Outsourcing's Thorny Issue

In a recent Bollywood blockbuster, actor Sanjay Dutt sends thousands of flowers to the villain who has unlawfully laid claim to his girlfriend's house, and is refusing to vacate it. In doing so he adopts Mahatma Gandhi's method of peaceful protest, a figure he is inspired by in the film, and "wrests" the house back for his sweetheart.

July saw this romantic ideal being extended to real life when a group of Indians seeking green cards sent thousands of flowers to U.S. Citizenship and Immigration Services (USCIS) Director, Emilio Gonzalez. These Indian H-1B visa holders were working toward a July 2nd deadline for green-card applications, but were driven to protest when the USCIS retracted on the deadline on grounds that the quota for green cards had already been filled, and it could not accept any more applications.

The green-card issue is the most recent of a series of immigrant and non-immigrant visa-related issues that have cropped up in the past two months. On the non-immigrant side, technology companies with a predominantly offshoring model have been accused of misusing the non-immigrant H-1B and L-1 visas issued to them, by bringing in cheaper labor from overseas, thereby taking away the chance of qualified Americans who would wire much higher amounts to their banks.

Charge of Abuse

In May, two U.S. Senators charged some of the leading Indian tech outsourcing firms of misusing the H-1B visas issued to them, stirring up protectionist sentiments and opening up the outsourcing debate once again.

The companies targeted include Infosys, Wipro, TCS, Satyam, Patni, Larsen & Tourbo Infotech, i-Flex Solutions, Tech Mahindra and MphasiS. These companies were amongst the highest users of H-1B visas in 2006, together accounting for over 30 percent (or 19,912) of the 65,000 H-1Bs allowed last year. This is the first time that the list of H-1B visa recipients was made available.

Senators Dick Durbin and Chuck Grassley demanded to know from these companies how they were using the visas allocated to them: How many U.S. citizens they employ in the U.S.; what percentage of their total workforce are H-1B visa holders; what is the average wage of their H-1B visa holders; what are their efforts in recruiting Americans for the positions for which they employ H-1B workers?

Then in June the Senators turned up the heat on these firms by releasing a list of the top users of the L-1 visas. They drove home the point that of the top 20 users of the L-1 visas in fiscal 2006, nearly half are Indian IT outsourcing firms that are also among the top users of the H-1B visas. They include TCS, Satyam, Wipro and Patni, and together account for about 45 percent of total L-1s allocated to the top 20 users of these visas! (See table for list of the top 20 H-1B and L-1 visa holders for 2006.)

Company	No. of H-1B Visas, 2006
Infosys Technologies	4,908
Wipro	4,402
Microsoft	3,117
Tata Consultancy Services	3,046
Satyam Computer Services	2,880
Cognizant Tech. Solutions	2,226
Patni Computer Systems	1,391
IBM	1,130
Oracle U.S.A.	1,022
Larsen & Toubro Infotech	947
HCL America	910
Deloitte & Touche	890
Cisco Systems	828
Intel	828
I-Flex Solutions	817
Ernst & Young	774
Tech Mahindra Americas	770
Motorola	760
MphasiS	751
Deloitte Consulting	665

H-1B visas are issued to companies to hire and bring foreign skilled workers (engineers, doctors, nurses, architects, mathematicians) to the U.S. at salaries comparable to their U.S. counterparts. Companies can hire such staff only if the skills that they bring aren't available locally. There is also a cap on the H-1Bs — 65,000 as of now, though in 2000 it went up to as much as 195,000. L-1s, on the other hand, are allocated to companies with offices both in the U.S. and abroad for bringing their foreign workers to work in the U.S. for a short while.

IT outsourcing firms — not just Indian firms, but equally American ones — have been charged of misusing these two types of visas allocated to them. Protectionist forces have alleged that foreign outsourcing companies bring their employees into the U.S. on the H-1B and L-1 visas to get them trained on the work done by Americans, and then offshore that piece of work abroad. Moreover, since these guest workers purportedly come in "cheaper," they work as inexpensive onsite resources to coordinate the offshore functions.

Following this, corporate America, and indeed even the Indian outsourcing firms, riding their fortunes on the back of a global economy, feared a backlash reminiscent of the 2004 Presidential elections when John Kerry and his democrats raised job losses as a result of outsourcing as one of their campaigning placards. Some of these fears proved founded — Patni, one of the Indian companies charged of visa misuse, will be paying $2.4 million in back wages to 607 of its H-1B employees, whom it purportedly brought to the U.S. under salaries lower to what U.S. workers would get paid for similar work.

In Defense of the Indians

Meanwhile, the accused Indian companies responded to the Senators toward the end of June through the country's high-profile association of software and services companies, Nasscom. When contacted by Global Services, Nasscom declined to comment, though in its statement issued to the press it held the Indian companies in question as abiding by the law, while shifting the blame to smaller, "fly-by-night" operators.

"Most of the companies that sponsor a large number of visas are publicly listed and ethically managed companies. Visa abuse, if any, would tend to be lesser in such organizations as compared to other small, fly-by-night operators," said Nasscom.

Nasscom is not the only one that came up in support of the Indian firms. Bloggers — the powerful new-age community that often gives a peep into the real-world happenings — argued that the Senators were targeting not all outsourcing firms, but had singled out the Indians.

Of the top 20 highest users of H-1Bs in 2006, only nine companies were Indian and 11 American, including Microsoft (third-highest user of these visas), IBM (eighth), Oracle (ninth), Deloitte & Touche (12th), Cisco (13th), Intel (14th), Ernst & Young (16th), Motorola (18th) and Deloitte Consulting (20th). These 11 also include two U.S.-headquartered companies of Indian origin: Cognizant (sixth) and HCL America (11th). But none of the American firms were questioned on their H-1B visa usage!

Most of the larger Indian companies charged with visa misuse, when contacted declined to comment. Wipro's spokesperson sent an email reply to our inquiry saying, "Wipro would not like to comment on this issue." "[The issue was] discussed between Nasscom and the IT companies in India, and [we] finally came to a conclusion that Nasscom would reply on behalf of all the companies," said Tech Mahindra's spokesperson. Patni said its spokespersons were traveling and Infosys declined to comment, while TCS chose to not even acknowledge our mail inquiry.

The smaller companies whose names don't appear on the Senator's list were open to talking to us, and came out in defense of the industry. "Since sending a worker to the U.S. on visa is more expensive than operating from India, why would any company risk their growth by sending more people onsite?" asks Iti Kumar, Director HR, GlobalLogic, an India-based IT-services firm. "It is a win-win scenario for Indian service providers, so it is not in our [Indian companies] interest to do so [violate visa regulations]."

Smaller Companies: The Culprits?

Nasscom putting the blame on "smaller" companies hasn't gone down too well with such firms, with some alleging that the association is standing up for the large companies because they are its key financiers. In fact, four of the nine firms charged (Infosys, TCS, Wipro and i-Flex) have representations in Nasscom's Executive Council.

Moreover, H-1B visas are not easy to come by, and companies have to go through stringent processes when applying for these visas for their staff. So, how can "fly-by-night" operators even get these visas, let alone misuse them, they ask?

Also, the number of visas that these companies get is insignificant compared to what the biggies get. Global Services was not able to get the number of H-1B visas allocated to "small" companies, but we did speak to a few mid-sized companies to get an estimate of the number of such visas they have. Zensar, a 4,000 people mid-sized company with revenue of $135 million, for instance, has less than a 100 H-1Bs for 2007 while GlobalLogic, another mid-sized company with a staff of 1,700, has about 25 such visas. Compare this to Infosys' 4,908 and Wipro's 4,003 H-1B allocation for 2006. Neither Zensar nor GlobalLogic figure in the list of the top 200 H-1B visa holders for 2006.

The L-1 Loophole

But that does not mean that there is no misuse of these non-immigrant visas. When companies can't get sufficient H-1Bs or if they exhaust their quotas, they often get their staff to the U.S. on L-1 visas. Moreover, unlike the H-1B program, the L-1 visa has neither a cap to it nor a salary restriction, making it an easy loophole to bring cheap labor into the country. In fact, jokes have been made that the "L" in L-1 stands for "loophole!"

Company	No. of L-1 Visas, 2006
Tata Consultancy Services	4,887
Cognizant Tech Solutions	3,520
IBM	1,237
Satyam Computer Services	950
Wipro	839
HCL America	511
Deloitte & Touche LLP/Deloitte Consulting	512
Patni Computer Systems	440
Intel	392
Kanbay	329
Honeywell International	320
HP	316
Infosys Tech	294
Accenture	291
Caritor	231
Schlumberger Technology	214
Oracle USA	176
Syntel	171
PricewaterhouseCoopers	168
Microsoft	168

Moreover, L-1s are meant for managers and workers with specialized knowledge not available in the firm's U.S. office; programmers, available in abundance in the U.S., do not qualify for the L scheme.

"If companies can't get the H-1B visas, they use the L-1 visa," says Kumar of GlobalLogic. "Or if their H-1Bs get exhausted, they turn to the L-1."

This is not something that Congress does not know. In fact, closing L-1 loopholes has been a focus of high-skill immigration-policy reform discussions. Since the L visa allows companies to transfer "limitless" workers into the U.S., Senators Durbin and Grassley have vowed to continue their investigation into the "blanket" L-visa policy.

Work @ Less Pay

One requisite of the H-1B is that workers on these visas should get paid the prevailing wage rate — this is ostensibly to safeguard American jobs. In reality, though, often the H-1B visa holders get paid less than their American counterparts.

A 2007 report by the Center for Immigration Studies reveals that in fiscal 2005, H-1B employer prevailing wage claims averaged $16,000 below the median wage for U.S. computer workers in the same location and occupation.

H-1B visa holders themselves testify to being paid lower than their American counterparts. "It's well known that Indian H-1B visa holders get paid less than their American counterparts," says an ex TCS employee who spent two years in the U.S. on an L-1. "How much the difference is, I don't know. But I can wager that if an American programmer gets about $75,000 to $100,000 a year, his H-1B counterpart will get about $65,000."

"[In the case of L-1s] in most cases the employee package consists of the Indian salary, U.S. salary as agreed upon and daily allowance. Overall the package has to be competitive otherwise employees will leave the company," says Raj Chaturvedi, a green-card holder who works for a retail company as a senior IT Manager. "However, this package may still be far less than what a local resource may get," he adds.

But outsourcing companies are quick to defend themselves. Bill Gates had told the Senate last spring that Microsoft starts its fresh grads on an H-1B at about $100,000 a year. This was subsequently contested with offshoring critic Robert Oak and Ron Hira, an assistant professor of public policy at the Rochester Institute of Technology, claiming that the median salary at Microsoft was $71,000, well below Gate's claim of $100,000.

"If you pay your H-1Bs a lower salary, they will find another job," says Dr. Ganesh Natarajan, CEO, Zensar. "If you don't pay market salaries, you won't get market talent."

"In the ninetees, many small Indian and U.S. companies often didn't even pay their H-1B staff. They were given a room and a basic allowance until a suitable project was found. Often this extended into months and people stayed on because they saw the H-1B as a passport to a green card," says a green-card holder who first came to the U.S. almost a decade ago on an H-1B. "But now things are different. Because of opportunities in India, people are not that keen to come to the U.S."

Visa Holders: Unperturbed

While political lobbies and companies seem to be battling it out, visa holders themselves — and, indeed, even their American colleagues — seem largely unperturbed.

"There is very little possibility that the U.S. government doesn't know about the visa misuse," says the ex TCS employee we spoke to. "But tech companies prefer Indian workers because they are better skilled than their American counterparts."

Whether Indians are "better skilled" is subjective. Yet, a poll running on the personal blog of Phil Fersht, Manager at Deloitte Consulting, indicates that people, in general, don't feel threatened by the increasing number of H-1Bs. Almost 80% of respondents to the poll say that "H-1B visas for outsourcing providers should be increased;" 10.5% say that "H-1B visas for outsourcing providers should be reduced;" and only 5.3% say that "the current allocation of H-1B visas for outsourcing providers is appropriate."

Most shrug off the issue as pre-election hullabaloo, though one that can have significant fallout. "We saw such activity in 2006 [mid-term elections] when there was legislation around data security that would have the effect of reducing offshoring activity," says Neil Hirshman, Partner, Kirkland & Ellis, an international law firm. "It is, after all, politically popular to protect jobs."

"I work with about five H-1B holders of Indian origin, and find that they have the right skill sets and they are very dedicated," says Michael J. Hennessey, SGI Video Systems Support Engineer. "I don't agree with the Senators; I don't believe that the U.S. is losing out." And this is from an American tech worker, whose cause the Senators are supposedly arguing.    

First published in Global Services August '07 edition, www.globalservicesmedia.com, reprinted with permission from Global Services. All rights reserved.