Indian IT is bracing for what it thinks will be a calamitous hit to its bread-and-butter business thanks to impending change in the H-1B regulations promised by Trump and re-activated by various legislation.
For a $150-billion industry that gets 60 percent of its revenues from the US alone, but which has faced a disastrous flatlining in its revenue growth over the past year — not to mention difficulties in winning new business — this couldn’t have come at a worse time and reactions from various constituents certainly suggest so.
Could it be that they all may be fretting about a future that is simply unavoidable? Could it also be that Trump may be forcing them to adopt new ways of thinking about their business that they should have embraced, for survival reasons, a long time ago?
With a potential US president who may scare off foreign tech investors and hinder its ability to innovate, Asia can step in as a viable alternative but first needs to put in place the necessary pieces.
Read More
Yes, if the average salary for H-1Bs is raised significantly from the approximately average $70,000 that Indian IT companies pay their employees in the US, there will be a significant hit to the bottom line. Forbes magazine reports that being forced to shell out $100,000 per engineer will cause Infosys, for instance, to take a blow of 260 basis points in FY 18 — significant for a firm in the middle of a comeback after years of middling performance. A mandatory $130,000 salary would cause arterial bleeding of 700 basis points.
The fact is, Indian IT is already in an existential crisis and the old model of outsourcing — which includes old service lines like application development and maintenance and infrastructure management — has become rapidly commoditized and is fast fading away. Today, a firm has to provide a bouquet of services which inevitably includes things like cloud, digital, AI (including predictive analytics), and security, all accompanied by high-level consulting.
This will mean competing with global consulting firms such as Accenture and IBM who are already carving out leads in these domains, as well as other smaller specialty shops who are highly innovative and extremely agile. Climbing the value chain to get business means that offshoring work to armies of low-end, low-cost coders will no longer be an incentive.
ACQUISITIONS
What will, however, are global acquisitions, and Indian IT firms have already realized that by making some moves in this direction. Wipro, for instance, snapped up four companies for $1.13 billion in the last few years, the jewel in their crown being Appirio, a US-based cloud services outfit. (Appirio also happened to contain leading crowdsourcing platform Topcoder and its rival CloudSpokes.)
Infosys has spent $390 million on three companies in the past three years, including US-based Noah Consulting and Kallidus Technologies. However, it will need to do much more. Those buys were a while back and shareholders are becoming increasingly restless about the $5 billion cash hoard the company is sitting on, which in these times is money not spent unwisely.
Change the way you work with VARIDESK sit/stand desks.
VARIDESK models go from sitting to standing in just 3 seconds, require no assembly, start at just $175 and work with your existing furniture.
Sponsored by VARIDESK® Standing Desks
Tech Mahindra, which two years ago bought network services management firm Lightbridge Communications, has talked publicly about its intentions to pick up other US outfits, especially those in fintech and healthcare, but it will also need to demonstrate that if it wants to avail of good talent at the right price amidst fierce competition it should do so expeditiously.
In great demand these days is the ability of the firm to act as a high-level consultant for a company’s digital makeover, and for this location is less relevant than skills. As far as skills are concerned, two things are becoming more apparent — the skills much in demand that are in AI, robotics, data analytics, and security tend to be found in smaller, more specialized US and international firms who can also work with clients on-site. Watch for more of these deals to materialize as Indian outfits struggle to remain relevant and competitive.
LOCAL HIRES
Another strategy that will quickly become in-vogue: Hire where you win deals. Even the don of outsourcing, Narayana Murthy, former founder and CEO of Infosys, has come out strongly in favour of hiring in the markets that Infosys clients exist in. “We can become a true multinational company,” he said, “and in order to do that, we should stop using H1-B visas and sending a large number of Indians to those countries to deliver services”. Cognizant hired over 4,000 US workers last year and has over 20 US-based delivery centers, both of which it plans to significantly increase. Most Indian IT companies have indicated that they will significantly ramp up their efforts in the years ahead, but seeing is believing.
Caveat: Job site Indeed conducted a survey of over 1,000 hiring managers and recruiters that showed nine out of 10 respondents found it difficult to find and hire technical talent in the US.
NEARSHORE FACILITIES
When you do want to benefit from proximity and availability of a competent low-end work force that will do a lot of the stuff that your H-1B hires used to do there’s another option: Invest in facilities close to the US. According to Quartz, TCS has successful operations in Argentina, Brazil, Chile, and Uruguay since 2007, plus a global delivery centre in Mexico. Apparently Wipro also has a significant presence in Mexico. Look for more of these satellite offices to do some of the low-end work that Indian hires have been shipped in to do.
AUTOMATION AND VIRTUAL WORK
Then there’s automation. Industry observers anticipate a greater shift of some of the lower-end of the H-1B work to automation — a sweeping change that ironically threatens a significant chunk of India’s tech workforce itself. Shedding repetitive jobs and handing them over to machines will allow more focus to be placed on creative roles and products that you will need to woo companies with in the future.
Already, Wipro has been toiling to claim its fortunes in this arena with its cognitive AI platform, Holmes, launched a few years ago. Increasing adoption of cloud and digital services means that Indian firms now actually need fewer people on site in the US, at least for that kind of work. Infosys CEO Vishal Sikka said that the firm’s AI platform is already accounting for 5 to 6 percent of revenues versus none three years ago.
By Rajiv Rao
