Data shows overseas shift for U.S. IT jobs

If the Grassley/Durbin bill is approved, Indian firms will have to hire more U.S. workers, but that may not stop jobs from moving out of the country

U.S. IT providers continue to push jobs offshore, while Indian firms work to refine the amount of work they complete overseas. Although Congress may force the Indian firms to hire more Americans -- and Indian companies have been telling investors that they may have to indeed do that -- the change won't likely affect the overall trend and the shift in jobs outside the United States.

OK, so where are U.S. jobs going? What's the data show? Data prepared by Everest Group Inc., a research and outsourcing consulting firm, shows in broad-brush fashion the shift of jobs overseas by some major IT services vendors. In 2006, U.S. and European firms typically had less than 20 percent of their workforces offshore; now, for most companies that figure may well be generally over 30 percent. (See chart below; yellow indicates onshore percentage; blue, offshore percentage.)

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The firms that have discussed their plans include Affiliated Computer Services Inc. and Perot Systems Inc. IBM's U.S. workforce declined 5 percent last year to 115,000, even as its workforce in Brazil, China, Russia, and India grew 15 percent, to 113,000.

Though Indian firms now have roughly 75 to 80 percent of their workers in India and other low-wage countries, Western companies continue to close the gap. "It will never become identical, because the companies fundamentally have a different mix of businesses," said Eric Simonson, managing principal of research at the Everest Group.

Aren't Indian firms expanding the size of their U.S. workforces? Yes, there have been announcements by various Indian companies that they plan to open centers in the United States. But the number of employees is small compared to their overall workforces. Look at Mumbai-based Tata Consultancy Services, for instance. That company earns more than 50 percent of its revenue from North America, but Tata has more workers in Ecuador than in the United States, according to data it released this month. (See page 18 of TCS's PDF.)

Of the approximately 123,404 employed by TCS, not including subsidiaries, 91.7 percent are Indian nationals. Of the remaining 8.3 percent of the company's workforce, just 900, or 8.7 percent are Americans. That's less than the percentage of TCS workers who are Mexican (9.8 percent), Ecuadoran (13.1 percent), or Chilean (15.3 percent). TCS has employees in every corner of the globe.

How dependent are Indian offshore firms on H-1B and L-1 visas? In a word, very. These companies' business models are based on their ability to move Indian and other foreign nationals in and out of the United States. Here's a more direct answer: The "majority of [Indian] companies that operate here have significantly more [than] 50 percent of their workers on H-1B/L1 visas," Som Mittol, the president of the National Association of Software and Services Companies (Nasscom), an Indian trade group, SAID in a recent interview.

The 50 percent figure cited by Mittol is important because Indian firms may have to hire more American workers if legislation introduced by U.S. Sens. Chuck Grassley (R-Iowa), and Dick Durbin (D-Ill.) is approved. Among the bill's requirements is one that requires Indian firms to balance their workforces around a 50-50 rule that would limit visa use of the visas to no more than half of a firm's U.S. workforce.

Will the Grassley/Durbin bill force Indian firms hire U.S. workers? Yes. But Indians will do other things, as well. In its annual report released in April, TCS said that to "counter possible protectionist tendencies," it is "refining the business model to reduce the amount of work at customer locations and move work to other remote locations and hiring of more local nationals in key markets...." In short, it will do a little of both: push more work offshore and hire more American workers. (See page 61 of TCS' annual report PDF.)

Infosys Technologies Ltd. CEO S. Gopalakrishnan told investors this month that the Grassley/Durbin 50-50 rule would mean bringing back to India some of its visa workers "and replace them with people hired locally in the market," according to a transcript of his conference call on Seeking Alpha. Another strategy suggested this month by Fremont, Calif.-based offshore firm iGate Corp., is hiring Mexican nationals who can travel freely into the United States under North American Free Trade Agreement (NAFTA) rules by using a TN visa. The majority of iGate's labor force is in India.

But even if the Indian firms hire more U.S. workers, it's not going to stop the shift in jobs away from the United States. Offshore firms will continue to move work to low-cost regions as will Western IT service providers.

Is this offshoring shift by U.S. firms a sign of declining IT opportunities in the United States? The changing onsite/offshore ratio at IT services firms doesn't speak to the broader trends; it's just a subset of it. IT jobs overall hit a new high in November, according to one measure of IT employment, before declining when the economy nose-dived. IT employment has declined about 5 percent over the last year, according to the TechServe Alliance, formerly the National Association of Computer Consultant Businesses.

This data doesn't say what happened to the workers who were displaced by U.S. companies or Indian firms in the offshore shift, or the displacement of U.S. workers by H-1B holders, as the government pointed out in recent court papers.

David Foote, who researches IT employment and the labor market trends, can point to data showing a net gain in one key area of IT services hiring, management, and technical consulting, and he sees reason for optimism about future hiring trends. From April to June, some 1,200 management and technical consulting jobs were added, based on government data. That is the job category most likely represented by IT services firms. Foote believes that clients of IT services firms still want workers with industry knowledge, which continues to drive hiring, as well as different kinds of workers with business knowledge.

Ron Hira, an assistant professor of public policy at the Rochester Institute of Technology and author of Outsourcing America, believes a jettisoning of the American workforce was not an inevitable outcome. The services firms "could have chosen to compete with better technology, investing in their American workers, and better management. These are all strategic choices that could have been made. They wouldn't have been easy, but, instead, the executives chose the route of cheaper labor," he said.

This story, "Data shows overseas shift for U.S. IT jobs" was originally published by Computerworld.