Date: Thu, 22 Dec 2005 21:07:48 -0800 From: Norm Matloff To: Norm Matloff Subject: role of H-1B in offshoring To: H-1B/L-1/offshoring e-newsletter Two very short but highly significant articles are enclosed below, with some unusually frank admissions by the industry that the H-1B and L-1 programs harm American workers. As many of you know, an argument traditionally made by the industry lobbyists in favor of expanding the H-1B program is that it would reduce the amount of offshoring. A recent example was the remark made by Tracy Koon, director of corporate affairs for Intel, in the Arizona Republic of December 13: "[if] we can't hire the talent we need in the U.S., we will be forced to go where the talent is." This has been one of the industry lobbyists' favorite arguments, much repeated by nervous politicians who, in addition to being beholden to the industry because of campaign contributions, don't want to be accused later on of having "lost" the IT industry. I've argued that the mere fact that industry would rather bring the workers here than have the work done offshore, in spite of the wage differential, shows that offshoring doesn't work well. Thus the industry's argument is manipulative and misleading. But beyond that, there is the point that to the extent that work is offshored, H-1Bs and L-1s play a central orle. In other words, the H-1B and L-1 programs are actually used to facilitate offshoring, not to prevent it. This is because the model used for offshoring operations is a 1::2 hybrid, with one H-1B or L-1 working on the project from the U.S. location to every two workers working on the project abroad. The onshore workers are in the U.S. either as liaisons between the two locations, or for training, but in any case the salient point is that offshoring DEPENDS ON the H-1B and L-1 programs, rather than being something to be resorted to. This has been noted in formal studies, such as: * The congressionally-sponsored study by the National Research Council, Building a Workforce for the Information Economy, National Academies Press, 2001, Sec. 5.4; available online at http://books.nap.edu/catalog/9830.html The NRC subcontracted a study by a University of Massachusetts researcher, who conducted a survey of offshoring firms, and found the 1::2 ratio cited above. See H-1B Visas in the Globalization and Restructuring of IT Services, Hal Salzman, Center for Industrial Competitiveness University of Massachusetts. * The 1::2 was further studied in Utilizing Immigration Regulations As a Competitive Advantage}, Columbia University Center for Science, Policy and Outcomes, http://www.cspo.org/products/papers/Bangalore.PDF All of this is illustrated in a very concrete way by the two articles enclosed below. The first, from Line56 ("The E-Business Executive Daily"), states that Congress' decision NOT to add 30,000 visas to the H-1B cap will serve to REDUCE offshoring: * The U.S. House of Representatives has decided not to raise the number of * H1-B visa holders. Consequently, the H1-B dispensation will remain * capped at 65,000 and not go up to 95,000. * * This will have ramifications for offshore IT and business process * outsourcing (BPO) providers... * * The onshore/offshore model has become increasingly popular over the last * several years, but the H1-B cap effectively prevents the model from * expanding further. Thus, "offshore companies will be hard pressed to * supply additional onsite workers," writes Travis. Even more interesting is an actual admission that employers hire H-1Bs when in fact qualified U.S. workers are available: * It is also good news to U.S. workers who may now be more attractive * hires for offshore companies looking to shore up their onshore presence. Norm http://www.line56.com/articles/default.asp?articleID=7193&TopicID=11 H1-B Visas Flat by Tamina Vahidy, Line56 Wednesday, December 21, 2005 The U.S. House of Representatives has decided not to raise the number of H1-B visa holders. Consequently, the H1-B dispensation will remain capped at 65,000 and not go up to 95,000. This will have ramifications for offshore IT and business process outsourcing (BPO) providers. As AMR Research Analyst Lance Travis notes [article enclosed below], H1-B visas are "used by the offshore IT industry to bring temporary workers into the United States as the onshore component of their onshore/offshore global delivery models." The onshore/offshore model has become increasingly popular over the last several years, but the H1-B cap effectively prevents the model from expanding further. Thus, "offshore companies will be hard pressed to supply additional onsite workers," writes Travis. While this is bad news for offshore providers, it is good news to IT/BPO outsourcing companies based in low-cost geographies in the United States. It is also good news to U.S. workers who may now be more attractive hires for offshore companies looking to shore up their onshore presence. Article from AMR Research: http://www.amrresearch.com/Content/View.asp?pmillid=19035 U.S. House of Representatives Hinders Offshore Services Tuesday, December 20, 2005 Lance Travis The U.S. House of Representatives dropped a provision to raise the number of H1-B visas by 30,000 from a budget bill that was approved this week. Under current law, the number of H1-B visas is capped at 65,000 (between 2001 and 2003, the limit was temporarily raised to 195,000). The H1-B visa is used by the offshore IT industry to bring temporary workers into the United States as the onshore component of their onshore/offshore global delivery models. The 65,000 worker cap has already been reached for fiscal 2006, and now that the higher limit has been dropped from the budget bill, offshore companies will be hard pressed to supply additional onsite workers. However, the news for U.S. companies contracting with offshore firms is not all bad: a. H1-B visas are good for six years and workers holding one can move from job to job. Therefore, no existing workers are affected. b. Exceptions to the cap exist. Workers holding graduate degrees may still be eligible for visas, which could result in customers getting better trained people. c. Most of the offshore firms anticipating problems with the visa cap have begun to hire more U.S. workers for providing onsite services. AMR Research is disappointed that the House dropped the provision from the budget bill. Bringing talented professionals into the United States increases competition for jobs, and competition increases quality in the long run.