The IT Outsourcing Game: India vs. USA

Okay, so the U.S. Senate last week passed a proposal to nearly double fees on work visas for Indian IT companies. The fee hike is a measure that’s attached to a $600 million border-security spending bill that senators passed just before leaving for their August recess. If it goes all the way through Congress, the measure will require all companies with U.S. staff that have more than half their U.S.-based employees on H1-B or L-1 visas to pay thousands of dollars in special new fees for each worker, according to the Wall Street Journal.

In fact, the bill nearly doubles skilled-worker H-1B and L visa fees, to as high as $4,500 per applicant. Only companies with at least 50 employees, and which have foreigners making up at least 50 percent of their U.S.-based workforce, will be affected—which means of course that the big Indian IT outsourcing firms are the ones who will pay:  Infosys Technologies, Tata Consultancy Services, and Wipro.

The measure was co-sponsored by Sen. Charles Schumer (D-New York) and Claire McCaskill (D-Missouri). The money raised from these fees is supposed to help fund the border-security bill and thus avoid using stimulus money.

These fee hikes aren’t chump change either, apparently. The WSJ article quotes Som Mittal, president of Indian technology industry trade group Nasscom, who says Indian companies could face $200 million to $250 million in increased human-resources costs annually if the bill becomes law.

As you might expect, India isn’t taking this proposed fee hike too well. On its Web site, Nasscom says that “while we understand the need for the US to protect its southwest borders, it seems that the funding proposed by this bill would be from the Indian IT sector,” and then goes on to say the fees will have negatively impact Indian companies which are investing in the United States. Nasscom adds that “Indian firms and Indian citizens pay in excess of $1 billion to the U.S. in the form of Social Security, with no benefit or refund.”

And its been reported that Indian Trade Minister Anand Sharma sent a letter to his counterpart here, U.S. Trade Representative Ron Kirk. calling the move “highly discriminatory” and saying that “it is inexplicable to our companies to bear the cost of such a highly discriminatory law.”

The criticisms are coming from both sides of the ocean. Schumer thinks the bill is a good idea as it will force Indian firms that he says have been taking U.S. jobs to hire U.S. workers when they can. But India and others are saying the bill falls dangerously close to protectionism, which in a global economy may not be the best business strategy.

I’m going to keep quiet on this one. But I do want to hear from you all. I have an idea of what many of you will say, but who knows, maybe I’ll be surprised.