‘Hire American’ Plans Could Hobble India’s Outsourcers

[Batman_fan]

Source WSJ - https://www.wsj.com/articles/hire-american-plans-could-hobble-indias-outsourcers-1492599604

Big users of the H-1B visas include Infosys and Tata Consultancy Services

President Donald Trump’s “Buy American, Hire American” executive order could rub salt into already wounded Indian outsourcers.

Indian technology subcontractors like Infosys INFY -0.62% and Tata Consultancy Services EQTCS -0.50% are big users of the so-called H-1B visas that the order targets. The Trump administration specifically mentioned the two companies as among those it says have often used the visas to bring in low-paid workers, instead of the highly-skilled employees for which the visa is designed.

The new order is short on details. But potential reforms could include raising the minimum salary requirement for visa recipients, or placing caps on the number of employees with H-1B visas a company can have.

That means these outsourcers may be forced to tap more into the local U.S. talent market, which could increase their costs. Infosys and Tata could be badly hit. Goldman Sachsestimates only a third of their staff in the U.S. currently are local hires, much lower than their peers like HCL Tech or Wipro. The problem is tricky to avoid: both companies generate more than half their revenue from North America, meaning they have to maintain significant head count there.

Outsourcers are already facing a challenging environment as more of their clients come to rely on cloud-based services to run functions like payroll. That means they have less need for the likes of Infosys or Tata to develop and maintain customized in-house systems. Both firms still derive around 60% of their sales from the traditional application services business.

Shares of Infosys and Tata have been moving sideways over the past couple of years, but are still significantly higher than five years ago. Unless the two companies can offer fresh strategies for the Trump era, it may be time for investors to put these outsourcers out to pasture.

[Luke]

lite

[Batman_fan]

" Outsourcers are already facing a challenging environment as more of their clients come to rely on cloud-based services to run functions like payroll. That means they have less need for the likes of Infosys or Tata to develop and maintain customized in-house systems. Both firms still derive around 60% of their sales from the traditional application services business. "

Whatever happens, cloud is going to change the way firms invest in IT. With cloud no huge CAPEX and more cash to invest in business than in IT. Huge market for the vendors who are marketing cloud based solutions.