The IT sector is set to see more offshoring of employees in the medium term at the back of COVID-19 and H-1B visa issues, according to a report.
The report by institutional equities firm Emkay said, “Given a weak macro environment and potential reset in client businesses due to Covid-19, we see a case for greater offshoring in the sector over the medium term.”
The shift to offshore delivery, which gained traction in the last couple of years, also came at the back of IT firms’ reducing dependence on the US visas such as H-1B over the last few years, the statement added.
Since Trump administration took over in 2017, IT firms such as TCS and Infosys saw increasing denials and request for evidences for H-1B and L-1 visas, non-immigrant visas for skilled immigrant workers. So, IT outsourcing firms stepped up their local hiring and also increased their use subcontractors to bridge the talent crunch.
At the back of COVID-19, with clients reducing their discretionary spend, businesses will shift more towards offshore-model. The report suggests that the shift towards offshore has been started way earlier and has been yielding results.
“Infosys’ offshore revenues/volumes have been outgrowing onshore revenues/volumes despite its much touted claims of localization and hiring over 10,000 local resources in the US since mid-calendar year 2017,” the report added.
Infosys offshore volume growth in FY17 stood at 9.5 percent as opposed to 11.8 percent in FY20. In terms of revenues, offshore revenue growth stood at 6 percent compared to 8.2 percent offshore. However in FY20, offshore revenue growth was 9.3 percent as opposed to 6.7 percent onshore revenue growth.
“With the Covid-19-led disruption on travel, Indian techs have been pushing for deal transitions and there are more work being handled offshore. This trend may only accelerate going ahead, in our view,” the report added.
In term of upcoming executive order that could ban all non-immigrant visas including H-1B, the report said that American Immigration lawyers Association will file a lawsuit as soon as the order is passed and it is expected to be difficult for the US administration to keep the order in place.
“Preliminary injunction (Stay order) will be moved in the court once the order is passed (good chances of winning),” the report revealed. However the order will impact new H-1B applicants, whereas renewals and visa transfer applicants are unlikely to be affected.Follow our coverage of the coronavirus crisis here