In my last post, I separated the issue related to foreign talent into two specific use cases: hiring foreign national workers for “point in time” or adhoc needs, and secondly, engaging large outsourcing firms to contract out entire functions.
Last week, I discussed the potential impacts of reform oriented largely around cost, compliance and speed to hire. I now discuss case #2, where I see the greatest potential for disruption.
To achieve cost savings, many large corporations shift entire functions to outsourcing firms. Often, these functions are not the highly specialized skills as referenced in case #1, but are roles such as call centers, helpdesk, technical support and software testing. In these cases, large outsourcers offer pricing far more competitive compared to an organization maintaining the work in house. There is evidence that the top three H-1B employers are Indian organizations servicing global clients. While specific numbers are rarely disclosed, it is widely perceived that IT outsourcing firms leverage a large percentage of H-1B resources at lower salary thresholds to offer the most competitive rates.
Regarding the example above, it is true that “American” jobs are impacted. Organizations are able to avoid legal ramifications because they are outsourcing the function, not specifically replacing jobs held by US citizens like for like. Cost is the driver and organizations do not feel they can effectively compete in the marketplace if they have to employ citizens to perform low mid-level functions given the marginalized compensation demands.
As such, I can see the above arrangements being a large target for reform. And it is quite possible that:
- Number of H-1B visas allotted to large outsourcing firms will be reduced
- Requirements around skills eligibility for visas will be narrowed significantly
- Sponsorship costs will increase significantly
- Organizations doing business in the US will be required to disclose workforce makeup
- This could possibly apply to organizations who have outsourced functions
- Financial penalties or revocation of sponsorship rights will be applied if firms are found to be non-compliant
If some or all of the above legislation is enacted, it could significantly disrupt the way organizations outsource work. Surely, the results would positively impact US citizens with related skills, as organizations would need to look domestically to solve for talent shortages. That said, organizations would still need to operate efficiently to maintain price competitiveness, which could mean:
- Increase their emphasis on robotics and automation to reduce reliance on more expensive human labor, and
- Become more aggressive about creating delivery centers in domestic locations with lower cost of living/depressed wage scales.
Significant upticks in domestic location strategies, while oftentimes influenced by minimum wage thresholds (amongst many other indicators) may cause market competition that did not exist before. Just as we have witnessed in locations like the greater Dallas Fort-Worth area, the massive influx of organizations hiring can create scarcity of talent, increase in competition, rise in wages and influence attrition rates for workers.
As a result, I expect organizations will become savvier around where, when and how they leverage delivery centers, as well as start to better prioritize early talent attraction and retention.
While not directly related to immigration, we have already seen the influence that the new administration has had on offshoring decisions (or lack thereof) by various organizations and Detroit-based automakers.
Actually mandating that organizations keep jobs in the United States is likely a taller, and more complex order than restricting domestic work done by foreign nationals. The most likely adjustments in policy may be in business tax breaks to promote growth. However, substantially adjusting the ability for organizations to move jobs offshore also has the potential to significantly impact trade deals and would require much more time and finesse.
In the absence of specific governmental direction or legislation, what should organizations do? At a minimum, organizations should do their best to determine their visa holder population. Additionally, understanding what functions (and in what numbers) they have outsourced will be key. Firms in the midst of making large scale outsourcing decisions (who have the flexibility to adjust their timing) may be better off to wait until specific regulation is released – as terms, cost of employment and restrictions are all likely to be affected.