The Great Indian Job Threat?

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.

TV Mahalingam

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.