Crackdown on Indian Outsourcing Firms (Business Week)

Two senators are probing how Indian outsourcing firms use U.S. work visas, with an eye on new restrictions
by Peter Elstrom

Concerns about foreign companies that benefit from a visa program designed to make the U.S. more competitive are taking center stage in Washington, with two senators demanding explanations from overseas users of the system. Senators Chuck Grassley (R-Iowa) and Richard Durbin (D-Ill.) on May 14 sent letters to nine foreign outsourcing companies requesting detailed information on how they use temporary work visas, known as H-1Bs, to bring foreign workers into the U.S.

Critics say outsourcing firms, including Infosys Technologies (INFY) and Wipro (WIT), are using the visas to replace U.S. employees with foreign workers, often cycling overseas staff through U.S. training programs before sending them back into jobs at home. The lawmakers are intent on probing whether those allegations are accurate. "Supporters claim the goal of the H-1B program is to help the American economy by allowing U.S. companies to hire needed foreign workers," Durbin said in a statement. "The reality is that too many H-1B visas are being used to facilitate the outsourcing of American jobs to other countries."

In outlining the investigation, Durbin and Grassley are making details of the visa program public for the first time, including the number of visas awarded to non-U.S. companies. The nine firms, led by Infosys and Wipro, use 19,512 of the H-1B visas, or 30% of the 65,000 visas allowed each year. This indicates that Indian outsourcing companies participate more actively than previously thought, garnering for themselves visas that could otherwise go to U.S. firms. "This is information that we never had before," says Ron Hira, a public policy professor at the Rochester Institute of Technology who has studied the issue closely.

A Polarizing Issue
The revelations could play into the hands of opponents of the H-1B program as the political battle over immigration heats up. President George W. Bush and many other lawmakers want comprehensive immigration reform this year, reform that would address both low-skill workers, largely from Mexico and other parts of Latin America, and high-skill workers, many from India and China. Chances of a compromise over the highly contentious matter of low-skilled workers already look slim. The move by Durbin and Grassley may make resolution of issues on the high-skill front equally unlikely.

Until recently, the discussion over high-skill immigration has centered largely on how to bring in more foreign workers adept at such jobs as software development. Technology companies, from Microsoft (MSFT) and Intel (INTC) to Motorola (MOT) and Qualcomm (QCOM), have argued that the U.S. should offer more work visas for noncitizens to improve its competitiveness.

In March, Microsoft co-founder and chairman Bill Gates went to Washington to make the case to Congress. "Simply put: It makes no sense to tell well-trained, highly skilled individuals—many of whom are educated at our top colleges and universities—that the United States does not welcome or value them," he said. "For too many foreign students and professionals, however, our immigration policies send precisely this message." (See BusinessWeek.com, 3/8/07, "Gates to Senate: More Visas")

Many Indian Applicants
Yet evidence on the H-1B visa program paints a contrasting picture. As BusinessWeek first reported in February, Indian outsourcing companies have become by far the most active applicants for H-1B visas (see BusinessWeek.com, 2/8/07, "Work Visas May Work Against the U.S."). The data, just then released, showed that seven of the top 10 applicants for H-1Bs in fiscal 2006 were Indian outsourcers, led by Infosys and Wipro.

Officials at the U.S. Citizenship & Immigration Services would not disclose which firms actually received the visas, but they said there was no reason to believe that the number awarded differed greatly from the number applied for. They said the visas are awarded on a "first-come, first-served" basis and no preference was given to U.S. companies.

At the time, Wipro officials said they used the visas to enhance the competitiveness of clients, many of whom work in the U.S. Laxman Badiga, the company's chief information officer, said that of its 4,000 employees in the U.S., roughly 2,500 were on H-1B visas. Each year, 1,000 new temporary workers come to the U.S. to develop their skills in serving U.S. clients, while 1,000 rotate home. Wipro says the training allows the firm to more effectively help its clients. "Our goal is to make our customers more competitive," said Badiga in February. A Wipro spokesman did not provide an official to comment for this story.

Taking a "Hard Look"
Just how much the program advances U.S. competitiveness will come under closer scrutiny now. Durbin and Grassley have taken a much harder-edged approach to high-skill immigration than their parties have in the past. The senators say they want to ensure temporary worker programs can't be used to take advantage of American workers. "Considering the high amount of fraud and abuse in the visa program, we need to take a good, hard look at the employers who are using H-1B visas and how they are using them," says Grassley.

The letters probe a number of areas, including whether workers brought into the U.S. on H-1B visas are paid less that comparable American workers, a disparity that could drive down overall wages. The senators ask whether the visas are being used to train people in jobs that will later be moved back to India or other countries. And they request data on American workers who may have been laid off as H-1B workers have been hired.

"We are concerned that the program is not being used as Congress intended," wrote Durbin and Grassley in a letter to Nandan Nilekani, the chief executive of Infosys. Infosys did not return phone calls seeking comment.

Law Limitations
Durbin and Grassley have introduced legislation that make a number of changes in the temporary worker programs. The most radical change would be a requirment that companies applying for the visas attempt to hire U.S. workers first. Currently, applicants need to pledge to pay the prevailing wage, but they don't need to make any effort to hire Americans (see BusinessWeek.com, 3/26/07, "Immigration Reform: Americans First?"). The legislation would also require companies to pay higher wages to temporary workers and tighten oversight of the visa programs.

But resolving differences over the program won't be easy. It's not as simple as making the H-1B program more restrictive. U.S. tech companies have struggled to bring in enough workers to fill jobs in specialized fields. Even if foreign outsourcers are stopped from using the visas, there will continue to be shortages. This year, the 65,000 annual cap for H-1Bs was filled in less than two days.

Nor is there an easy distinction between U.S. and non-U.S. firms. While Durbin and Grassley's investigation is focused on Indian outsourcing firms, U.S. companies may very well be using the visas for much the same thing. Among the most active applicants for H-1B visas are Accenture (ACN) and Cognizant Technology Solutions (CTSH). Both are officially headquartered in the U.S., but they have extensive outsourcing operations in India.