I found this recent video of Ms Murthy's interview with Sneha TV. Some people might find it off topic, however given the number of Indian IT professionals in the US and/or aspiring to go to the land of opportunity I thought it would be of interest to a wider audience. She makes some excellent points and it is a must see. Here is the link
Showing posts with label h-1b. Show all posts
Showing posts with label h-1b. Show all posts
Sunday, 14 March 2010
Monday, 27 April 2009
Bindas Bhai has asked a very relevant question on the impact of H-1b Visa curbs on outsourcing. here is my analysis on that question and I will assess the impact to real estate in India as well. Others can chime in and discuss further.
Question :
Will IT revenues/salaries be hit by the H-1B/L-1B visa clampdown ?
Short Answer : YES
Long Answer : The revenue earned by IT service providers will decrease since the wage arbitrage between the salary paid to the H-1B/L-1B employee versus the hourly rate billed to the client will decrease. Its a well known fact H-1B employees are paid up to 40% lower then local US citizens or green card holders. Many IT service providers charge a hybrid rate or a blended rate to account for onshore and offshore resources. As the number of local onsite employees reduces, the blended rate will tend to decrease. As the revenue earned by the IT companies reduce, so does their inclination to grow the workforce in India, invest in training and hire more employees. The focus is now on cost-cutting be it reduced transportation options, decreased food subsidy and elimination of fringe benefits. All IT companies have a variable pay component which will reduce to zero or almost zero as they face pricing pressure, project cancellation and reduction in onsite billing.
The net impact on the IT service employee is that he has less income when offshore and reduced options to go onshore. Most IT employees factor the onshore component into their salary. Now since that component will be zero for the foreseeable future due to the visa clampdown, their ability to take more liabilities in terms of housing loans and car loans will reduce.
Will H1 visa problem increase outsourcing jobs in India ?
Short Answer : NO
Short Answer : NO
Long Answer: Conventional wisdom will dictate that as H1-B's visa reduce, most work done by the H-1B's will move offshore or to the home country of the H-1B workers. However this is not the case this time. There is huge unemployment within the IT workforce as companies in every corner have cut any surplus employees and are operating with minimum capacity. There is still room for more layoffs and more employees are coming to the market as the quarter revenues keep declining and layoffs mount. There is increased pressure on local salaries and it is no uncommon to see pay cuts up to 30% in many cases. In the case of startups, there are some cases where people are willing to work for free to gain experience with the hope that the employer will hire them when the market turns around. I've seen some billing rates of $10-15 in this market, something which the IT offshore companies cannot match even in India. Tech salaries will continue to decline into the next year and it will not be uncommon to find someone with experience working for $60k, a level we last saw in 1997. As the minimum salary to be paid to an H-1b worker is 60k, there is no wage arbitrage left for the IT service provider. The bigger issue is the clampdown on L-1 visa. L-1B visas have no quota and were used by every IT provider to bring in Indian employees to work in client locations.
The most interesting quote I saw today was from Mohandas Pai, the Infosys CFO. He said we are trying to understand the meaning of the word "employee" as it relates to the new H-1B bill. This sums up the conundrum Infosys is in. If they hire more local citizens and green card holders, they lose the wage arbitrage, they have to pay severances if they layoff locals, they cannot employ the performance appraisal sham to boot out employees by giving tests like they do in India. They now have to play by the US Dept of labor rules, something they have resisted till now. All things considered they will be forced to hire locals, reduce offshore resources to operate more efficiently.
As any experienced professional will tell you, there is a 10x productivity difference between a top IT employee and an inexperienced employee. IT companies operate on the premise that they can hire lower paid fresh graduates in bulk and replace the experienced bunch as the experienced bunch moves onshore. Now with the H-1B clampdown the option to move offshore been taken away, they will be faced with more experienced employees earning higher salaries on bench. As with the sub-prime the whole model worked beautifully as long as the employees kept moving onsite Now that the flow has reversed they have to adapt to the changed scenario. Will IT companies fire experienced staff and replace them with new graduates ? If some of them do, who will hire these experienced folks at their high salaries. Either these folks join new employers at lower salaries or they remain unemployed.
As we discuss IT companies, they are mostly concentrated outside Mumbai. Their real estate markets they affect are mostly non Mumbai. If you look at the R2Iclubforums.com polls, there are hardly any NRI's moving to Mumbai. Most end up in Pune, Bangalore, Chennai, Hyderabad and Gurgoan/Nodia. There is a trickle which makes Mumbai their homes after their return.
Now the question to ask is why will someone facing an uncertain future in India, with no hope of going onsite invest in a property of 1 crore ? This question is more pertinent to Mumbai more then any other place. All other cities you can get apts for under 50L, some even at 30L. Now if Mumbai is never considered an IT hub, apart from black money operators who has disposable income of 1cr or will get a loan of 80L in this market ? Now if still one believes Mumbai has headed for 50% jump in prices in the next few years, invest and check back in 2 years.
Sunday, 26 April 2009
Moneycontrol.com has an interview with the Nascomm chief to discuss the implications of the new Grassley/Durbin legislation on H-1B visa curbs. I find Nasscom defense to be absolutely weak and even a 10 year old will have the IQ to understand why it holds no water. The bigger story here is the abuse of the L-1 visa by IT companies to shop Indian bodies to the US. Increased scrutiny of those applications will have bigger implications then the H-1b visa where according to Nasscom only 30% of the visa's are granted to Indian IT companies.
How this affect property prices in tech capitals is another story.
Don't see new H1B proposal turning into an Act: NASSCOM
Published on Fri, Apr 24, 2009 at 20:50 , Updated at Sat, Apr 25, 2009 at 17:32
Source : CNBC-TV18
“But I am hopeful that over the next three-months we will not see this really becoming an Act.” Meanwhile, Commerce Minister Kamal Nath said he is concerned by the contents of H1B visa bill by Senator Durbin and Senator Grassley. "The bill will restrict the ability of Indian IT companies to compete in the Also Read: US's new H1-B proposal anti-trade: NASSCOM New H1-B bill wants Indian IT cos to hire more in US Here is a verbatim transcript of the exclusive interview with Ganesh Natarajan on CNBC-TV18. Also watch the accompanying video. Q: This is not law as yet and it is only presented for legislation but what kind of an impact does this likely to have? A: If it passes the way it is, obviously it is going to have fairly disastrous impact because this particular piece of legislation is very different from the last time they presented. This proposal also includes a provision called 50/50, which means that if you employ more than 50% of your people who are visa dependent, then you cannot employ more people with visas. So that’s very problematic. We have spent a lot of time with Senator Grassley and Senator Durbin and we hope that they understand the implications. The implications being that this kind of fly in the face of free trade, it primarily will target Indian companies. So I am very hopeful that over the next three-months we will not see this really becoming an act. Q: If this does go through what does this do to cost structures because this gives on site off shore a completely new meaning especially given the 50-50 provision? A: If a company is employing 5,000 employees in the US on a normal basis, 70% of them could be H1 or L1 Visas, it could literally mean that you will have to find replacement of about 1500 people and its not just the difficulty of finding the replacement but training them the cost involved, there could be a lot of business discontinuity and I personally feel that people will realize it when they go for the debate in the house, it wont get passed atleast certainly the way its being filed. Q: A lot of people in the A: We have had 3-4 meetings we worked with Tech-America which is the local association there, we have had sit down meetings with various people and they understand this. We even mentioned that this will specifically be seen as against India which is not a good thing and they have heard us and I think atleast the indication that we got was okay let this get filed, we will discuss it whether the US legislation discusses it before during and after the event, so that’s why I am not particularly perturbed, it could be disastrous if its passed in the current format but I am pretty sure that it wont. |
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