Is the New H1B Bill Reform a Boon for Offshore Outsourcing Destinations?

February 22, 2017 2:13 pm | Updated 1 year ago.

The new H1B Visa Bill reform introduced on January 30, 2017 proposes to raise the salary level to more than $ 130,000 per annum, more than double the current H1B minimum wage. This and the ‘Buy American, Hire American’ mantra of President Trump clearly has caused some distress among the offshore IT vendors, as it will result in less revue and less margins if the current business model used by the offshore IT vendors continue without any change.

Some of the industry leaders have opined that this may be good for countries like India, China and Philippines as it will make the IT vendors focus more on domestic business in their home country and some other industry leaders have opined that the offshore IT vendors should have adopted local hiring and use of local resources in the USA long time ago, but now the time has come to make the business model of the offshore IT vendors free from such regulatory changes in the USA by stopping excessive use of H1B visas.

In D2E’ opinion, the answer possibly lies somewhere in the middle. If one analyses the salaries paid by Tech Giants like Facebook, the Alphabet Company, Microsoft etc., to their employees on H1B visa, Facebook leads the race with an average of $ 130,000 per annum salary paid to its employees using H1B visa. Basically, these Tech Giants are paying higher wages to highly talented individuals from countries like India, China and Philippines, which is really what the Trump administration is also trying to do.

The Offshore IT outsourcing companies also need to adopt a business model like the ones used by the Tech Giants like Facebook. They need to move away from pure cost arbitrage and focus more on delivery of state-of-the-art Products and high-end consulting services leveraging the talent pool available to them. In such a scenario, only the solution architects or the product/solution designers need to go onsite to the US for discussions with the clients and the offshore IT companies will be able to charge fees commensurate with the high wages to paid to these solution architects and product designers to their customers. The remaining backend development work of routine nature can be done from offshore. Also, there will always be a demand for such high-end technology products/solutions and consulting services in America and the Trump administration may, in fact, support such a move by the offshore IT companies.

The transformation in the business model of the offshore IT companies to achieve this, however, will require the offshore IT companies to adopt one or more of the following steps:

  • Develop tools to automate most routine functions, including at least level 1 and level 2 IT and Application support functions and parts of level 3 as well.
  • Train the offshore developers engaged in routing maintenance and testing activities in use of the above tools to improve productivity.
  • Identify certain areas of specialization, either domain or technology or both, and invest in developing specialty skills and products/solutions in these areas to be able to offer high end consulting services that can not only reduce the cost of IT, but also aid the business-critical functions and processes in the American companies.
  • Sponsor research projects in the leading American Universities to create specialty and differentiated products/solutions and skills.
  • Set up development centres and research labs in the USA with local American high-end talent, who can act as the client facing interface for the team of developers offshore.
  • Develop close partnerships with local American companies who can provide client facing interface in addition to providing program management services.

One may question whether any or all the above steps been successfully tried in the past and the answer is a strong “Yes”. Several of today’ large IT offshore companies, including the founder of D2E had initiated many of the above steps, but in the outsourcing wave after Y2K, some of these steps may have got substantially diluted and now need a stronger focus.