Executive Order Suspends H-1B Visas Through 2020

On Monday, the U.S. administration signed an executive order temporarily restricting new entrants to the United States under the H-1B and other work visas. COVID-19 and subsequent record unemployment levels in the U.S. are the primary rationale for the order, which goes into effect at 12:01 AM, Wednesday June 24, effective through the end of 2020.

The decision to suspend H-1B visas is something the IT industry in India has been expecting for the last couple of months. The NASSCOM trade association for the Indian IT and BPO industry earlier stressed that IT services should be excluded from any such decision and classified as essential services given the pandemic. However, the decision appears to target large IT service providers as they constitute nearly 70 percent of H-1B visa holders.

Indian IT service providers have been working on a cushion to brace any such eventuality for quite some time; this issue is not new. In 2019, we wrote about the impact of the 2017 “Buy American and Hire American” executive order, which saw H-1B approvals drop by 58 percent year-over-year for Indian IT services firm. The following plans were put into place in 2017 for this eventuality:

1. Increased local hiring: The major Indian IT firms have been investing in local hiring for quite some time, even before the pandemic. They have also increased their presence in the U.S. and other nearshore locations like Canada and Brazil. For example, in 2018, Infosys opened new centers in Arizona, North Carolina and Connecticut, and Wipro opened new offices in Texas, Detroit, Virginia and Minnesota. TCS has increased its onshore and nearshore locations.

    

2. Increased remote working and travel restrictions because of Covid-19: As we discussed on the Q1 2020 ISG Index, the pandemic has shown that even critical IT and business services jobs can be managed remotely. As enterprises responded quickly to stay-at-home orders by adjusting their operating models, Indian IT service providers successfully transitioned support from remote locations. While clients gain confidence with remotely based executives and the world adjusts to remote collaboration, dependence on local resources is expected to diminish.

    

3. Decreased dependence on H-1B visa: Many Indian IT service providers have been steadily reducing their dependence on the H-1B visas. While TCS and Infosys have had 40-50 percent employee exposure, HCL and Wipro had even less, around 30-35 percent. Digital transformation initiatives, globally distributed agile teamwork and remote enablement has played a key role here.

The restrictions in the executive order are limited to new H-1B visa requests and individuals with new H-1B visas who have yet to enter the country. That said, we still expect challenges for current H-1B visa holders entering the U.S. on multiple trips. Current H-1B holders who have been unable to return to the U.S. due to the pandemic will still need to abide by local travel restrictions, which include a ban on travel from certain countries.  

We believe the impact of the ban will be negligible in the short run given the work providers have done over the past three years to prepare for the new restrictions. However, if the additional regulations the administration appears to be evaluating, including a possible new definition for specialty occupation, the  requirement of an advanced degree for H-1B qualification, and/or decreasing the duration of the H-1B come to fruition, it will create a much more challenging environment for providers.

Longer term, the current ban combined with the proposed regulations could have the opposite effect of what the administration appears to be aiming for – protecting jobs for Americans. Instead, they could actually increase the use of offshore resources. As we saw in the first few weeks of the COVID-19 pandemic, 80 percent of Indian IT services employees worked from home with remarkably few major disruptions to client work. Given rapid advances in networking, cloud and collaboration technology, its easy to see how these technologies – coupled with an increased level of comfort with remote work -  could accelerate the use of a global delivery model.