Infosys' legal problems prompt analysts' concerns

Forrester warns customers should look closely at visa-holding workforce

WASHINGTON - The company that is a target in a federal probe on its use of visas, Infosys, says it is assuring customers that the government investigation, despite its unknown outcome, will not impact its business.

It is telling customers that its use of the B-1 visa, a business visitor visa that has been the subject of the probe, is used by less than 2% of its workforce in the U.S. at any given time.

But analysts are telling a different story to their clients that use offshore services. They are warning of risks, some of which are specific to Infosys and other risks that are broadly affecting an industry that relies on visa-holding workers.

Infosys has been notifying investors of its legal situation in SEC filings. Last month it announced that "we and certain of our employees are targets of the investigation" following a meeting with the U.S. Attorney's Office for Eastern District of Texas.

That investigation was triggered by a lawsuit from a former employee, Jay Palmer, which has been getting national attention. He is claiming harassment, including death threats, after refusing to help the company get B-1 visas.

Infosys' most recent SEC filing prompted Stephanie Moore of Forrester Research to recommend that customers move proactively to protect themselves.

Moore said Infosys' visa issues are an increasing concern with her clients, and she outlined specific recommendations for them to take in response. They include asking for documentation about the visa status of Infosys' on-site employees, and having alternative suppliers in the event of "possible disruption," she wrote in a blog post.

Infosys' chief marketing officer, Paul Gottsegen, disputes Moore's assertion that Infosys clients are worried, saying it "is very inconsistent to what we hear as we speak to clients."

Gottsegen said the company is reaching out to its customers, "and they are assured that they will continue to get full great that they've had from Infosys for years."

Infosys has about 17,000 employees in the U.S. The company didn't provide a breakdown of how many are on visas, but most of them are. Gottsegen said the company is hiring more permanent workers, including 1,200 U.S. workers last year, and many more this year. The company employs about 150,000 worldwide.

Infosys is telling customers that it didn't have a policy to misuse visas, and is denying the allegations made in Palmer's lawsuit.

David Rutchik, a partner at the outsourcing advisory firm PaceHarmon, said he sees a systemic issue in the outsourcing industry that goes beyond Infosys and includes any firm that relies heavily on visa-holding workers to deliver services.

"It is more and more difficult for any of these companies, Infosys or its competitors" to bring in visa-holding worker "in the numbers and with the ease that they previously have," Rutchik said.

He cites the broader political climate, the action by Congress to significantly raise H-1B visas fees, and the increasing scrutiny of visa applications by immigration officials.

Rutchik said it's important for users of offshore clients to know the mix of visa users because the visas allow them to be more competitive.

"They can charge less for them [visa holders], win business against their competitors, and still maintain their margin," Rutchik said.

Despite the prevailing wage requirement set by the U.S. for visa holders, Rutchik said "there's no question that they are paid less."

Rutchik estimates that the cost for people on visas is about 20% less than other workers.

He makes some of the same recommendations that Forrester's Moore does, but believes they should be applied to all companies. Customers need to see the resumes of the offshore workers, and even their visa applications. They also need warranties and audit rights in contracts.

Moore has called Infosys' response to the legal threats "lackluster," and said the company's recent "anemic" earnings announcement "has clients wondering what the future holds for Infosys."

The offshore industry is seeing signs of a slowdown. Cognizant, for instance, reported in its first quarter results this week that despite a nearly 25% increase in revenue, it is seeing a "slower than anticipated acceleration in demand."

Last month, Infosys announced in its quarterly results a decision to delay wage increases. Gottsegen said the company nonetheless added 52 clients last quarter.

Patrick Thibodeau covers cloud computing and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov or subscribe to Patrick's RSS feed. His e-mail address is

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Copyright © 2012 IDG Communications, Inc.

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