Globalisation creates Catch-22 for protectionists as India responds to threat of US visa clampdown

US government might have to negotiate with India before getting tough on its work visa regime

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The Indian government could respond to US president Donald Trump’s planned crackdown on the use of its IT workers by imposing its own rules on US companies operating in India, forcing the US administration to negotiate.

This sends a message to governments worldwide that protectionist measures come at a cost.

Although nothing has changed yet, Trump’s order will see US government agencies look at ways to reduce the number of immigrant workers in the country, including reducing the use of H-1B visas. This is part of Trump’s election campaign promise to encourage US employers to hire more US citizens. Large tech consultancies use the 85,000 H-1B visas granted each year.

But while US businesses are heavily reliant on IT services from Indian suppliers, including the use of Indian staff in the US, US companies, including some of the tech giants, have made huge investments in Indian operations, which are vital to their competitiveness and future growth. Trade is a two-way flow and the same goes for trade barriers. If the US implements trade barriers on Indian imports, India can do the same.

At a recent event in India, the country’s commerce minister, Nirmala Sitharaman, is reported to have said: “It is not just that Indian companies are in the US; several big US companies are in India too. They are earning their margins, they are earning their profits, which go to the US economy. It is a situation which is not where only the Indian companies have to face the US executive order. There are many US companies in India which have been doing business for some years now. If this debate has to be expanded, it has to be expanded to include all these aspects. We shall ensure that all these factors are kept in mind.”

The fact that India can retaliate to threats from Trump to cut the number of its citizens that work in the US and reduce the amount of work its companies do there, is a result of globalisation. The US will have to negotiate with India before introducing policies such as the proposed clampdown on HB-1B visas.

Sitharaman’s tough talk brings home how globalisation has rebalanced the world economy, creating interdependencies that make unilateral policy-making more difficult.

Higher taxes

She did not outline what the Indian government might do, but higher taxes on profits made from India and higher business taxes are possibilities.

“The offshore services industry represents about 10% of the Indian economy,” said one source. “India is not going to let the US impede this trade without negotiation.”

Large US IT companies are also bringing staff to the US from lower-cost countries, such as India. The top 25 users of H-1B visas on the website myvisajobs.com shows big Indian service providers such as InfosysTata Consultancy Services and Wipro at the top of the list, as expected, but US companies also figure prominently, with IBM in fourth place, Microsoft 10th, Google 12th, JPMorgan Chase 20th, Apple 21st and Intel 22nd.

But despite the visas being aimed at highly skilled workers, figures from the US Department of Labor show that about 80% of workers in the US on these visas are not highly skilled.

And while Indian IT firms make money selling services to US businesses, the US technology giants are deriving huge profits from vast operations in India. These companies are benefiting from a highly skilled workforce coming in at a lower cost and are offered tax incentives to set up shop in India.

For example, Google’s largest campus outside the US is in Hyderabad, India, which can accommodate 6,500 employees. Apple also has an operation in Hyderabad with a 250,000fttechnology development centre and about 130,000 of Accenture’s 400,000-strong global workforce are in India.

Digital hub

Meanwhile, US industrial giant GE recently added a digital hub to its global network by opening a new centre in Bangalore, India, which will house 2,500 technology professionals and will be its biggest hub. Also, Goldman Sachs employs about 5,000 staff in Bangalore, across almost every division of the bank. In 2019, it expects to open a $250m campus on Bangalore’s outer ring road that will be able to accommodate 9,000 people in two buildings, across 1,000,000ft2.

There is also a huge existing population of Indian professionals in the US that should not be forgotten before new rules are enforced.

Offshore IT services expert Peter Schumacher believes Trump’s plan could have some unintended consequences. “People are overlooking something more important,” he said. “Everyone is focused on the 65,000 new H-1B applications, but there are perhaps as many as one million H-1B visa holders already working in the US,” said Schumacher, CEO of management consultancy the Value Leadership Group.

“If the Administration starts going after them, the technology industry will have a strategic problem. Roughly 15% of all Facebook employees in Silicon Valley are H-1B visa holders. These are highly skilled employees who earn salaries significantly higher than $100,000.

“Given the dearth of Stem [science, technology, engineering and maths] talent in the US, an H-1B crackdown would force technology companies to shift more of their development work to India or other locations, such as Canada. However, I believe the bigger risk is that even before the Administration actually does anything, many of these talented professionals will decide they have had enough of the uncertainty and leave the US without any official prodding. By making people feel unwelcome, Trump is playing with fire – he could wreck a very sensitive ecosystem.”

Deeply entrenched

Speaking to Computer Weekly in November 2016, Ashish Gupta, European head at Indian IT services firm HCL, said a visa clampdown would have hit Indian firms hard if it had happened 10 years ago, but today these companies are deeply entrenched in western enterprises and have invested heavily in the countries where their customers are. For example, 65% of HCL staff in the US are US citizens.

Governments elsewhere need to understand the interdependencies of the IT services sector when making decisions. For example, the UK government’s plans to take the country out of the European Union could have ramifications for the UK IT and university sector, making it more difficult to recruit talent.

For example, speaking to Computer Weekly on the eve of the Brexit referendum in June 2016, Alex Burton, CTO at London-based startup Sup – which offers an app to help people locate friends and socialise – said the benefit to Sup of being in the EU was access to talent.

“The best talent comes to London,” said Burton. “If we leave, I am worried that they will go directly to the US. We already have a brain drain from the UK to the US. I don’t want that to happen from Europe.” Burton said his company uses developers from France, Germany and Denmark.

Also speaking to Computer Weekly at the same time, Tugce Bulut, CEO and founder of global intelligence platform Streetbees, which supplies organisations with data, said that if the UK leaves the EU, it will be hard to get the right staff and the company might have to relocate. “The reason we are in London is because it gives us access to the best talent,” he said. “There is no better place in the world if you are running a business where you need multiple languages and cultural diversity.”

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The India threat of retaliation is hollow. First, the US has a trade deficit with India. That means India stands to lose more that the US. Second, India operations in the US create jobs for Indians. US operations in India also create jobs for Indians. Thus India-US trade is a net loss to Americans who vote. If the Trump administration does not solve the American job loss from trade his replacement will.
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