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TRUMP THREAT: TCS not worried, says we’re not the villains

source: Nasscom

Tata Consultancy Services, the largest Indian-owned outsourcing company, said it is able to manage with 75% less new visas this year as it has changed its business and recruitment models in recent years. It also said that outsourcing was key to protecting US jobs, and is not the villain as portrayed.

The statement from Rajesh Gopinathan, the new chief executive officer of the company, was in response to investor concerns that the pro-local jobs stance of incoming US President Donald Trump would severely disrupt the business models of companies like TCS and Infosys.

The incoming attorney general under Donald Trump is known for his efforts as a senator to restrict Indian companies from bringing in ‘low paid IT workers’ to the US.

CHANGING BUSINESS

TCS, Infosys and other Indian outsourcing companies sprung up largely to take advantage of wage disparities for engineers and technical talent in India and the US.

Over the last decade or so, the Indian companies have however tried to go beyond cost arbitrage and try to leverage technical and process innovation to keep costs down for their clients in the US and Europe.

Despite this, nearly half of the Indian IT services companies’ revenue comes from so-called direct billing model, under which they hire (mostly) Indian talent, but the cost of the worker is directly billed to the client.

Indian outsourcing companies have been at the receiving end of criticism from labor activists in the US, who feel that the massive “shipping of jobs” to India has resulted in lower wages and unemployment in the USA.

They also claim that Indian companies routinely misuse US visa norms — which allow companies to bring in overseas workers only for specialized talent that is not easily available locally.

In financial year 2014, Indian companies were issued nearly 109,000 H1B visas meant for rare and specialized workers — around 67% of the total H1B visas issued by the US that year.

US activists allege that Indian companies regularly bring in workers from overseas not because they can’t find Americans suited to doing those jobs, but because Indians are cheaper.

Gopinathan said these concerns were “completely untrue” and “unfair”, but also added that TCS was prepared to continue to operate its business with far fewer number of visas.

“Many of the estimates of differentiation in salaries are exaggerated, probably influenced by propaganda depicting non-migrant visa (holders) as cheap, underpaid laborers,” he said.

“Onsite wages are benchmarked against prevailing wages in that location. Average wages for those on work visas and those of our local employees are highly converged.”

He said any wage disparity can easily be explained by the difference in the type of local talent hired versus those who come from India.

“Differences are largely attributable to differences in age and experience levels. We have traditionally hired local employees at more senior levels.”

READY FOR ANYTHING

Despite this, Indian companies expect a slashing of visa allocations in the coming months as Trump implements his pro-jobs agenda.

Trump has already prevented many US manufacturing companies from shipping their jobs to Mexico, and has even managed to get some such projects cancelled and reversed.

It is believed that Indian companies will try to cope with visa restrictions by trying to get more work done ‘over fiber’ by people sitting in their Indian facilities, supplemented by an increase in local hiring.

Anticipating rising protectionism, TCS, Infosys and others have been increasing their local hiring in recent years.

“We are steadily and systematically ramping up our local recruitment efforts. We believe we have been among the top net IT job creators in the US in the past couple of years,” Gopinathan said. “Investments in local recruitment have helped us reduce our dependence on work visas significantly and make our business model resilient.”

This, he said, has enabled the company to work with far fewer visas than before.

“We have applied for a third the number of visas compared to the year before and we’ve been able to execute our business model with 75% less visas than what we were used to, on an incremental basis.”

US COMPETITIVENESS

One of the key reasons why Indian companies are not over worried about potential protectionist laws is the interconnected nature of the world today.

The same American companies that generate employments for millions of Indian IT workers also generate hundreds of billions of dollars of revenue every year from outside the US market.

To compete in cost sensitive overseas markets — where many of them face off rivals from lower-cost countries such as China and India — American companies have to keep their costs under control.

To keep their costs under control, they have to depend on low-cost destinations like India and Philippines. As a result, American companies like IBM have over a 100,000 workers in India, who help IBM beat Indian firms like TCS on a global stage.

If Trump, for example, prevented IBM from “shipping jobs overseas”, its cost of operations will increase and it will no longer be able to compete in international markets against companies like Infosys and Wipro, which face lower costs.

This would ultimately force US companies to draw back their operations to the US, severely denting their overseas revenue and leading to job losses at their US headquarters — something that Trump was trying to prevent.

“We are today an integral partner to many large enterprises, which are facing severe business model challenges in their respective industries. Our scale, capacity and innovative solutions that leverage new technologies is what is helping these organizations accelerate digital transformation and transform their business, fend off those challenges and safeguard the jobs of tens of thousands of their employees,” Gopinathan said.

HAWKISH COMMENTS

The response from TCS has come in the wake of comments by the incoming head of the US Department of Justice (similar to India’s Law Ministry) that he won’t let companies ship jobs abroad simply because it’s more economical to do so.

“It’s simply wrong to think that we’re in a totally open world and that any American with a job can be replaced if somebody in the world is willing to take a job for less pay,” said incoming Attorney General Jeff Sessions on Thursday in front of a Senate Committee.

As a Senator, Sessions has been in the forefront of a campaign against the H-1B visa programme. As the Attorney General, he will be able to inflict far more damage.

In his testimony, he said he intends to curtail what he called the “misuse” of H-1B visas.

“We have borders. We have a commitment to our citizens,” he said.

The move, however, is likely to be a big boost to European and Asian companies, who can now outbid their American rivals for non-US contracts and deals. It could also force some American companies to shift their headquarters outside the US.

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