From Infosys to Wipro, US visa rules start to pinch Indian IT companies

Uncertainties around US visa norms seem to have started impacting the efficiency of the Indian IT service firms if the September quarter (Q2) numbers of some are considered. 

In Q2, Infosys, the country’s second-largest IT services company, saw higher on-site costs as well as attrition, while Hexaware, a mid-sized IT services company, said it could not fulfil clients’ demands in the US as the company didn’t have enough number of employees with US visa. Hexaware said getting subcontractors within a short notice was also a challenge. 

Even Wipro, which has a significantly higher percentage of local employees in the US, saw its on-site attrition rate going up.

“We recognise the localisation initiatives undertaken by the Indian IT. Many have higher number of local US headcount than visa workers. However, constrained availability of resources is making its impact felt. Infosys attributed higher costs in Q2 to this dynamic, while Hexaware missed consensus revenue expectation due to demand fulfilment challenges,” Kanwaljeet Saluja, research analyst at Kotak Institutional Equities, wrote in a recent report.

Even as IT industry bodies lobby against the proposed visa restrictions in the US, the Donald Trump administration has been tightening visa norms for new and existing immigrant professionals, making it difficult for IT companies to retain talent in the US. Among others, Indian IT services players are seeing a marked increase in H1B rejections and higher demand for request for evidence (RFE).

Impact of regulations

  • Unavailability of talent in US keeping subcontracting costs high

  • Spike in demand for software talent in the US also resulting in higher onsite attrition

  • IT firms pushing for higher onsite (employee) utilisation to offset talent crunch

  • They are also stepping up hiring from the US varsities to reduce dependency on visas

“During the past 12 months or so, we have seen certain visa changes in the US, which has put certain lead times for visas. And, while we have accelerated localisation and local hiring, we still need to meet certain immediate project requirements, especially in the digital and niche areas. So, that is the reason we have also had certain elevated level of attrition on-site,” Ranganath Mavinakere, chief financial officer of Infosys, said during the company’s earnings call to announce Q2 results. The Bengaluru-headquartered company’s subcontracting costs stood at 7.4 per cent of its revenues in Q2.

The challenges on talent availability have been managed efficiently by the Indian IT companies till now and the industry is monitoring the changes that are likely to be unveiled by the US administration next year.

“Hexaware indicated that the company had to leave some demand on the table (unfulfilled), as it did not have the visas in time or could not find subcontractors at short notice. Wipro is not worried by this as 60 per cent of its US workforce is localised (US citizens/green card holders). But it (Wipro) has seen US on-site attrition rise beyond comfortable levels, as local software professionals are much in demand due to the demand-supply equation quite skewed in their favour,” Viju K George, an analyst with J P Morgan, wrote in a report.

Companies are balancing this predicament of visa constraints with more local hiring. 

Among the Indian IT majors Tata Consultancy Services (TCS), Infosys and Wipro have been very vocal about their hiring initiatives from campuses across US. However, analysts believe that since these brands are yet to mature in the US markets, it would take them time to attract the talent cream.

Companies have also been discussing strategies to improve off-shore (particularly low-margin jobs') contribution to their revenues in order to offset the subsequent increase in subcontracting costs and keep on-site utilisation rate high due to the talent crunch they are facing in the US. Almost every IT company has reported higher subcontracting costs over the past two-three quarters.

“At 17 per cent of IT services revenues, Wipro has among the highest subcontracting expenses in the industry (Infosys and TCS are in the 6-8 per cent band). This could be a deliberate strategy to keep onsite employee utilisation high under the new visa regime,” Girish Pai, head of research, Nirmal Bang Institutional Equities, said. 

Among others, HCL Technologies has indicated high attrition levels and a tight labour market in the US in the coming days. Besides, the management of Tech Mahindra has indicated that they are in talks with clients to shift more work offshore to aid margins.

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