The Hindu Business Line : Don’t cry for H-1B, India

The new restrictive TARP provisions on H-1B hire could present an opportunity in the medium term for India. In the era of globalised R&D, availability of skilled technical manpower has led to establishment of more and more MNC R&D centres in Asian economies such as India.

MNCs currently engaged in advanced R&D work in India are likely to strengthen their operations.

Suparna Karmakar

The ‘Buy American’ provisions in the newly enacted $787 billion stimulus Bill have sparked sharp rebukes from analysts and threats of legal challenges from the US’ trading partners.

In India, however, the clauses that restrict firms receiving bailout money from hiring foreigners through H-1B visas have sparked concerns over the future growth prospects of the Indian IT outsourcing industry.

India anxious

Predictably, the Indian government has voiced its unhappiness on the protectionist measures built into the US government’s corporate bailout package. The bailout-condition could affect Indian skilled workers, approximately 10 per cent of professionals who entered the US in 2007 with H-1B visa, employed in the on-site projects of IT companies. However, this predicament generated by the TARP (Troubled Assets Relief Program) provisions also presents an opportunity in the medium term for India which this column will try to outline.

A recent analysis of past recessions by Dell indicates that only 50 per cent of the pre-recession IT industry survives as leaders post-recession. Furthermore, only those companies with maniacal focus on cost, operational excellence and productivity win.

It is, therefore, rational to assume that in their search for cost competitiveness, efficiency and to maintain market share, companies will focus on innovating products, processes and business models in the current recession. Given the present economic and financial conditions, it is plausible that the TARP provisions would accelerate relocation of those innovative activities to countries such as India. And in the short term, to circumvent debilitating impact of the new provisions, US MNCs would ramp up activities in their existing offshore units, be it in the captives or to third-party suppliers.

As seen in the aftermath of the 2000 technology slump, which led to a exodus of Indian techno-geeks from US but paradoxically contributed to the exponential growth of Indian IT exports in the present decade, the new restrictive TARP provisions on H-1B hire has the potential to amplify India’s cross-border trade prospects, and this time in the higher value-added segments.

Hi-tech verticals

The Indian IT industry in the past quinquennium has been working towards moving out of the cost and labour arbitrage businesses to revenue-based high-tech verticals such as engineering, R&D and software product design segments; the latter is expected to grow by 14.4 per cent this fiscal.

More than 220 MNCs (majority of them US-based MNCs) are currently engaged in advanced R&D work in India. This trend is likely to get an offshoring boost in the coming years.

Recent industry trends lend credence to our claim. While India’s biggest tech companies in the US, Infosys and Wipro, are preparing to hire more Americans in their near-shore operations, companies such as Dell began internal re-organisation to become more cost efficient, removed managerial layers and increased BPO operations in India by transforming erstwhile contact centres into revenue generation centres.

IBM, the world’s biggest software services provider, with a market share of 9.6 per cent in the Indian domestic information technology market in 2007, continues to strengthen its India operations and is set to control almost half of the domestic outsourcing market, growing at approximately 20 per cent per annum, by 2010.

Similarly, Yahoo Inc is adding employees to its India R&D centre as more and more work gets done here.

More R&D centres

In the era of globalised R&D, technological innovations together with emerging market growth and availability of skilled technical manpower has led to establishment of more and more new MNC R&D centres in Asian economies such as India and China.

R&D executives in a range of sectors such as consumer products, chemicals, industrial machinery, energy, medical devices, aerospace, video games, telecom and auto industries are finding and managing product development vendors in these countries.

If the financial crisis induced lack of venture capital funding was incentive enough for R&D focussed American companies to relocate more of their innovation activities to cheaper locations in India, the bailout provisions on hiring restrictions would surely strengthen that trend.

And one hopes, as a positive outcome of the above, India would be able to reverse its declining industrial competitiveness along with boosting its knowledge economy status.

Rather than bemoan the arbitrariness of the TARP provisions, therefore, this is an opportunity we need to capitalise on with a creative mix of policy reforms, incentives and private investment/initiatives.

(The author is a Visiting Research Fellow with the Institute of South Asian Studies, National University of Singapore. The views are personal.)

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