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'Visa fees hike won't impact Indian IT firms'

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CIOL Bureau
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BANGALORE, INDIA: The controversy over New York Democrat Senator Charles Schumer's 'chop shop' remark about Infosys and other Indian IT companies, and also the decision to hike visa processing fees for some IT firms, has once again heated up the debate about the survival of Indian IT firms in the US.

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However, the increase in the visa processing fees will not impact the Indian IT companies significantly as the additional costs will be easily absorbed by the companies, feels Datamonitor India analyst Ramchandra Naik. As observed by Infosys CEO Kris Gopalakrishnan, he also feels that the increase in costs will in all likelihood be passed on to the customers. Therefore, the US companies will end up bearing the costs of the increased visa fees.

Also read: Infosys is a chop shop says senator



“Indian information technology companies have added significant value to many of the Fortune 500 American companies helping them compete effectively in the global marketplace. This is due to a large talent pool available in India. Any efforts to restrict the business will only impact many of these American companies as some of the skills required for the work is difficult to get and prohibitively expensive in the US,” Naik said in an email interaction. Excerpts:

How do you look at the US move to increase visa application fees for Indian IT companies?

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The additional cost is not likely to significantly impact the margins of the Indian IT Companies. Moreover, an increasing amount of work is getting done in India. Although some of the Indian IT companies are setting up delivery centres within the US, the number of associates from India is not very high. These companies are increasingly hiring locals from the US.

The Indian IT companies have been applying for lesser H1 B visas in 2009 as compared with 2008. In 2008, the number of H1 B visas for the top 10 Indian IT companies was approximately 12,000. This number reduced drastically to approximately 4,000 in 2009. The slowdown in the US has resulted in lesser visa applications in 2009.

However, with the trend changing in 2010 and 2011, the number of applications is likely to go up once again. Assuming that the visa applications go back to 2008 levels in 2010, the additional costs for the top 10 Indian IT companies would be approximately US$ 20 million.

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Therefore, the increased visa fees will not make too much of an impact for the big Indian IT companies.

How do you look at New York Democrat Senator Charles Schumer's comment comparing Infosys and other Indian IT companies to 'chop shops'?

It is extremely unfortunate and sad that New York Democrat Senator Charles Schumer has compared Infosys and other Indian IT Companies to 'chop shops' and supported raising H1-B visa fees for them. This is far from the truth.

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In the last 10 years, the US has benefitted as much, if not more, from the Indian IT companies. Some of the largest productivity gains witnessed in the various industry verticals have come from the use of new technologies and Indian IT companies along with the US-based IT companies such as IBM, HP, EDS, etc have been at the forefront in aiding the US companies reap the benefits of productivity gains.

Further, the leading American IT companies themselves have seen growth and have benefited from the model innovated by the Indian IT companies. All the leading American IT companies have set up base in India, hire talent from some of the best educational institutions in India, train them and then send them on work to the US. This, in turn, has benefited the companies in the US.

Last. but not the least, it is imperative to note that the talent pool available in India is difficult to get in the US. In a capitalist economy, every business has to stay ahead of the curve for their survival. Therefore, they will direct their energies and resources to places where talent is available at the lowest possible costs to meet their requirements.

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Clearly, this appears to be more politically motivated than any other reasons. With mid-term elections round the corner in the US, political parties will try their utmost best to protect jobs in the US, support their country (USA) and make sure that their countrymen get jobs and live the American dream.

If Indian IT companies cut off the business deals with America, what will be the impact for the industry in both the countries?

There is very little chance that Indian IT companies will cut off business deals with the US. Almost 60 per cent of the revenues of the leading Indian IT companies are generated from the US. Ceasing business deals will be akin to a business suicide for these companies.

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Indian IT companies continue to be dependent on the US for business and growth. The other geographical markets are not that large that these companies could take comfort from in terms of growing their business.

American companies will continue to be dependent on the Indian IT Companies. The speed and quality of delivery established by the Indian IT companies is difficult to replicate.

Further, in a capitalist business environment, costs play a very big role along with quality and timely delivery of services. Indian IT companies have a relatively lower cost structure than their US competitors. Therefore, American companies will continue to do business with the Indian IT companies for a foreseeable future.

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Do you think that now Indian IT companies should focus more on the domestic and the emerging markets?

Indian IT companies are increasingly focusing on the Asia Pacific region for their business expansion. These companies are also looking at business opportunities within India. The change in the focus towards East started more than three years ago when the first signs of a slowdown started emerging in the West.

It is a matter of business prudence to de-risk the business to every possible extent. Therefore, Indian IT companies focusing on the EMEA and the Asia Pacific region will help them in the long run.

However, the dominance of the US in terms of outsourcing IT business will sustain. The United States is the hotbed of cutting-edge innovation and a significant amount of money is spent on research and development (R&D). Information Technology will be a great enabler for many new discoveries in the future. Therefore, companies in the Indian IT industry will continue to look for business opportunities with companies in the US.

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