Offshore Outsourcer Patni Braces for H-1B Visa Restrictions As It Expands in North America

Offshore outsourcer Patni say the high U.S. unemployment rate has enabled it to increase its American presence at a low cost, but looming immigration and H-1B visa reform could put a crimp in the company's U.S. expansion plans.

Naresh Lakhanpal is spending a lot of time in airports these days. The executive vice president of Mumbai, India-based outsourcer Patni Computer Systems isn't headed east or west so much as he's travelling north and south throughout the Western hemisphere.

As president of Patni Americas, Lakhanpal has opened up or acquired delivery centers for the outsourcer in six North American cities in the last six months, including brand new operations in El Paso, Texas and Queretaro, Mexico. The activity is part of the $656 million service provider's plan to increase its presence in the Western hemisphere and become an "any-shore" outsourcer offering a menu of onshore, nearshore and offshore options. The company says the plan is driven by customer requirements for same time zone support, multi-lingual requirements, and a more favorable business climate for offshore outsourcers who wish to expand in the U.S.

Today, almost 20 percent of Patni's 14,000 employees work stateside, and the vendor now maintains delivery centers in almost as many cities in the Americas as it does in India. Of the 2,800 Patni employees working outside the subcontinent, 2,300 of them sit in North American locations including Cambridge, Mass., Bloomington, Ind., and Milpitas, Calif. The Mexican center Patni opened in April to serve the Latin American market currently employs 40 but is slated to grow to a 300-person shop. Patni has plans to triple headcount at its El Paso center, which currently employs 100 IT and BPO professionals who perform a range of insurance, financial services, and IT support, as well as an English-Spanish help desk. In April, the company acquired four Florida back-office administration centers—and 250 employees—from health insurer Universal American.

One challenge to Patni's U.S. expansion, however, are immigration changes currently proposed in Congress. Patni estimates that 60 to 65 percent of its U.S. employees are foreign nationals who hold temporary visas, like the H-1B and L-1. Lakhanpal says the company doesn't seek out U.S. workers for specific roles and Indian employees for other roles. Patni's H-1B visa holders working in its American offices possess a variety of skill sets ranging "from management to engineering," says Lakhanpal, who was born in Montreal, got his undergraduate degree and MBA in Texas, and previously worked in management positions at Deloitte & Touche and Ericsson.

"We have the ability to hire the best and brightest appropriate for the role, so we're not going to restrict some jobs to a certain class of people. There are no restrictions."

Lakhanpal says the company has had no problems procuring H-1B or L-1 visas for its staff, but it is concerned about the impact of potential immigration reform, which could force the company to hire more U.S.-born American citizens. "We're preparing for the immigration rules that we see coming down pike," he says.

Specifically, Lakhanpal says Patni is planning for the "50/50 rule," which is a clause in the H-1B and L-1 Visa Reform Act introduced in the Senate last year. The "50/50 rule" would prohibit employers from hiring additional foreign guest-workers if they employ more than 50 U.S.-based employees and more than half of them are H-1B and L-1 visa holders. The Senate visa reform bill has been sitting in committee since last April. The Comprehensive Immigration Reform ASAP Act of 2009 introduced in the U.S. House of Representatives last December also contains a 50/50 clause. The House bill was referred to the Subcommittee on Immigration, Citizenship, Refugees, Border Security, and International Law in March. Senator Charles Schumer, chairman of the Senate Subcommittee on Immigration, has yet to introduce a comprehensive immigration reform bill in the Senate or indicate what further restrictions on the temporary worker visa programs, if any, would be included in such legislation.

Nonetheless, Lakhanpal says Patni needs to ramp up its hiring of American-born U.S. citizens now so that the company can proactively get its ratio of employees who are American citizens vs. foreign nationals closer to 50/50, from 60/40 or 65/35.

"A 50/50 visa rule would be a challenging short-term issue for several offshore outsourcers, many of which staff their U.S. locations with 75 percent-plus H-1Bs and L-1s," says Phil Fersht, founder of outsourcing analyst firm Horses for Sources. He notes that such a restriction would decrease offshore outsourcers' margins or drive up their costs.

"It would definitely even the playing field between [offshore outsourcers and] those Western providers with a larger onshore U.S. citizen presence within their delivery centers," he adds.

But, Fersht continues, the availability of U.S. IT professionals—many willing to accept lower salaries for permanent work—could ease the pain on providers like Patni in the long run.

"While several offshore providers would take a short-term hit," Fersht says, "many would quickly staff up with U.S. talent."

Immigration issues aside, Lakhanpal, who spoke on his way to the airport during a trip that took him from Chicago to Boston to New York and on to South America, is on the lookout for other suitable locations in the Western hemisphere. Patni's requirements for such a spot are straightforward, he says: a highly educated workforce, proximity to existing or future customers, and a cost structure that will enable the outsourcer, which went public in 2004, to maintain its margins.

U.S. expansion in particular is key to Patni's future growth, says Tony Viola, Patni Americas' vice president of marketing. It will enable the outsourcer to serve American companies who prefer to outsource locally or who are required by regulations to keep some processes onshore. It could also enable Patni to "capitalize on the opportunity that looms on the horizon due to the surge in public sector and government spending on IT initiatives," according to the outsourcer's 2009 annual report.

Onshore and nearshore expansion is increasingly important for Indian IT service providers, says Fersht. "Much of the low hanging fruit and routine IT work has already gone offshore, and a lot of the newer business involves greater business and IT alignment that is often more appropriate for onshore or nearshore sourcing," Fersht says. "India's done a stellar job taking on the lower-end IT work and is now faced with the challenge of competing for higher-value work from nearshore and onshore firms that are much more price-competitive than they were just a couple of years ago."

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