Survey results indicate that neither outsourcing clients nor providers nor advisers are preparing for the impact of visa changes and suggest that visa reform could lead to more offshore outsourcing.
As the Senate debates an immigration reform proposal that could significantly impact the way IT outsourcing providers use skilled foreign workers in the U.S., IT services clients, providers, and advisers appear to be taking a wait-and-see approach to dealing with the potential repercussions.
According to survey results released Wednesday by outsourcing analyst form HfS Research, 57 percent of IT services buyers said they had not evaluated the impact of changes to the H-1B and L-1 visa regulations on their outsourcing deals.
Of the 70 large outsourcing clients surveyed, 16 percent said they were not concerned about visa reforms, 37 said they were slightly concerned, 39 percent said they were quite concerned, and 8 percent said they were extremely concerned.
Among the 98 advisors asked, 32 percent said they knew a bit, but needed to know more about the details of proposed legislation for visa reform and 54 percent said they knew enough to understand the key points.
At the same time, 60 percent of those advisers said they were quite or extremely concerned about immigration reform's potential impact on their clients. "These are they guys who specialize in outsourcing, and they don't know much about it," said Phil Fersht in a webinar panel discussion.
"Even the advisors have not gotten well skilled on what this could do to their clients. Just one in seven advisors said that they were extremely concerned about visa reform. "They're almost as blasé as buyers about the impact on the business," Fersht said.
Similarly the majority of outsourcing providers admitted they needed a better understanding of potential visa changes (52 percent of offshore-centric providers said they knew "a bit" or "none at all" about the proposed legislation as did 61 percent of "Western-centric" providers).
The offshore providers "know enough to know if it passed it will make it harder to get H-1B and L-1 visas and have a big impact on their business," says Fersht. "But a big proportion of them plan to do nothing until the legislation passes."
Offshore Outsourcing Providers Would Suffer Most
The Senate version of immigration reform makes "significant changes to the H-1B and L-1 visa programs," said Steve Smerdjian, partner and immigration specialist with law firm Loeb & Loeb, during the HfS Research panel discussion, adding that those changes would have the greatest negative impact on offshore outsourcing providers.
That 844-page bill, which the Senate began debating last week, relaxed requirements related to layoffs and recruiting for companies for whom skilled visa holders make up a smaller percentage of their staffs, like American outsourcing giants IBM and Accenture, while subjecting those businesses deemed "H-1B dependent," like India's IT service providers, to much more stringent conditions, restrictions, and higher fees.
Specifically, Indian outsourcers would no longer be able to place their foreign-born employees at its client sites.
When asked what steps they might take if such restrictions were put in place, buyers, providers and advisers were similarly murky in their responses. More than half of all respondents indicated that they might consider domestic sourcing, insourcing, or even more offshoring in response to new visa rules.
"No one's entirely sure what they're going to do," says Fersht. "We saw the highest proportion saying their were highly likely or definitely go to move more work offshore if these labor restrictions were placed upon them." Twenty five percent of buyers said they were highly likely to do more offshoring while 9 percent indicated they would definitely do more work offshore.
All survey respondents indicated that greatest impact of any visa reforms would be felt in application development and maintenance work, where local resources play a greater role in outsourcing relationships, followed by IT infrastructure outsourcing.
IT Outsourcing Customers and Vendors Need to Talk
Smerdjian says outsourcing customers should be taking this time to review their outsourcing contracts to see what they say about issues like pricing, service continuity, and compliance should any visa reforms become law.
Clients need to have "an open dialogue with their outsourcing vendors," Smerdjian says. "It's in your vendor's best interest to think about these issues and develop contingency plans."
And vendors don't seem to be interested in starting these conversations on their own. When asked whether their vendors had communicated with them about immigration reform impact, 29 percent of buyers said they had heard from TCS and Dell; less than 20 percent had heard from HP, IBM, Wipro and Deloitte; and less than 10 percent from Cognizant and Infosys. Buyers said that all other vendors named (including Xerox, Mahindra Satyam, HCL, Genpact, Accenture, CSC, Cap Gemini, iGate, and others) had made no communication at all.
It is possible that no temporary visa reform will pass--or those proposed new rules that specifically target offshore outsourcers will remain in the final bill. "When this goes to conference, this will all be about what stays and what goes and I expect that vendors will make their case very clearly," says Jeff Lande, president of the Lande Group and former executive vice president at TechAmerica.
"There's a strong likelihood that the outplacement provision will not be in the final package. There's no one in the House that wants those draconian provisions," Lande says. And if no agreement is reached on what should be in the final bill, it will die this year.
Half of offshore-centric providers said that they had increased their onshore hiring in the past six months, according to the survey. "If there is a positive effect, this could inspire more of the offshore firms to invest more in the U.S. as one of their delivery vehicles."
"We've been moving very strongly to increase our onshore presence," says Joe Hogan, vice president of global advisory for HCL Technologies, which has delivery centers outside Rochester, N.Y. and in Wake County, N.C. "You have to take a little bit of a wait-and-see approach as it passed through Congress, but we know there will be changes and we need to be in a position to either take advantage of that change or protect our clients accordingly."
"Companies are increasing their onshore presence because of the type of work customers are doing in application development and maintenance requires an onshore, contextually sophisticated developer because applications are so business focused," says Stephanie Moore, president of Baton Rouge, La.-based domestic outsourcing provider Ameritas Technologies which launched last year. "[Potential] visa legislation hasn't driven the development of Ameritas but if it passes it will be positive for domestic development centers."
Moore adds that she'd like to see Indian providers like Infosys spend some of the millions in developer training on U.S. software professionals. "Why can't they commit that money to train U.S. nationals for the onsite positions available?"
Tim Norton, director of vendor management for UPS, says he is watching potential visa reform "like a hawk," but expects vendors to be able to adjust to any changes. "It's going to have a lot to do with how good the vendors are in reacting to it," Norton says. "I'm cautious about increased costs but have a very high expectation that vendors will push for the best leverage possible."
If visa reform isn't enacted this year, Norton expects the issue to come up again next year. "This is a train that's going to keep on coming."
Read more about outsourcing in CIO's Outsourcing Drilldown.