Global business on a Knife-edge: Bonuses, H-1Bs and Naïve Protectionism


AIG Has the world gone mad? Or is it just the US Senate? One month after Senators Bernie Sanders and Chuck Grassley pushed their amendment through the Senate making it tough for TARP recipients to hire H-1B* or L1 visa holders, we use the same TARP cash to pay retention bonuses to the very people who got us into this mess in the first place. We could create many, many more jobs with that bonus cash than we’d ever had “saved” by blocking a small minority of H1-B applicants.

The original intent of the Sanders/Grassley amendment barred all recipients of TARP funding from hiring any H-1B workers. However, the amendment was

modified on 13th February this year so that employers who receive TARP funding can petition for new H-1B workers, provided they follow the rules prescribed for “H-1B Dependent Employers”, which require employers to:

(1) Attest that they have made good-faith attempts to hire U.S. workers at prevailing wages (or industry-standard wages);

(2) Attest that their hiring of H-1B employees does not displace U.S. workers who have sought those same jobs; and

(3) Maintain records showing that they have complied with wage and other work condition standards.

The bottom line is that the Sanders/Grassley amendment will make it much more difficult for employers who receive TARP funds to file new H-1B petitions because it will be hard for them to survive the enhanced recruiting requirements in this economy.

It’s been a while since the old H-1B visa debate reared its head, but it appears that the original Durbin/Grassley bill to reform the H-1B visa program will soon be reintroduced in the Senate on the tail of Sanders/Grassley, which will effectively attempt to drive similar restrictions across all H-1B and L1 temporary workers.

Durbin/Grassley will have a negative impact on US businesses

This bill, if passed through the Senate, would significantly derail outsourcing engagements where there is a need to bring a handful of foreign staff into the US to help manage their offshore/nearshore compatriots. Moreover, areas where there are significant skill shortages, for example, IT programming, IT sourcing management and business process transformation, will be impacted.

While a couple of years’ ago, there was a coherent argument that IT firms and banks were exploiting the H-1B visa process to exploit low-cost imported IT talent, this is increasingly losing weight in an industry where there is a clear lack of skilled application development and business process engineering talent onshore, and a very apparent lack of staff with expertise managing offshore staff in a global sourcing environment. In many cases today, H-1B staff are bringing skills into the country that are shared with onshore IT and operations staff to create a stronger learning environment for the host business.  Noone complains when we bring in temporary workers with academic or scientific knowledge, so what's wrong with talent which can help our businesses be more efficient and competitive on a global level?

Moreover, with the majority of FORTUNE 1000 organizations now involved with offshore IT and business process initiatives, they need to balance their offshore resources with experienced staff with knowledge of managing offshore cultures. For example, having somebody that can act as a liaison in the US that understands the culture and workings of the offshore location facilitates, increases communication and continuity between the two groups.

We need to avoid isolationism, or businesses will move backward

As an increasing number of organizations come to the realization that their dated IT operations and/or business processes are becoming a serious impediment to transforming their business, their need to access third-party skills is often critical to their success. And in an economy where cost-containment is a survival mechanism for many businesses, impeding the capability for IT and BPO service providers to bring talent into the country is only contriving to make US business struggle even further with dated IT and business support operations resistant and fearful of change, combined with bloated costs. Isolating businesses from global talent at this time will only take them further backwards, when they need to be finding new avenues for innovations and growth, in order to survive.

Protecting the US worker is important, however, empowering US businesses will create more opportunities for US workers to develop their skills and expertise. The biggest problem facing US corporate development today is the lethagy of many workers to re-train and re-educate themselves to develop their skills.  Isolating them from these opportunites will only make these problems worse. The US has been instrumental in creating – and funding – this globally-integrated economic monster. It now needs to get with this change and help the economy recover globally, not isolate itself and allow new economic powers to step in and become the new US.

*The H-1B program allows American companies to employ foreign guest workers, with the equivalent of an American bachelor's degree, to work in a specialty occupation, for example research, consulting, academia or IT. H-1B visas for IT are capped at a total of 65,000 and allow guest workers to remain in the US for three years with provisions for an extension of three more years. This cap can be changed annually

Posted in : Business Process Outsourcing (BPO), IT Outsourcing / IT Services



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  1. With the populist outrage at the AIG bonuses and the Wall Street players in general. I doubt your argument is going to be heard over the din of the pitch fork and torch wielding US tax payer. Being correct in your assessment matters not when unemployment is at around 5 million and a company says we need to import workers or ship work over seas.

    The H-B1 or L-1 visa issue points to the bigger problem – education. It is a sad day indeed when other countries educate and train their people better than we do here at home.

  2. We keep hearing that the workers need to have a broad range of skills while companies keep trying to hire narrow gauge experts. The drive for H-1B or L1visa workers is caused by companies not investing in their current workers and looking for a “hit man” that can fix the single point problem rather than building a well rounded work force. When I started working back in 1963 companies had career paths and training plans so that when they needed to fill openings they had employees groomed and ready. I’ll agree that workers need to change how they prepare for their next job, but companies need to change how they plan to fill their openings at the same time.

    Allen Laudenslager

  3. The simple answer is: Don’t take the TARP money, and you’re free to import workers. That’s the trap. If you’re going to accept public money, then you must abide by the public’s wishes — whether they’re right, wrong, or somewhere in-between.

    It’s not an issue of education, as Steve thinks. Application development, to use but one example, is specialized, and the education is available to any who wish to learn it. In all of the places I’ve worked the majority of developers are from India. It’s supply and demand: The people there learn to become developers because they can find work in that field. Perhaps it’s more a function of their having more-limited vocational options than we have here in the US.

    While most of the development staff with whom I have worked were from overseas, NONE of the managers or directors have been. Zip. Zilch. Zero. You might think that’s a function of racism, or some other -ism, but it’s not. Those people are trained in just one thing; by and large, they’re not good out-of-the-box thinkers, and they are not very good communicators. I say this not in a disrespectful way, just a factual one. So they’re hired here as ‘temps’, or ‘contract workers’ to perform one job, or work on one project. Then they’re gone.

    Because workers here in the US have more vocational options, fewer choose to specifically specialize in application development… coupled with the fact that it’s easy to see that firms prefer bringing in such workers from overseas, I can understand an American thinking that there isn’t much future (or many dollars) in pursuing development as a career.

    Paul Costello

  4. Steve – you’re spot on. The core roots lie in the education and attitude of US staff. While corporates have a role to play in developing them, you can’t hold them 100% accountable for the development – staff need to train themselves. Do law firms hire lawyers without law degrees? They hire the best they can and provide them with an environment to floursh. The same with the top consultancies, investment banks, multi-nationals etc. It’s finding that talent that’s edicated, trained, fired up and ready to go. If that talent is available in other countries, then what choice to companies have, but to go after it? And what better than to bring it to these shores to help train others too?


  5. The amendment to the TARP bill will definitely create a perception that the US is starting to become a protectionist state, which may cause other countries to follow suit. Typically the US is all about the open market, but this amendment is trying to appease the general population. In the long term this may impact the recovery from this recession since we live in a global market.

    The H1-B and L1 visa issue points to a problem of the US lacking resources who have the technical skills to do the job. This is partly due to the education system in the US, where there isn’t an emphasis on science and math, and a lack of interest in our younger population in migrating towards this profession. Corporations lucked out in that the resources from other countries could step in and help fill in this void.

    Forcing corporations to try to find US resources to staff technical positions will be tough for them. Predominately majority of US resources will migrate towards consulting organizations because it allows them a higher pay, an ability to learn new technologies, and faster career advancement. Industry based corporations have a tougher time matching consulting organizations thus forcing them to go the H1B / L1 route or hiring such outsourcing organizations such as WiPro, Cognizant, Satyam.

    Rama Vangipuram

  6. Nice piece Phil. For some reason, the H-1B visa issue brings out some really nativist and economically-illiterate thinking.

    I published an editorial about a month ago in the Detroit News that addressed a similar issue (

    The main point was that that more and more work is mobile and can be done anywhere. If Congress prevents firms from bringing people with specialty skills to the United States to work with teams of Americans, many firms will simply send the work to the people they wish to employ. The latter outcome is a small inconvenience for the firm. But it is much, much worse for the United States (or the EU).

    The effort to reserve positions for Americans (who the firms don’t feel have the right skills) puts more and more jobs at risk.

    This is truly shortsighted. Not sure if the Senators really don’t understand how firms work, or if they are simply pandering.

  7. I will approach this from the perspective of the offshore vendors.

    In the global delivery model in vogue today, a 20:80 ratio is the most common split between onsite and offshore head counts. This 20% travel from India to the USA and act as the bridge between the customer’s team and the vendor’s India team. As Phil points out, this is an essential and skilled role. This involves working a full 8 hour day and then getting on the phone with India for another 2 hours. And even work on week-ends.

    If H1B regulations prevent this 20% from traveling to the US from India, it will be staffed by US locals (employed by the vendor or the buyer – both will work).

    No doubt, the US government will be happy with this.

    No doubt, this increases costs for the buyer. This is a larger problem which the US has to address; if you keep jobs in the US, your cost structure will go up. How then do you remain competitive in a global market?

    Will this result in service delivery quality issues? Depends. If the US locals learn to play this role well, then service delivery will continue to be fine (and may even improve). Question is, are American workers ready to move out of the comfort of their 40 hour weeks?

    Unlike others on this discussion thread, I do not believe this has much to do with the US education system or technical skills. The onsite team is less about technology and more about requirements management, change management, effort estimation, stakeholder expectation management, coordination across time-zones and cultures, effective progress reporting, business development etc. In other words, it is all about project management.

    All the techie work is being done in India, and the H1B restrictions do not prevent that from continuing.

  8. Senators Durbin, Grassley, Sanders, et al. appear to be peering into an orifice at the wrong end of the horse. Yes, it’s important for the US economy to retain as much employment within the country as possible. But it’s also critical for the US economy to acquire and retain the best talent from around the world. Stopping skilled people from coming in on specialized visas seems like the exact opposite.

    The founders of some of the most valuable US companies, that contribute billions to the economy (think Google), are immigrants. It’s vital for an aging US population to get young talent from other places, even as we continue to invest in teaching our own kids.

    If the legislation was focused on companies sending work overseas, well that would be another (and probably a more pertinent) debate.

  9. In response to Kishore- it’s a fallacy to question whether American workers are ready to move beyond a 40 hour work week. Have you checked out the San Francisco Bay Area lately? Or Hollywood? Or Wall Street?

    Also, let’s clear up something about this debate. There’s a big difference between what’s good for a company (which is what a CEO needs to worry about) and what’s good for society (which is what Congress is focused on). A company might save money from offshoring work, but the numbers don’t necessarily work out so well for the American economy.

    Cost competitiveness in the “Global Economy” will remain a red herring till China stops pegging it’s currency to the Dollar, and India stops charging a 100% excise/customs duty on America automobiles.

  10. Protectionism will hurt everyone in the long run–it’s not a good sign if this becomes precedent.

    But I fundamentally agree with Paul Costello. TARP receipients are like adults who get money from, and live with, their parents–they have to respect the rules of the house, even if those rules are dumb.

    Now as for dumb rule-making, let’s look at what we are talking about. Let’s assume that all 65,000 H1B jobs actually could be filled by Americans (they can’t be, but let’s pretend). Unemployment is 12.5 million +. As usual, we’re not working on the right problem here. It’s political grandstanding at its best, leveraging the FUD of the people to drive legislation that will hurt them all in the longrun and makes us look like a bunch of xenophobes.

    And finally, let’s not forget that most companies would RATHER NOT use the H1-B if they could avoid it. It is expensive, slow and cumbersome–so they use it, almost by definition, to meet demand that cannot be met locally.

  11. If history is any predictor of what may happen with protectionism, we know that every economic slowdown/recession of the 20th Century, was followed by an immediate drop in international trade. Although these dips did not last long, this political rather then economic trend, has been well pronounced and well documented. Eventually, market forces prevailed and international trade bounced back to it’s “pre-slowdown” levels.

    So the question is, how long will it take populist politicians this time to figure out that in our “flat world” innovation thrives on diversity, that productivity needs competition, and sustainable development in the 21st century must be based on free cross-border trade. I want to believe that most of our populist politicians are not that naive or illiterate, they are just addicted to their power positions. So, as economy slowly recovers and consumers will start spending again, it will take us – the consumers and voters, to vote them out from their protectionist rhetoric. Unfortunately, it will take some time – as democratic process always does.

    As cynical as it may sound, I believe that this democratic process will be expedited by lobbyists. It will be the lobbyists representing interests of big enterprises that need global marketplace to grow, who will speed up the “economic learning” of our “emotional protectionists”. Some of the most vocal proponents of “Made in America” may change their mind before we will have a chance to vote them out from their power seats. It comes down to profits after all – doesn’t it…. interesting meanders of modern democracy and economy….

  12. Has anyone considered reverse sourcing and the use of dynamic work pools that put people back to work in the US while providing a source for offshore companies to tap domestic resources?

  13. Companies who are asking the taxpayers to bail them out of the mess they created should be required to hire US workers. Having worked with India outsourcers, the issue of better education is a myth. The offshore team is staff with individual right out of college. They learn at the client expense. The onsite team is a little better but not much. The real reason to outsource is not productivity or education but cost. On one of the project that I worked on with a team from India I had to asked “don’you think. If I gave you a design which was upside down and would not work what would you do.” The response was we would build it exactly as it was designed.

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