Much has been written about the current downturn... Of economic indices,
recession dynamics and business cycles. But at the end of the day, when people
begin to lose their jobs, it’s no longer just about business. It hits the gut
and it gets personal. And when things get personal, people react.
The US tech workforce is now beginning to react.
In an environment that has seen repeated layoffs in the US economy as a
whole and the tech sector in particular, that reaction has taken two major forms–a
movement against importing cheap labor and exporting jobs.
The first is being manifested in an increasingly vocal and often strident
campaign against H1B visa holders who come to the US to work from Third World
countries like India, China, Indonesia and the Philippines.
The second is showing up as a progressively louder opposition to outsourcing
work–non-IT, IT services and IT enabled services–to the same "cheap
labor" countries.
These fears of losing jobs–whether to H1B holders or to outsourcing
destinations–is heightened by studies like a recent Forrester research that
predicted 3.3 million US jobs, including 1 million IT-related jobs, would move
to non-US shores in the next 15 years. Add to this the fact that a recent survey
by the Information Technology Association of America (ITAA) found that the IT
work force in the United States shrank by nearly 5%, and one begins to get an
idea of the source of that fear.
While the movement against outsourcing may have limited legislative fallout,
the H1B issue will be put to the test this year. Sometime in June the US
Congress is scheduled to discuss the new limit on the number of H1B visas to be
issued annually. Consider the background in which this discussion will take
place:
The anti-H1B movement
n The H1B visa
cap that currently stands at 195,000 per year is up for review in September
2003. There is strong lobby led by some Congressmen and trade union bodies to
cut that down to a third.
n In November 2001
Republican Congressman from Colorado, Tom Tancredo introduced the HR 3222 Act,
titled, "The High-Tech Work Fairness and Economic Stimulus Act of 2001’.
The act is also aimed at returning the H1B quota to 65,000 per year.
n Recently, the US General Accounting Office has announced its
intent to study the impact of H1B program on domestic hiring. The study will
look at whether US IT companies favor hiring H1B workers over domestic workers.
And if yes, why?
Such a study has been the long-standing demand of unions and Democrats like
James Barcia and Lynn Rivers. The results of the study are expected to be out
mid next year when a congressional debate over the annual cap would be going on.
n Recently the
Communication Workers of America and the AFL-CIO brought out a study that also
recommended changes in legislation which would make it far more difficult for
companies to apply for H1B visas (read H1B Visa Fin).
These may well be the periodic over-exertions of US lawmakers and pressure
groups. But they gain an imperative in the background of growing trade-union
activity. Over the last year and a half these unions have been lobbying in the
corridors of power a la Tornedo and building public opinion against both H1B
visas and outsourcing. The Internet today is littered with hundreds of sites
that vary from simple signature collections to rabid outbursts against H1B
immigrants.
Sample: "H1Bs evade taxes." "H1Bs stay back illegally even
after their visas expire and eat up American jobs." "Boycott H1B
organizations." And last but not the least, "now you know why 9/11
happened."
While a lot of the rabid stuff usually wears off with time, the immediate
question is: What happens if the H1B limit is in fact slashed to 65,000? Does it
really impact Indian IT services exporters? And if yes, how much?
A divided response
The Indian industry is divided over how seriously the scaling down of H1B
quotas would affect services exports. "The majority of Indian IT business
today takes place offshore. So the cutting down on the H1B visa would actually
not affect Indian IT business as much as it would have a couple of years
ago," says Anant Koppar, President and CEO of Kshema Technologies.
While Koppar is right in that more and more Indian companies are moving work
offshore to India, the fact is that a good 42% of Indian software export
revenues still come from on-site work. This portion of work could be
significantly affected by a H1B clampdown.
Says Sundeep Gandhi, business analyst with Mascot Systems, "Of the cuff,
I would say that the scaling back of the H1B visa process would have an adverse
impact on the India IT industry. Even though a lot of work today happens
offshore, growth areas like package implementation need onsite presence.
Upgrades and modifications, which are a very vital part of package
implementation, require strong onsite presence. This could be affected if the
H1B quota was to be scaled back."
Nasscom president Kiran Karnik says he’s concerned but not panicky. If that
happens, he says, "Of course we would become concerned…. It would be an
irritant and would create difficulties. But I think it will only marginally
affect software exports."
What is at stake however is not just one legislation. There is a deeper
thread of resistance running through the US at the moment that has the potential
to affect both IT services and IT enabled services–the resistance to
outsourcing itself.
The unions against outsourcing
"In the very near future we see a time when every major US Company will
have IT outsourcing projects in India and China. It will not only be tech firms
such as Oracle, Dell, Sun but also financial institutions such as Bank of
America, American Express and so on," says Marcus Courtney, co-founder of
WashTech speaking to Dataquest.
WashTech was America’s first local union dedicated to organizing and
representing new economy tech workers. It has more than 250 members from the
Seattle technology industry. Marcus himself spent two years as a Permatemp (read
the box on US unions) tester at Microsoft on Windows ’98 and Outlook Mail
before founding WashTech.
"This trend concerns us, because we see this development occurring based
strictly on the issue of cost of labor. Living and working in America just costs
more. American technical workers cannot compete in labor costs with developing
nations such as India–no matter what we do. The education costs to even break
into the field alone are mind boggling. This is not an issue of Indian workers
Vs American workers. This is an issue of how global corporations are leveraging
the different labor cost structures in two worlds to drive down their
costs," he adds.
Not US and UK alone…
It’s not the worker unions in the UK and the US alone, who are concerned
about this trend of jobs moving to India. Unions in the Europe and Australia too
are sitting up and taking note of the Indian threat.
"Now that the IT boom has come to an end, the skills shortage that had
become a problem for the IT industry has changed into a surplus in supply.
Unemployment among IT professionals is rising in particular among older ones and
professionals without solid education and up-to-date skills are met with more
and more reluctance here. Trade unions in Europe are concerned about the ongoing
outsourcing," Gerd Rohde told Dataquest. Rhode is with the Union Network
International (UNI), which has about 900 affiliated unions from different
professions in 140 countries around the world. Rhode himself specializes in
organizing high tech sector workers.
In Australia too, unions have protested over the government’s move to
promote outsourcing to venues like India. Late last year New South Wales Premier
Bob Carr had a stand-off with the country’s Foreign Affairs Minister,
Alexander Downer over a government report that suggested that Australian IT
companies should outsource to India to exploit the low wages of Indian workers.
Underlying all these protests is the belief that countries like India walk away
with business (and jobs) merely because they offer cheaper labor.
But is it only about costs?
Labor unions in the US and Europe believe cost is the sole influence on
outsourcing decisions. That is however only partly true. For one, no business
would settle for shoddy work in return for low costs–a certain minimum quality
is predicated in any project. For another, the primary cost proposition
notwithstanding, countries like India have also begun to get a reputation for
some really good quality work.
Says John McCarthy, Group Research Director of Forrester Research, "Cost
alone is not the only factor when it comes to outsourcing to destinations like
India. Indian programmers are reckoned as among the best in the world and
quality of service is definitely on the higher side. Quality along with lesser
cost is the primary driver for outsourcing."
This is a point of view also gaining currency in the IT-enabled services’
space.
HSBC chief executive Sir Keith Whitson recently went on record calling British
call center employees ‘inferior’ compared to their Asian counterparts. The
local unions called him all sorts of names on that account. Around the same time
a survey conducted in the UK by a recruitment agency–Adecco–estimated that
UK firms would create about 100,000 jobs overseas during the next five years. Of
the 150 call center operators surveyed, 60% also said they would most likely
move their operations to India. The reason they offered–the right mixture of
cost and quality.
In the final run what does all of this–the H1B tangle, the resistance to
outsourcing, the cost-quality debate–bode for Indian IT services and ITeS
companies?
The long and short of it
In the short term, it probably bodes some amount of trouble. If the H1B
limit is cut it will mean finding holes in the law like the L1 visas, a whole
lot of extra paperwork, higher management bandwidth towards moving more work
offshore. Basically, a whole lot of pain and a certain amount of business
affected.
The resistance to outsourcing has limited legislative implications. Unions
can at best influence who the US Federal or State governments outsource to. No
law in the US can really influence where private companies chose to outsource.
So here again the short-term implications are a whole lot of pain and working
out of new outsourcing deals that can take care of union concerns.
Even in the short term however, much will depend on how the US economy moves
over the coming year. The US Immigration and Naturalization Service (INS)
reported that it granted 60,500 H-1B visas for the nine-month period ending June
30, a 54% drop from the same period during the last year. If the US economy
remains stagnant a 65,000-visa limit may not be such a hassle. As Karnik says,
"over the last year the constraint has not been one of visas but of demand.
If the demand remains slow, a lower H1B limit will not be an issue."
"Organizations like the ITAA that have been lobbying for increasing the
H1B cap have been fairly effective so far, but it was also at the time that the
economy was thriving. Ultimately it’s about lobbying power, it’s political
clout and other factors will be swayed by the economy. Anti-immigration forces
like FAIR (Federation Against Immigration Reform) and other anti-immigration
lobbying agencies have been successful in weak economies and with more blue
collar type workers who do not understand the benefits of immigration to
America," says Sheela Murthy, a practicing Attorney at Law in the US, who
specializes in the area of US Immigration and Nationality Law. Sheela is also an
active member of the American Immigration Lawyers Association.
In the long run, of course, it is more likely to be business as usual. Says
McCarthy of Forrester, "finally it has to be a business decision.
Businesses have no choice but to evolve or die. And if moving work offshore is
what makes them more competitive, then that is what they will do."
Pawan Kumar, chief executive officer of vMoksha also believes that in the
long run things will work themselves out. "I think the Forrester report
about 3.3 million jobs moving to India, China etc has created unnecessary
excitement. Of course, we will hear voices against IT outsourcing work to India,
more so in the area of IT enabled services and BPO. But if you remember, labor
unions resisted manufacturing work going to Mexico, South Asian countries, and
China. None of these objections have stopped any manufacturing going out of the
US. You are never punished at the stock market for reducing your costs."
In the end however, what makes this issue volatile is that it’s about a
very fundamental human fear–the fear of losing a job. It’s an emotion not
easily pushed aside by arguments of top-line growth and business imperatives.
Combine that with the public sentiment against immigrants in the US ever since
9/11 and it also becomes a potentially explosive one. Whatever solution is
finally worked out both Indian companies and US lawmakers will have to take that
into account.
The Story of the H1B Visa
The H1B Visa has for long stood as a cornerstone of the Indian software
dream. An original annual quota of 65,000 was set up in 1990 with the
Immigration Act. The cap was never filled till August 1997.
The H1B honeymoon can be traced back to 1997, when a bill called
"American Competitiveness Act," introduced by Senator Spencer Abraham
sought to increase the annual H-1B cap from 65,000 to 95,000 in 1998, and up to
105,000 by the year 2002.
By 1998, everybody in the US was talking about a dire shortage of tech
workforce. The Information Technology Association of America (ITAA) study,
estimated that more than 340,000 highly skilled posts would go unfilled in US
companies. The Y2K bogey led to the smooth passage of the bill in the American
congress. In the next two years, the quota kept getting filled ahead of its
time. The Clinton Administration further increased the cap to 195,000 in the
year 2000. There were a few voices of protest here and there lead by
organizations like Federation for American Immigration Reform (FAIR), but the
overall feeling was that the shortfall in the tech workforce could be met only
by importing immigrant workers. But public sentiment on the H1B issue changed
dramatically after the downturn. Stories of corporates hiring cheaper H1B
immigrants and sacking locals began to make rounds. The 9/11 incident sharpened
the antipathy towards the immigrants and ever since demands to scale back the
H1B quota has been on the rise.
In fact, a recent report prepared by the Department for Professional
Employees AFL-CIO, along with the Communications Workers of America (CWA) has a
list of proposed reforms suggesting drastic changes to the existing scheme H1B
scheme. Other than making a case for stringent enforcement of the existing
rules, it also makes recommendations for changes in the present scheme.
Some of the recommendations of the report are as follows:
On the H1B quota
n Reduce number
of available H-1B visas from current level of 195,000 per annum to the pre-1998
level of 65,000
n Devise labor
market tests that ties visa approval to local labor market conditions.
n Limit the number
of H1B workers in any firm as a fixed percentage of the firm’s workforce.
The report also conditions employer’s eligibility to petition for H-1B
visas provided they prove that, over the previous year, they have
n increased the
number of full time equivalent US workers
n increased the
total amount of wages paid to their US workers, and;
n increased the
average wages paid to their American workers
Wage reforms
Employers petitioning for H-1B workers must pay the higher of:
n the prevailing
wage as determined by the state workforce agency (SWA); or
n A prevailing wage
that is no less than the median salary for US professional workers
Job security
n Apply
anti-layoff protections to all H-1B employers.
n Laid-off H-1B
workers must return to their country of origin within 60 days of their
unemployment; prevent the misuse of the "portability" of H-1B visas so
that they are not used by the guest worker to look for other employment. Even
though similar legislation is already in place, the report recommends better
scrutiny and monitoring on this front.
Qualification of H1B
n The report
says that the existing law requires H-1B applicants to have a college degree or
the "equivalent". The report recommends that the
"equivalent" clause must be clearly defined to prevent entry by
underqualified candidates.
Outsourcing Diary
In September, Prudential ICICI announced its decision to cut 850 UK jobs and
transfer the work to India...
In November, Electronic Data Systems Corp, (EDS) announced plans to rely more
on facilities located outside the US to provide application development and call
center services as part of its five-year, $100 mn Best Shore effort. As part of
this initiative, EDS plans to open a series of new offshore IT service centers.
The first facility is scheduled to be operational by next year in Mumbai with
about 200 employees. EDS has announced that the center is likely to scale up to
700 employees by 2004. Recently HP’s services Chief Ann Livermore said the
company plans to relocate a major portion of its IT services work to India. The
company is expected to come out with a more detailed version of its offshoring
plans in January.
Gartner predicts that by 2004, 80 % of US companies would have considered
using offshore IT services. And that, more than 40 % of US corporations would
have completed some type of offshore IT pilot program or will be using IT
services with an overseas component. An IDC report suggests that spending on
offshore development by US companies will increase from $5.5 bn in 2002 to more
than $17.6 bn in 2005.
A Tale of the Unions
For long, the IT industry in the US was considered as union-proof. After all,
unions
flourished in low skill, poorly paid sectors like manufacturing whereas IT
employees were a pampered lot–well paid, highly skilled and always in demand.
The year 2000 was a watershed as far as unionization in the US IT industry
was concerned. The year saw two major developments that led to the growth of IT
unions. The first was the settlement of a case famously dubbed as the ‘Permatemp
case’. And the second was the slowdown.
The Permatemp case revolved around Microsoft’s practice of hiring workers
through temp agencies so that it could avoid paying pensions, health care, stock
options and the like granted to permanent employees.
The case, which was filed in 1992, was settled with Microsoft coughing up $97
mn to settle a long-standing legal case. The case also made Microsoft rethink
its policies for temporary employees even before the settlement. It adopted a
12-month limit on temporary employment, after which workers would have to take a
100-day break. The company also switched to using temporary employment agencies
that paid benefits to the workers. The case galvanized the growth of technology
unions in America.
In 1998, three Permatemp at Microsoft formed the Washington Alliance of
Technology Workers, popularly known as Washtech. The group, which is affiliated
with the Communication Workers of America (CWA), today has more than 250 members
in the Seattle area. CWA is America’s largest communications and media union
that has 700,000 members.
A year later, in 1999 IBM workers formed Alliance@IBM, as a response to Big
Blue’s plans to revamp to their pension plans. The organization, also a CWA
affiliate, claims to have grown to about 5,000 members in the US.
The second factor that contributed to the growth of tech unions in America
was the slowdown, which led to a ‘pink slip’ phenomenon in that latter half
of 2000, and the better part of 2001. What started off as a couple of dot com
companies going bust soon turned into virtually every large corporation laying
off employees by droves. Employees were faced with the danger of being shown the
door ignominiously. Even though tech unions were around in the 90s, they were
not very popular with the employees who looked down on them, as they were
considered unnecessary. But with increasing job insecurity, the employees were
willing to look at unions more seriously and participation in unions shot up.
So calls for unionization of tech employees sprung up in dot coms like
Amazon, and Etown. Despite the surging tech union ranks, the unions have neither
been able to stop layoffs or the salary cuts. But they have become a significant
pressure group that may influence policy over a period of time.