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Visa issues, digital adoption to drive local hiring by IT firms in the US

Americans already account for over 60 percent of the workforce of the top 4 Indian IT firms.

September 02, 2020 / 03:22 PM IST
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Amid the Covid pandemic and issues around H-1B visas, experts had suggested that IT firms’ offshore-onshore ratio — the number of people working in India versus onsite — could increase, and onsite hiring may slow down. The remote working model, they explained, would drive this.

That may not quite be the case as factors such as visa denials, travel costs and the need to have local employees from the same culture and time zone influence decisions around this.

Infosys to hire more in the US

Bengaluru-based IT major Infosys has announced that it will hire 12,000 people in the US over the next two years. According to analysts, this could be because of uncertainty over overseas travel, visas and improving margins.

Over the last couple of years, Infosys’ margins have been a concern. Salil Parekh, the company’s CEO, said in a press conference last year that the increase in subcontractor costs is affecting margins and increasing localisation would help bring it down.

This came on the back of rising visa rejections. Infosys saw the highest denial rate for new H-1B petitions in the US (59 percent) between October 2019 and March 2020, according to an analysis by the National Foundation for American Policy, an immigration think tank. The denial rate has increased by over 50 percent for the company over the last five years.

This impacted margins as the company had to make do with subcontractors, who are expensive, in the US. For instance, the cost of subcontractors increased from Rs 1,166 crore in 2008-09, when Infosys’ revenue was Rs 20,264 crore, to Rs 7,646 crore in 2018-19, when revenue was at Rs 73,107 crore. Subcontracting costs shot up 555 percent over the decade, outpacing the company’s 260 percent revenue growth.

So, Infosys has been stepping up overseas hiring since 2017. The company currently has about 13,000 local hires in the US.

Infosys’ peer TCS employs close to 20,000 American workers. Over 60 percent of the employees of the top four IT firms in the US are locals.

Pareekh Jain, founder, Pareekh Consulting, explained that most of these US hires are likely to be freshers, unlike the H-1B visa holders, who are in the mid to senior job band. This would help in improving margins, he added.

Long-term strategy needed

That is only a part of the issue. Covid-19 has made companies realise they need a long-term strategy for the overseas market as digital gains momentum.

Business travel is a significant portion of the cost for IT firms. Travel increased over the last couple of years as digital gained traction, which translates to an increased need for onsite engagement with clients.

In an earlier interaction with Moneycontrol, Manoj Bhat, CFO, Tech Mahindra, said: “Digital as a category has been characterised by people wanting to sit across the table, brainstorming and trying to figure out solutions in an agile manner. So, if you look at onsite as a percentage of revenue, it has been consistently high and that is directly linked to visa costs.”

Companies had to put a break on travel due to Covid-19 and are now closing deals virtually. But once the situation comes under control, the need for more such conversations could increase and having local employees in the same culture and time zone would definitely be a big help.

This would also help companies mitigate sudden challengers such as the recent visa ban introduced by the US government. The ban made it difficult for IT firms to move resources.

All IT firms, including Infosys, would want to avoid a situation where they are unable to cater to a project or close a deal because of unavailability of onsite resources. This is important considering that the US accounts for about 60 percent of their revenues.

Swathi Moorthy
first published: Sep 2, 2020 03:09 pm