The sharp rise in wage costs for Indian IT companies due to an increase in overseas hiring, augurs well for the sector which has been trying to find a way around tightening H-1B visa rules. Though the rise in staff costs may look to be a cause of concern in the short term, it could be a blessing in disguise in the long run. Staff costs for large Indian IT services companies have gone up by 15-20 per cent in FY 19 as they hired engineers in countries wherever their clients are located. This is being done, especially in the US where tougher immigration laws and tightening visa rules have become a predictable feature of Donald Trump’s Presidency. Over the last four years, there have been several tweaking of H-1B visa rules making it harder for Indian techies to land their dream job. This emanates from a belief held by the Trump administration that companies are bringing in cheap labour to replace American workers through the H-1B route.
The US issued 10 per cent fewer H-1B visas between October 2017 and September 2018. To fill the gap, IT companies have started hiring locally. Competition from global IT giants such as Accenture, and a workforce dominated by legacy engineers trained in old technology platforms is holding back Indian IT services firms from making big inroads into winning new-age technology projects. In the traditional IT services space, India’s cost competitiveness, which is approximately 3-4 times cheaper than the US, had been the mainstay in the global sourcing market. For far too long, some IT services companies have relied on shipping low-cost skilled labour to countries such as the US to drive higher margins.
Thankfully, tougher visa rules are forcing many large Indian IT services firms to change their business model and ramp up onshore hiring. To cope up with related higher costs, the IT companies are now beginning to move up the value chain in search of higher margins. The earlier business model had led to a situation where Indian IT firms had become the global experts in executing low-value projects. Now they are switching over to new transformational platforms like robotics, artificial intelligence and automation. Indian engineers are also gaining from this shift as companies are investing in reskilling existing workforce to match the requirements of the new technology platforms, helping them to find more meaningful projects in Mumbai instead of implementing an enterprise resource planning software for a client in Chicago. Transformational business is seeing double digit percentage revenue growth. This switch is great news for the Indian IT industry. Globally, these new technologies are enabling tectonic shifts in systems and processes that require very different capabilities compared to implementing an enterprise resource planning software. Hiring locally also makes the Indian IT companies more nimble in responding to these opportunities. IT services companies should force a faster transformation in their delivery models to compensate for the increasing wage costs.