSCOM.

Indian software companies use H-1B visas to send staff to the U.S. for on-site software development and maintenance work for their clients.

"The lowering of the cap on the H-1B visas will have little immediate impact, as the visas already issued are valid for three years and are extendable by three more," Karnik said. "The issue of limited availability of H-1B visas would not be of much concern in three to four years from now as more software development would move offshore. But in the medium term, we might feel the shortage of visas as the present cap of 65,000 is far too low. This is, in our view, not good for the U.S. economy, customers and companies in the U.S., and for Indian companies."

The issue could be what happens in the long term. "A depression in the need for IT workers has likewise depressed the need for H-1B visa holders in the short term, so the impact in the short-term, that is until next spring or summer, will be minimal," said Bob Cohen, senior vice president at the Information Technology Association of America (ITAA), an industry trade association based in Arlington, Va. "Over the longer term, the question becomes whether Congress will be able to act quickly to raise the cap in response to economic growth and new demand, when it comes, or whether the current cap becomes a drag on the ability of IT companies and their customers to grow and prosper."

But the long-term need for H-1B visas might also fall dramatically in the long term, as clients become increasingly comfortable having service providers do the work offshore, said Ravi Ramu, chief financial officer of MphasiS BFL Group, a software services and business process outsourcing company in Bangalore.

"The India offshore story is compelling enough for clients to decide to move more work offshore to their service providers," Ramu said. "If earlier they preferred to have a large number of Indian engineers working in their IT departments to meet their comfort levels, they are now more inclined to having the work done offshore."

Customers will also be saving on costs by moving more work offshore. "You can say that the visa cuts will in effect help move more work offshore, because companies doing business with offshore service providers will now have to perforce get more of the work done offshore," he said.

Over the next 15 years, 3.3 million U.S. services industry jobs and $136 billion in wages will move offshore to countries like India, Russia, China and the Philippines, according to a Forrester study in November of last year. The IT industry will lead the initial overseas exodus, the study said. A large number of U.S. companies, including IT companies, have already moved software development, call centers, and back-office functions offshore either to service providers or to their own subsidiaries in low-cost locations like India.

"Large corporate IT customers appear increasingly to want an offshore component in IT solutions," Cohen said. "For many years, ITAA has argued that the threat to American workers is not the H-1B visa holder, but the IT jobs themselves being sent offshore. Once this happens, you lose not only the IT job, along with the economic benefits of spending and taxes of that worker, but also the jobs that might be related -- financial management, operations, middle management, sales and marketing, etcetera."

Workers' unions are arguing for protection of U.S. jobs. "No, it does not go far enough," Marcus Courtney, president and organizer of the Seattle-based Washington Alliance of Technology Workers (WashTech), said of existing H-1B law. "The law needs to be reformed so that it strengthens prevailing wage protections, ensures that all employers attest that they cannot find qualified U.S. employees to fill positions, and provides stronger protections for guest workers that come into the U.S. under the program."

U.S. companies are misusing H-1B visas to hire foreign staff at wages lower than the prevailing wage in the U.S., even though people with similar qualifications are unemployed in the U.S., according to workers' unions.

"Right now, the IT industry has significant numbers of unemployed skilled professionals," Courtney said. "In Seattle we found a 10% unemployment rate, double the statewide average. The very notion that companies are still bringing in guest workers today to fill vacant position is evidence of abuses under the guest-worker program. The L-1 visa program is used to bring workers into this country and then have U.S. employees train their replacements to be out of a job. This has been well documented. The unbelievable situation is that it is not against the law."

Besides the IT industry, the finance and insurance sectors are also heavy users of guest-worker technical programs, Courtney said.

Cohen disagrees that the H-1B program is used to provide cheap labor.

"The dramatic drop in the usage of the H-1B program is proof that the critics are wrong about it being a 'cheap labor' program, for if it were, the usage would be up to the maximum -- the cap of 195,000 annually," Cohen said. In fiscal year 2001, there were 110,713 IT workers approved for initial H-1B employment, but the following fiscal year, the number dropped to 25,637, according to the Office of Immigration Statistics in the U.S. Department of Homeland Security.

Workers' unions aren't only concerned about the H-1B program, and want loopholes plugged in other visa categories such as the L-1 visa. While the number of H1-B visas issued have declined, the number of L-1 visas issued are on the rise, Courtney said.

"Congress failed to act in the past and today on protecting interest of employees when it comes to guest-worker programs," Courtney said. The L-1 visa allows multinational companies to transfer employees from a foreign corporation to a U.S. branch, parent, subsidiary or affiliated entity. There currently are bills before Congress aiming to reform the L-1 program, but in the meantime those visas can be used to sidestep requirements of the H-1B.

"The L-1 visa is being used to bring high-tech workers to do U.S. jobs similar to the temporary worker H-1B visa program," according to a report, Deleting American Workers: Abuse of the Temporary Foreign Worker System in the High Tech Industry, by the Federation of American Immigration Reform in Washington. "However, unlike the H-1B visa, the L-1 visa does not require that the employer pay the worker in the U.S. the prevailing wage for the type of work being performed."

A subsidiary of a company headquartered in India, for example, can transfer its employees who are computer programmers to a subsidiary incorporated in the U.S. and continue to pay the workers Indian wage rates while they may be doing subcontract work for a U.S. company, according to the report.

A number of Indian software companies use L-1 visas to send their staff on work in the U.S., and the L-1 visa figures prominently in contingency plans drawn up by these companies after the cut in H-1B visas. "We don't envisage a shortage of H-1B visas, but if we do, we have the L-1 as an alternative," said the CEO of a Bangalore-based software services company on condition of anonymity.

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Copyright © 2003 IDG Communications, Inc.

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