Services Safari

When Employers Choose H-1B Workers Over Domestic Workers

              Prediction: Expect More Actions Against US Employers

The United States Department of Justice issued a press release earlier this month detailing actions it took (and the settlement it received) from iGate Mastech. It stated:

"The settlement stems from the Department’s finding that, between May 9, 2006, and June 4, 2006, iGate placed 30 job announcements for computer programmers that expressly favored H-1B visa holders to the exclusion of U.S. citizens, lawful permanent residents, and other legal U.S. workers. Such preference constituted citizenship status discrimination and is prohibited by the Immigration and Nationality Act."

The amount of the settlement was only $45,000 which one magazine thought was too cheap a price considering the economic loss 30 US job holders would have suffered. I have a different take, though. When US Federal prosecutors go after firms, they often offer the first firms to settle the best deal and progressively stiffen their position and raise their settlement stakes thereafter. I suspect that this case will be just the beginning of many more, and more public, cases like this.

Name Your H-1B Legislation

       When Congress Gets Creative - The Selling of H-1B Legislation

Two new bills are being introduced in Congress to raise the cap on the number of H-1B visas. One would double the number initially and eventually triple the number of visas granted annually. The other takes the limit up to 195,000 in 2009.

Take the H-1B Legislation Naming Game!!!

Can you guess which legislation names are legit and which aren't?

1. The Innovation Employment Act
2. SUSTAIN - Strengthening U.S. Technology and Innovation Now
3. Replacement Work Force
4. Full Employment Act for Outsourcing and Global Competitiveness
5. The North American Job Security and Economic Stimulus Act
6. American Workers are Lazy, Uneducated and Ignorant of Technical Disciplines

The correct answers are the first two although numbers 4 & 5 could also work. The congress persons leading these efforts should be applauded for the creative names they've chosen. You'll notice that the bills are named around innovation as any name that would imply loss of jobs to offshore workers would be death to their political careers.

If you'd like to learn more about these bills (e.g., exactly who is sponsoring them and where they are from), please read: http://www.eweek.com/c/a/Careers/Bills-Would-Double-and-Triple-H1B-Cap/ .

   

Let The Fighting Begin - H1B Issue Goes to Washington

                The Best Reading on H-1B: Issues, Testimony, Fraud....

                        Can't We Make a Hit TV Show From This?

Ever get the feeling that someone's making money on those H-1B visas you read about? Check out U.S. Senator Chuck Grassley's letter to the Bush administration re: H-1B visa abuses: http://grassley.senate.gov/public/index.cfm?FuseAction=PressReleases.Detail&PressRelease_id=9af53fa4-b99b-5638-8db2-5021e681c258&Month=3&Year=2008 There's some really juicy stuff in this. It discusses the blatantly illegal job advertisements here in the U.S. where advertisers are only looking for holders of H-1B visas. It details how visa factories are being established to create false employer fronts within the U.S. There's the story of an Iowa businessman getting harangued by an offshore firm with all of these potential visa holders on the bench. The fact that Homeland Security is being alerted to these abuses suggests something is really rotten here. Great reading - really.

Computerworld expands on the Senator's letter in this story: http://www.computerworld.com/action/article.do?command=viewArticleBasic&articleId=9067738&intsrc=hm_list . Like the above, it's a great read, too.

We also have Network World chiming in with their piece: http://www.networkworld.com/news/2008/031208-h1b.html.

Bill Gates, of Microsoft fame, testified before Congress and a synopsis of his remarks can be found here: http://www.networkworld.com/news/2008/031208-gates-immigration-reform.html

All this comes at a time when the U.S. government is being asked to raise the limits on H-1B visas from 65,000 to 110,000/year.

Here are the questions U.S. policy makers must address pronto:

• Does bringing in more non-US workers actually motivate US students to pursue technical degrees or does it achieve the opposite effect?
• The H-1B program was intended to bring in people with unique skills and talent. How do green, low-level tech coders meet that standard? What aren't more PhDs being granted this visa?
• Why are large tech outsourcers allowed to hog the number of available visas? Should U.S. based tech companies get an equal or better opportunity to import scarce, unique talent?
• Why are students at U.S. colleges electing not to pursue careers in technical areas? Is it because of bad employer behavior? Is it because these positions are vulnerable to outsourcing? Is it because potential employers send mixed signals to colleges, employees and job seekers? Or, is it that U.S. college students can't be bothered with these degrees? What is the real root cause?
• Is the L-1 visa program as messed up as the H-1B? Should both be addressed?

Approving or disallowing the increase in visa permits is not the issue. Congress must address bigger concerns (e.g., national security) and discover the answers (and appropriate remedies) to the matters above and more.

Update: H-1B Story

            Patni and Others Respond to BusinessWeek H-1B Story

Last week, I mentioned a BusinessWeek piece that discussed a lawsuit involving Patni and former employees of the firm. (see: http://servicessafari.blogs.com/services_safari/2008/02/prediction-lawy.html ). This week's issue of the same magazine ran three letters to the editor discussing that story.

An EVP of Patni wrote about BusinessWeek's 'unfair portrayal' and use of 'unsworn allegations'. This EVP discussed Patni's participation in a Labor Department investigation 'to correct the payment mistakes'.

Another writer discussed how employers are using lower cost H-1B workers to displace nurses in his community of Thousand Oaks, California. Incidentally, H-1B workers are supposed to be paid prevailing wages of domestic workers.

Another writer was apparently an underpaid H-1B worker who must have become a naturalized citizen and he now has a 'big job and a big paycheck' some ten years later.

As I wrote last week, I suspect that we'll be reading more and more of stories like these particularly as the US economy may be softening. An election year also drives potential politicians to whip workforce abuses and/or job losses as a big campaign issue. This has the potential to become a big PR headache for non-US firms and the outsourcing industry should do a lot more to police itself, prevent abuses and expose those who are not following the rules. 

Prediction: Lawyers to Circle OffShore Service Providers

                   The Raping of H1-B and Domestic Workers

This could become a big issue in the world of professional services. BusinessWeek reported (see: "Are H1-B Workers Getting Bilked?", www.businessweek.com, February 11, 2008) the case of Vishal Goel and Peeush Goyal against Patni.

The essence of the case is that Goel was sent to work at State Farm Mutual Automobile Insurance via a US work visa secured by his employer, Patni. The visa application apparently stated that Goel would be paid $44,000.  He alleged that he received a base salary of only $23,310.

The article contains this quote as well:

"Goel's is not an isolated case.  A number of the most active users of the work-visa program, for what are known as H-1Bs, have been accused of underpaying or otherwise mistreating workers.  Last year, Patni paid $2.4 million to 607 H-1B visa workers after a Labor Department investigation uncovered systematic underpayment of wages.  "I highly suspect that these employment practices are widespread among the tech outsourcing firms," says Ron Hira , assistant professor of public policy at Rochester Institute of Technology, who will testify as an expert witness in the Goel case."

Another aspect of this case is that complaints by domestic US technology workers that H-1B visa holders are unfairly taking away jobs and substantially undercutting market prices for same may have some merit. Cases like the one above certainly add credence to these claims and will certainly trigger changes from Washington.

Before this situation is totally sorted out, we should expect to hear of other similar cases and abuses.  This may not be a new phenomenon but may represent a set of business practices that have gone on for years.  Many years ago, I heard sketchy rumors of a very similar situation occuring in another firm. I can't even remember the company but I do know it failed. Hopefully, its business practices and the Karma they threw off, doomed it.

What's so disturbing about stories like these is that employers may be willfully and grossly taking advantage of workers.  Their employees are in a foreign country where they may lack legal standing. As very low paid workers, they cannot afford to hire an attorney in this country unless they possess superb documentation and an iron will. By the time any trial arises, they may no longer be in the United States and the case is moot. There's a real possibility employers are counting on all of these factors to continue their deceit.

Worse, the companies that use these service firms may be unwittingly or knowingly participating in this abuse.  Major service firms and their clients can ill afford the negative publicity or PR damage that would result from public disclosure of unethical or illegal hiring practices.

If I were a CIO using the services of an offshore service firm, I'd want to conduct an immediate review of all personnel assigned to my account that hold H-1B visas. I'd certainly want to see copies of the visa applications and the salaries stated on each. Then, I'd want to ask each visa holder to verify their salary. Any discrepancy would result in the immediate termination of that service firm's contract.

In an age of GRC (governance, regulation and compliance), how these abuses can even occur is baffling. Either the GRC documentation of US firms (that use these service providers) is inadequate or ineffective or the internal audit function within offshore firms is broke. Either way, it's a disgrace. 

We should expect:

• greater CIO scrutiny of existing offshore firms
• investigations, Congressional inquiries and other reactions from Washington
• more pressure to restrict H-1B visa grants or, at least, a better set of criteria for application
• more truth about the role of these visas in triggering potential domestic job losses
• H-1B visa holders getting wise to unethical actions of their employers
• potential visa applicants demanding better treatment from their employers before the visa application process begins

As stated at the beginning of this piece, this could become a really big issue.

HR and Human Capital Changes in Indian Services Firms

                     Change is Afoot in Indian Service Firms

                                 Local Workers to Benefit

Some interesting human resources policy changes and stats in a 4/23/2007 article in InformationWeek (see "Tata and Infosys Set the Bar: 15% Raises This Year in India" by Mary Hayes Weier www.informationweek.com).

Here are some of the highlights:

• Some Indian firms are trying to expand their non-Indian workforce. Tata had 6.5% of its workforce as non-Indian last year. Now, it's 9.6% and is on track to be 12%  this year.
• Accenture intends to increase its Indian personnel from 8,000 to 35,000. That number would make its Indian workforce larger than its U.S. workforce.
• Likewise, IBM will grow its Indian workforce from 43,000 to 53,000.

In a recent post, I described a human capital practice of Booz Allen Hamilton called 5-4-3-2-1. The InformationWeek article described an approach Tata is embracing called Maitree. It brings other service firm perks, like concierge services, with a program that helps the employee's family.

Given the number of Indian service workers who have their resumes posted on on-line job boards (another recent post in this blog), retention of talented personnel will still be tough for these companies. Even new programs may not be enough to stem the sheer volume of job hopping these firms will likely encounter.

In the latter half of the 1990s, virtually every big service firm was getting whip-sawed by scarce SAP-skilled personnel. These folks knew they were highly in demand and they got quite mercenary in their approach to employers. Every major service firm resorted to tactics like stay-pay bonuses, temporary salary hikes (to get through the Y2K fueled package software frenzy), raids on competitors, etc. In that era, two classes of consultants emerged: those with scarce SAP skills and mushrooming bank accounts and those who provided more traditional consulting services and got nothing. This was a painful time that caused a lot of hurt feelings.

Mercenary employees are very selfish. While employers should pay workers market relevant, prevailing wages, employers should not reward the mercenaries as their long-term loyalty is not strong and not worth buying.

These are interesting human capital times in the Indian services space. How firms respond to the added pressure of non-Indian firms poaching their workforce while still fueling organic growth will continue to be a matter of great interest to industry watchers.

Who Gets In/Who Stays Out?

                        Behind Visas, H-1B and Outsourcing

Over the last few weeks, there's been a flurry of reporting re: the use of non-U.S. workers in the IT sector. Let's recap some of the more important data points:

A Washington Post piece by Pamela Constable ("Skilled worker visas also stir controversy") showed a breakdown of work visas issued to foreign-born professionals. She showed the visas by country of birth and by occupation (using 2004 data). Those numbers showed:

                 India   123, 567

                China     26,258

              Canada     13,412

            Philippines  11,300

                Korea      8,159

   And, occupation breakouts reported were:

          Computers                                        127,279

          Architecture, Engineering, Surveying   34,595

          Education                                           27,583

          Administrative                                    27,537

          Medicine & health                               17,676

The article also quoted a couple of  worker groups and research firms. One indicated that "very few H-1B workers could be called highly skilled" and that "wages for such workers were on average $12,000 below their U.S.-born counterparts".

The article also discussed the battle looming between advocates for opening up the limits on H-1B visas and opponents for same.

In the April 9, 2007 InformationWeek cover story ("The H-1B Limit"), Marianne Kolbasuk McGee reported that the U.S. government received over 133,000 envelopes with H-1B applications (some envelopes requested multiple visas) for only 65,000 openings in just the first 48 hours that applications were received.

To critics of the H-1B program, the massive over-subscription to this program is evidence that many are using it not for attracting the super-talented, geniuses it was intended to bring into the U.S. Instead, companies are exploiting this visa to bring in lower cost workers into technical roles.

This article also stated that "seven out of the ten biggest applicants for H-1B visas were India-based companies, led by Infosys and Wipro".

The data behind that is found in the 5/21/2007 issue of InformationWeek ("Feds Cast Wary Eye On Indian Outsourcers" Use of H-1B" www.informationweek.com/1133/h1b.htm ). They show the top ten companies granted H-1B visas last year. Infosys led the pack at 4,908. Wipro followed with 4,002. Others included: Microsoft (3,117), Tata Consulting Services (3,046), Satyam (2,880), Cognizant (2,226), Patni (1,391), IBM (1,130) and Oracle (1,022).

And finally, see what Eric Lundquist of eWeek (www.eweek.com "H-1B answer: Innovation") adds to the discussion. His take is decidedly more creative than most.   

When you speak with America's educators you get another insight into this issue. Whether fact-based or anecdotal, professors, teachers and deans will tell you that it has gotten much harder to attract today's students into technical careers. Many students believe that it is pointless to pursue a career in one of these disciplines (e.g., IT or engineering) as they've seen too many U.S. outsource their parent's jobs to offshore firms. Why get a career in a field that will get outsourced? Second, they see competition for these positions being lopsided with non-U.S. workers being allowed to work in-country at a wage rate that makes U.S. workers wages fall or stay depressed. Third, U.S. firms that have used offshore or outsourced personnel have shown themselves to be poor employers. These firms don't provide careers to their employees. In fact, they're seen as users of workers not developers of talent. I can't say I fault today's youth for wanting to stay away from such fickle and feckless firms.

As originally designed, H-1B visas were meant to bring the world's best and brightest stateside. The numbers and over-concentration of these visas within software & services firms clearly indicates that the system has been gamed (or abused) by a few firms. Given the focus this issue is getting in Capitol Hill, one can expect more attention, more press and more legislation soon.

Let see how well offshore IT firms can work the Washington influence and lobbying world. Remember, Presidential election campaigning is already underway. Politicians love to point out villains, especially non-voting foreign entities. If these candidates want to make offshore firms their symbol of what's ailing the U.S. workforce or economy, they will. Votes matter these days and it will be interesting to see whether the votes in Congress or in local elections will matter more when it comes to the H-1B issue.

Outsource Laywers

                          The Spreading of Outsourcing

More and more services are susceptible to offshoring especially if they can be completed remotely. In-person services, like lawn care services, are less vulnerable to outsourcing.

CEO magazine (see: www.chiefexecutive.net July/August 2006 "Next, Outsource All the Lawyers") ran a piece last year that outlined the case for executives to move more legal work offshore. The case for using lower cost legal resources is a compelling one. The economics make sense and, for the right kind of work, using these resources is a prudent use of corporate resources.

The article identified several offshore legal tasks that are appropriate for outsourcing. These included:

• drafting of contracts
• documentation reviews (i.e., during the discovery process)
• patent research

The article also correctly points out that many legal services/tasks are not appropriate for offshore providers. Services involving securities transactions, in-court appearances, etc. still require an in-person, local touch. Those roles/services will likely remain unchanged for some time.

Every service industry is being impacted, positively and negatively, from offshore service delivery. Offshoring has had a significant impact, of course, on IT and is gaining footholds in architecture, legal, medical and other disciplines. As these changes are integrated into each service sector, workers and employers must adjust. Workers must get closer to customers and develop deep niche expertise. They must also get really 'local' in the clients they serve and get 'detailed' in the knowledge/service they provide. Employers must alter business models, change compensation methods, adjust offerings and re-think their value proposition.

The labor arbitrage that will likely set in to this profession could certainly have an adverse impact on one group of law workers: the paralegals. These folks currently provide a number of the more repeatable or research oriented aspects of law work. They're less expensive than a lawyer and they provide a great, lower-cost, local source of talent. The tasks they perform are often the same tasks being targeted by offshore legal services firms.

I work with a number of law firms and have yet to see material reductions (or for that matter any reductions) in average rates charged. I'm actually looking forward to seeing some downward cost pressure occur in this space.

This should be an interesting area to watch. 

Onshore Survival Strategies

                         Consolidation in the Consulting World

Strategies for Onshore Firms to Survive Ever Larger Indian Consultancies

There's been some recent press concerning the organic and inorganic (i.e., merger and acquisition fueled) growth of Indian service firms. Much of this has centered on what these firms must do to maximize the post-merger/post-acquisition synergies that they hope to achieve. While that's helpful for these firms, what are onshore providers to do other than wait for the bell to toll?

First, let's understand the current crop of onshore consultancies. I divide them into four groups:

• True, high value, high touch firms that offer unique perspectives/expertise in specialized areas. These are companies like Stern Stewart in the EVA space. They create unique intellectual property, promote their individual superstars in books and conferences and they zealously advance their expertise. These firms often possess an inverted pyramid of expertise with very few junior personnel in their ranks.
• Undifferentiated systems integrators that are chock full of 'B' and 'C' performers who often work with the intellectual property that others (i.e., software vendors) developed. The 'value-add' these firms possess is usually limited to the availability of on-site personnel who have prior experience with the products they're installing.
• Low cost integrators that have access to even lower cost resources offshore. Nowadays, most integrators have a captive or partner firm in a low cost country to reduce their average billing rate. This 'strategy', if you want me to call it that, is not differentiating. It's a cost control method and that's it. These firms survive on lower margins and local buyer knowledge. That's it.
• Local firms with local market knowledge (not vertical knowledge). These firms are expensive and provide short-term project work for companies wanting a short, in-town expert. Here, buyers get a technical expert and can afford them on small efforts.

Several of these firms will face ever stiffer competition as offshore firms, predominately Indian based firms, will continue to make further inroads into North American and European clients. These fast growing offshore firms have been making inroads into four areas:

• They're rapidly adding more traditional consulting and strategy solutions (not systems integration) to their workforce and offerings. These companies are moving up market as they need to diversify their offerings and because they are losing their low-cost advantage.
• They're building greater and greater vertical industry depth. This is occurring due to their growing scale, organizing into vertical sub-groups and acquisitions of vertically relevant firms.
• They're hiring large numbers of senior consulting executives to become account executives at major accounts here in North America. Cognizant has been especially successful at this.
• They're expanding down market to mid-sized firms. These clients can help feed the Indian workforce with assignments as easily as large clients can.

Domestic firms are in for a bruising. However, one type of firm, the big multi-national consultancy (MNC) could really get hurt. The MNC's often have a disproportionate number of workers still located in high cost countries. Too many still haven't changed their sales and compensation practices to get more work done by lower cost resources. If your sales executives are rewarded for closing large, expensive deals instead of keeping dozens of lower cost people chargeable, you're headed for trouble.

Domestic consulting firms without significant intellectual property or other differentiation are very susceptible to offshore competitors. So, too, are firms lacking in deep vertical knowledge. If you're local and available, that's not going to be enough anymore. Get focused now!

To survive (and prosper), take a page out of Michael Treacy's book " The Discipline of Market Leaders" (http://www.amazon.com/Discipline-Market-Leaders-Customers-Dominate/dp/0201407191/ref=pd_bbs_sr_1/103-4423196-6031053?ie=UTF8&s=books&qid=1175135078&sr=1-1). Make your consultancy into either a Customer Intimate, Product Innovative or Low Cost Leader.

If you think you're an innovator, there's a 98% chance you're wrong on that point. Most consultants are fast followers not innovators. I only know of a handful (yes, a handful) of truly innovative consultancies. If your firm cannot command higher (much higher) than market rates for its people, then you're not an innovator.

If you still don't have a pervasive offshore component to each and everyone of your offerings, you're not a low cost leader. A key word is 'leader', lots of retailers had low cost prices but were they as low cost and efficient as Wal-Mart? Where are the Woolco, Zayre's, Turnstile, .... of yesteryear?

If you think you're customer intimate, re-examine that presumption. One huge company CIO I spoke with pointed out a floor full of EDS employees and said that the EDS rep thinks he has the client relationship 'sewed up'. The same sentiment was shared by a Big 4 partner of another firm who also had a lot of staff on site. And, amazingly enough, another integrator thought they 'owned' the same client relationship. "Ownership" is subjective but it rarely is as deep as executives think it is.

Consultancies really need to re-examine who they are, what their core competencies should be and how to successfully defend against larger, offshore firms. I'd be happy to spend an hour with any executive who wants to explore their situation. Good luck! 

Shortages Slowing BPO Growth

           Constrained Talent Supply to Slow BPO Growth

I had just submitted the previous post when I read the latest weekly Wachovia report on services. They report that skills shortages will constrain growth in BPO in offshore locales.

My own, albeit less formal, market checks would confirm that concern. Companies interested in BPO may find:

• few process improvement black belts in managerial or staff positions
• that of the black belts you find, many are still in the early stages of certification
• that the in-house process experts may lack detailed knowledge of country specific regulations, accounting standards, etc. needed in parts of your global enterprise

Labor arbitrage savings will only work in BPO if the outsourcer can deliver a risk-free solution. One Fortune 500 executive I recently interviewed expressed extreme disappointment in the poor service and lack of process documentation from one of their outsourcers. The result is costing them dearly during their audit.

Major, multi-national service providers may be the best, low-risk BPO solutions for now. Let's see what the future brings.