Visas, Margins, Costs and the Indian IT Companies: Need for a new Outsourcing Paradigm

H1-B worker visa numbers on offer by the US Government have come down over the years.  They are half of what they were at the peak just a few years back.  With the downturn in the US economy, this may go down further.

Not just that, US Government has increased the cost of the visas and added a training premium, so that the cost of the visas is used to retrain the US workforce for the jobs in future.  From the US standpoint, it sounds fair – “If you want to come to our country then you pay for that privilege.”

From the point of view of the Indian IT companies, this is a big issue.

Their leverage to do projects in the US goes down.  And the people that they can send also adds to the overall cost of the company, reducing the margins.  TCS, the largest IT company in India is going to apply for 5900 visas this year as opposed to 4500 last year.  Here are two charts which show the break up by Geography for TCS and Infosys.

One can see that the percent geography break up of the revenues is more skewed for Infosys towards US and away from India.

Infosys Revenue Breakup (Infosys Annual Report)
TCS Revenue Breakup (TCS Annual Report)

One can see that North America forms the most important geography segment of the two largest companies.  Reduction in people available to staff work there and lesser prices will obviously hurt badly.  Infosys, obviously is far more dependent on US than TCS.

With Europe going through a downturn, and US clamping on Outsourcing in various ways, TCS with a higher share of the Indian market, seems better equipped due to its diversification of revenues.

The entire situation can also be depicted on a chart below:

This trend needs to be reversed, if the Indian IT companies need to have any future.

New Paradigm of Outsourcing and Services

With relatively little presence in US – in terms of employees – of the Indian IT companies and the ability to send people to US from India diminishing every year as well as getting expensive, there is a need for an entirely new paradigm of services and outsourcing.

An important factor in the new paradigm will be ability to use Technologies for distance communication and improvement of processes.  The former will eventually be blocked or reduced by the companies which own the information super highways – the Internet providers in US and in India.  So, for the future, it might be imperative for the consulting companies to own some of that pie itself.  TCS has that advantage in terms of VSNL.

Several attempts have been made in terms of conference rooms with large screen TVs etc, but that is not the solution.  The real solution will happen at the individual level.  The employee-to-employee and employee-to-client conversations have to be facilitated in a way that distance is immaterial.  And this has to entail not just one time conversation but the whole process of conference call set up to conversations etc.  Basically we need a Yammer type technology on steroids.

This Yammer-type immersive world will need to be complemented with Processes that enhance flexibility and provide ways to handle various client situations.  The processes should enable an audit trail and yet provide ways for the individuals to be open and frank and work well.

It is in the establishment of the processes that the Indian IT corporations have failed miserably.  The processes, whatever little that are there, are so rigid and restrictive that they might as well have been made for criminals as opposed to people working on cutting edge of innovative solutions!

Immersion, Flexibility, Collaboration and Standards will form the basis of the new paradigm for services.  Wonder if the IT Giants will have the mojo and wherewithal to take up such an overhaul of their entire structure to be ready for a future where visa costs will be minimally important.

Reference Links

Rising visa costs may pinch profit of Indian IT companies

Infosys Annual Report 2012

TCS annual report 2010-2011

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