Indian IT service providers and employee diversity

A recent bill introduced in US Senate aims to cap the percentage of L1/H1 visa workforce to maximum of 50% in US based organizations. Apparently, this bill is aimed at Indian IT service providers who majorly rely on L1/H1 visa categories to send Indian staff to US on consulting assignments.

More than 95% of the staff in Tier I Indian IT vendors are of Indian origin. If this bill becomes a law, Indian IT service providers need to recruit more local talents (read Citizens or Permanent residents) to comply with the 50% cap. NASSCOM and some of the IT service providers have voiced their concern against this bill as unfair and restrictive trade practice. Obviously, Indian IT providers are wary as hiring more onsite staff would increase their cost structure and put pressure on the operating margins.

In my opinion, the current hiring model of recruiting mostly Indian staff is not sustainable. Though the current recruitment practice has worked well for the past 20 years to support mostly labor arbitrage based business model, it has outlived its utility and need to be overhauled now to support emerging paradigm shift in the business models. The current US bill is a blessing in disguise. Why? Here is my take:

  • Improved employee diversification
    Right now, in large Indian IT companies more than 95% of the workforce is of Indian origin. The percentage of local talent hired by Indian IT providers are very less in comparison to the significant volume of the business (>80%) coming from North America and Europe. Indian IT companies are global in nature. Their customers are all over the world. Employees are distributed across geographies. Now, the hiring practice need to reflect this global mindset as well.
  • Integration with local economy
    Almost all the revenue earned by Indian IT service providers come from software export to North America, Europe and rest of the world. However, the average percentage of non-Indian employee’s is around 3% which is pathetic and does not reflect well on the hiring practice. On an average, around 30% of the staff is based in onsite locations. Even if 50% of local staff is hired for these onsite positions, it would help to push the overall non-Indian resource percentage to 15%, which is very healthy and would present a diversified global workforce.

    Besides, recruiting local talents will demonstrate the commitment of offshore service providers to the local society and economy. Employment creation for the local society is a sure way to bond with local society, be a good corporate citizen and boasting the brand image. In the long run, the distinction of offshore vendors will blur because of the presence of large local employees and commitment to local societies. The perception of pure play offshore vendors would change over the years to true multinational organization (MNC) with headquarters in India. For e.g. IBM has more number of developers in India than many of the large Indian IT vendors. However, IBM name is not in the offshore provider mind recall list of the public or media, because of its local presence and global recruitment practices.

  • Catalyst for new business models
    Having diversified global workforce in various onsite locations means increased cost structure. This would make offshore providers shun pure labor arbitrage based business models and actively promote new business models that are based on outcome, productivity and service levels.

I strongly believe in the value proposition offered by offshore IT service providers. However, the business model and operating structure of the offshore service providers need to evolve with changing times.

Indian IT providers recruitment strategy has to be restructured so as to bring more diversity in to the workforce, utilize the local talents where possible and bond with local societies for sustainable business model. Further, this would also help to push the Indian IT service providers to be innovative, create outcome based business models rather than mostly relying on labor arbitrage based business models.


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© Dhandapani Ammasai, 2011. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given with appropriate and specific direction to the original content.

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