The $143 billion Indian IT industry is currently grappling with an issue of truly epic proportions that promises to demolish its fundamental leverage. This is an industry that has for long been considered India’s sunrise industry and a huge foreign exchange earner. But, all that is set to change.
With the H-1B Reform Bill being introduced in the US House Of Representatives, the industry’s single most important operating lever- labour arbitrage, will vanish into thin air. It will be replaced by uncertainty and change of a magnitude that the industry has neither encountered nor dealt with. Leading Indian IT companies have already lost over $5 billion of market capitalization since the introduction of this Bill.
Among others, this bill seeks to double the compensation to H-1B holders to a minimum of $130,000. It would allot visas to employers who offer the highest salaries and not through a lottery, as is current policy. It also seeks to set aside 20% of the allocated H-1B visas each year for startups (firms with 50 or fewer workers).
Darwin’s theory on Origin of Species suggests that the strongest species will move forward and espouses the survival of the fittest. If you apply this to the Indian IT industry 157 years later, it still fits like a glove.
Over the years despite its fast-paced growth, this industry has grown a little complacent. When you rely on external factors to sustain your business and do not strategize to anticipate and offset the impact of adverse changes in the environment, you have very little to fall back on when things really change.
Consider the position of this Industry. On an average, large players get 60% of their revenues from a single geography, USA. And, invariably all of them bank very heavily on labour arbitrage in fulfilling their commitments and securing their margins. The new bill will change all this.
However, despite all the doomsday prophecies, the US H-1B Visa bill could be one of the best things that happened to this industry and here is how it could be beneficial:
1. Sustainable business will grow
In the construction industry, everyone knows that a building is as strong or weak as its foundation. If you build a 50-floor building on a two-floor foundation, it is a disaster waiting to happen. It is the same with this industry that depends on the existing immigration regime in the USA to continue unchanged, which is a utopian assumption.
Real growth of the business is only feasible when it is sustainable over time. Industries that depend on external factors to survive and grow are not really in a sustainable mode of operation. And, this applies to the Indian IT industry as well.
The industry now has an opportunity to come up with a sustainable business model that will not only be beneficial to itself and its host country but also survive the test of time. Companies that rise to the challenge will emerge really strong and also learn to conduct their business in a way that will positively benefit their host countries.
2. Value addition will increase
Apple, has just reported the best quarter in corporate history that took its profits for the latest quarter to $18 bln. Apple’s hallmark is the quantum value it adds that puts it miles ahead of its competitors.
Einstein once said- ‘Insanity is doing the same thing over and over again and expecting different results.’
The fact is, if you continue to focus on low value adding work, you cannot expect significant value addition.
Deploying low paid resources for work that is lower in the value chain does not really result in value creation. On the other hand, if the industry focuses on creating quantum value, the revenue and margin factors will fall in place by itself.
The new bill will spur value creation initiatives in the Indian IT industry, as the low-value creation avenues will soon close. This could make this industry more valuable and robust.
3. Positive impact of change will manifest
The Sub-prime crisis in the US triggered a global meltdown of unprecedented proportions that left countries across the globe, bruised in its wake. The point is, the sub-prime crisis was not something totally unexpected. The US banking and financial services industry were aware that the value of mortgages on properties exceeded the value of the properties itself. However, no one did anything about it until it manifested itself as a crisis.
Once it assumed crisis proportions, actions to mitigate its damage were swift and resulted in a more robust and sustainable environment that would obviate such a crisis in future. So the fallout of this crisis was actually good in the long term.
The US H-1B Bill will spur the IT industry to develop strategies and business plans to deal with it and in the process, the industry will emerge stronger and more sustainable. This will not only benefit the industry itself but also the US where it operates.
4. Environmental balance will come about
Any business is sustainable only if the benefit to the stakeholders and society is more than what the costs of running that business are. This applies equally to businesses that operate in countries other than their own.
Every business has to be conscious that it adds more value to the local economy than the disruption it causes by operating there.
This bill now provides a real opportunity for Indian IT companies to do a reality check on their operations in the US and ensure that they create significantly more value than the impact they have on local employment. More importantly, the value they create will have to be as much for the US economy as it is on their own.
Indian IT companies have a track record of being very dynamic and will certainly come up with a mode of operation that does not just rely on labour arbitrage. In the long run, this will make the industry stronger, more robust and sustainable.
Image courtesy- AP Glitz
Article First Published in- Deccan Herald
About the Author:
Srinivasan is an independent consultant working in the area of strategy and technology interventions in the public sector domain. He has worked in companies like IBM and TCS and has over 30 years of experience spanning 24 countries.