Temporary Visas Give Offshoring a Boost

Globalization of the IT labor force may be an inevitable trend, but there’s no question that it is getting a shot of adrenaline from the U.S. government in the form of temporary worker visas known as L-1 and H-1B. Foreign outsourcing companies use these visa programs to bring employees into the United States to coordinate work back home. And that has critics in a fury. “This is not a natural economic process,” says Ron Hira, chairman of the R&D policy committee with the U.S. branch of the Institute of Electrical and Electronics Engineers (IEEE), a nonprofit research and advocacy group. “Much of the offshore outsourcing going on today is based on U.S. government regulations that encourage it.”

Both visas were introduced at times when U.S. companies were short on skilled labor and needed foreign help. H-1B allows companies to bring in skilled, college-educated workers in certain “specialty occupations” that include everything from IT and law to fashion modeling. Workers must be paid U.S. prevailing wages for the job and cannot replace an American worker with the same skills and knowledge. The L-1 visa is much broader. There is no salary requirement and no explicit ban on replacing American workers, just a need to be functioning in a “managerial or executive capacity” (L-1A visa) or have “specialized knowledge” of the company’s products or business operations or processes (L-1B). L-1 visa holders can stay in the United States up to seven years and six for H-1B holders.

Undoubtedly, when Congress approved these visas, it did not envision that they would pave the way for offshore outsourcing. Yet that’s exactly what they do. Foreign outsourcing companies—today, mostly Indian companies—establish a local U.S. presence and apply for H-1B and or L-1 visas to bring employees into their offices. Most are immediately farmed out to U.S. outsourcing clients where they are trained in the jobs they will do before returning home, according to Hira. Others—typically 10 percent to 30 percent of the total staff—remain here for a longer term and act as liaisons between the U.S. client and the employees doing the coding back in the foreign country. If those liaisons are brought in on L-1 visas, they can be paid prevailing wages for an IT project manager back home, which in India can be anywhere from $10,000 to $25,000, according to various estimates.

The L-1 visa, in particular, gives foreign outsourcing companies an artificial competitive advantage over their U.S. competitors, critics say. They can afford to bid low-wage rates not only for employees back home in India but also for managers based in the United States, something that U.S. companies—even if they have an office in India—cannot do, unless they hire foreigners and bring them over to the United States on visas. “These companies can underbid based on L-1 and win business they wouldn’t normally win,” says IEEE’s Hira.

Unfair? Maybe. Illegal? No, says Robert Charles Hill, an immigration attorney in Miami. It’s legitimate as long as the L-1 workers are functioning as project managers or have specialized knowledge of their companies’ products or business processes.

If the temporary worker visa programs are curtailed, it could force offshore outsourcing companies to completely rethink their current business models. Some CIOs experienced in offshore outsourcing say that if foreign managers are prevented from entering the country on L-1 and H-1B visas, projects with their offshore outsourcing partners would collapse and they would be forced to bring at least some of the work back home. “If these visas went away it would cripple things in the short term,” says Joan Conway, global solutions manager of managed services for outsourcing company Fujitsu Consulting.

Visas are the pressure point that opponents are using on legislators at the state and federal level to try to stem the tide of offshore outsourcing. Already, two bills to limit visas to varying degrees have been introduced to Congress, but both were still in committee at press time. A handful of states including Connecticut, Maryland, Missouri, New Jersey and Washington have proposed bills limiting offshore outsourcing.

Of course, even if the visas are curtailed, it probably will not stem the long-term trend toward IT labor globalization. Trade agreements between the United States and foreign countries could trump the legislation. Last May, for example, President Bush signed a Free Trade Agreement with Singapore, a small but growing IT outsourcing destination, that would allow workers from Singapore to work in the United States without salary restrictions or limitations on the length of time they could remain here.