ISG: U.S. Immigration Reform Bill Could Aid Indian Outsourcers

With restricted access to H1-B visas, India-heritage firms may focus on local hiring, acquisitions of U.S.-based operations

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Information Services Group (ISG)

May 30, 2013, 04:37 ET

STAMFORD, Conn., May 30, 2013 /PRNewswire/ -- Information Services Group (ISG) (NASDAQ: III), a leading technology insights, market intelligence and advisory services company, said today that immigration reform legislation before Congress could provide an incentive for India-heritage firms to increase their investment and strengthen their presence in the U.S. market.

The H1-B and L-1 Visa Reform Act of 2013 – a component of the Comprehensive Immigration Reform Act of 2013 – is designed to make it more difficult and costly for Indian IT firms to bring in labor resources on temporary visas, while easing restrictions on U.S. firms using those resources by increasing the annual cap on visas.

"Over the short term, the legislation would likely have a negative impact on Indian-heritage IT companies and give a competitive edge to U.S. firms," said Sid Pai, Partner and President, ISG Asia Pacific. "Over the long term, however, the provisions could encourage Indian firms to expand their U.S. presence. Specifically, to avoid the provisions of the bill, Indian companies may step up local hiring and focus on acquisitions of U.S.-based companies."

Sponsored by Senators Dick Durbin and Chuck Grassley, the act's key proposals include:

A requirement that, to be eligible for H1-B visas, a firm must employ local hires for at least 25 percent of its workforce, progressively increasing to 50 percent (according to industry estimates, between 50 and 80percent of U.S.-based employees of Indian-heritage companies are on H1-B or L1 visas).
Higher fees for H1-B visa applications
An increase in the cap on the number of H1-B visas to 110,000 from the current 65,000.

The bill is supported by U.S. service providers and businesses, and opposed by Indian-heritage firms and the Indian government, who argue that it is protectionist.

ISG research shows that Indian IT service providers grew at a combined annual growth rate (CAGR) of 32 percent between 2005 and 2008 compared to just 7 percent for Western outsourcers, To build on this growth, many analysts believe the major India-heritage service providers will need to expand their presence in their consuming geographies and become more visible local employers in the U.S. and Europe.

"If passed, this legislation could provide the impetus the Indian IT companies need to tweak their existing business models and become more global," Pai said. "It could therefore have the unintended consequence of making the Indian-heritage firms stronger competitors in the U.S. market."

Pai cites a historical precedent for this dynamic – albeit in reverse.

"A few years ago, ISG observed that many U.S. firms with lagging offshore capabilities responded by aggressively increasing local hiring in India or by making large acquisitions there," he said. "Paradoxically, some of these firms – while still maintaining sizable U.S. employee populations – are now larger employers in India than they are in their home country."

About Information Services Group
Information Services Group (ISG) (NASDAQ: III) is a leading technology insights, market intelligence and advisory services company, serving more than 500 clients around the world to help them achieve operational excellence. ISG supports private and public sector organizations to transform and optimize their operational environments through research, benchmarking, consulting and managed services, with a focus on information technology, business process transformation, program management services and enterprise resource planning. Clients look to ISG for unique insights and innovative solutions for leveraging technology, the deepest data source in the industry, and more than five decades of experience of global leadership in information and advisory services. Based in Stamford, Conn., the company has more than 800 employees and operates in 21 countries.

For additional information, visit www.isg-one.com.

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