U.S. firms say H-1B restrictions may help them

IT support services firm Caleris has this message on its homepage, "Outsource to Iowa. Not India," against a picture of a corn field and farm houses.

Caleris' message could not be clearer. The company is competing from rural Iowa, with its lower cost-of-living, against India's offshore providers, and those in many other countries as well.

But Caleris' founders, Sheldon Ohringer and Rick Grewell, two native Iowans, believe the U.S. Senate's comprehensive immigration bill may help them.

The bill, released this week, seeks restrictions on the use of H-1B and L-1 workers, and will likely raise the costs of offshore IT service providers.

Ohringer hasn't lobbied elected officials about his firm, which was founded nine years ago with 25 workers and has since grown to 400 in four different centers. He isn't versed in the details of the Senate bill, but he understands the intent.

"If the costs go up to do it in India or offshore, that is a positive for us," Ohringer said.

One bill provision in particular prohibits users of a large number of visas from having more than 50% of their U.S. work force on a temporary visa, the so-called 50-50 rule.

Wells Fargo, in a recent research note released before the Senate bill, said the 50-50 rule could hurt operating margins and reduce the earnings per share of offshore providers by 1% to 5% next year.

Brian Keane, the CEO of IT services company Ameritas Technologies, said the Senate bill will be good for domestic IT providers. "Encouraging U.S. IT development "is the right thing for the United States for maintaining its technological self-sufficiency," Keane said.

Ameritas opened its first center in Baton Rouge in July. Brian Keane is the former CEO of Keane, a $1 billion IT services company that became a subsidiary of NTT Data Corp. in 2011.

Ameritas and Caleris officials believe they are already competitive with offshore providers, when total costs, including productivity, are considered. The Senate bill faces an uncertain future. Although the tech industry is pleased with the increase in H-1B visas in the bill, from a 65,000 base to upward of 180,000, the industry isn't happy with the bill's enforcement provisions and requirement that employers recruit U.S. workers prior to hiring visa holders.

Norm Matloff, a professor of computer science at the University of California at Davis and a leading H-1B critic, summarized the Senate bill, in his recent newsletter, as an overall "disaster," for U.S. STEM workers (science, technology, engineering and math). He pointed to the "massive" H-1B hike and loopholes in the bill.

The IEEE-USA, which wants permanent residency for visa holders instead of temporary visas, questioned why there was even a need to raise the H-1B cap. The group said the restrictions on H-1B use by offshore firms would free up visas for U.S. tech companies.

But despite the intense debate in Washington, analysts say any effort to restrict H-1B and L-1 visa use may do little, if anything, to change the fundamentals of offshore outsourcing.

"We continue to see movement of jobs offshore, and the intent is to move a lot more," said Michel Janssen, chief research officer of The Hackett Group, a management consulting firm.

Complicating H-1B visa use by offshore companies will increase the interference, but it won't change the global trends, Janssen said.

Many companies are building "captive centers" overseas, Janssen said. These are company-owned facilities, and the Senate's bill won't affect them. The bill "could potentially increase the movement of jobs offshore," he said.

Hackett has studied offshore practices at companies with $1 billion or more revenue in Europe and North America, and said IT jobs will continue to shrink at these companies as work is shifted to lower cost regions.

Jimit Arora, vice president at Everest Group, a consulting and research firm, said offshore companies are preparing for an environment that will be more expensive, and with visas, more challenging to get.

The higher expense will come because offshore companies will need to have more local workers. Most offshore firms typically work by having about 30% of their workers at a customer site, and the balance completing work overseas, Arora said.

Phil Fersht, the CEO of HFS Research, said offshore providers "are getting better at pushing more of the work over to India and actually need less staff onshore -- in many cases."

Fersht said some of the Indian outsourcing providers are getting smart about employing a good number of local staff, in any case.

However, "more work is going offshore each year," Fersht said, and described in a recent blog post. "Reliance on H-1Bs and having a large local workforce is getting less critical for many of today's IT services engagements," he said.

Patrick Thibodeau covers cloud computing and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov or subscribe to Patrick's RSS feed. His e-mail address is pthibodeau@computerworld.com.

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