As US work visa challenges continue reshaping hiring strategies, Indian IT companies are reducing their reliance on H-1B visas by shifting towards offshoring and nearshoring. As they explore alternative talent hubs in Eastern Europe and Latin America, alongside increased local hiring in the US, the industry is adapting to a new global workforce model, observed analysts.
During Donald Trump’s first presidential term in 2017, he took a stern stance to prevent inexpensive labour from abusing these visa programmes, explained Arup Roy, distinguished VP Analyst at Gartner.
According to the American Immigration Council, during Trump’s previous administration, the USCIS initially denied more H-1B petitions than in the preceding four years. However, many denials were later overturned, with denial rates decreasing substantially during the latter half of FY20.
Denial of H-1B petitions
Denial of new H-1B petitions for initial employment rose from 6 per cent in FY15, to 24 per cent in FY18, before dropping to 21 per cent in FY19, 13 per cent in FY2020, 4 per cent in FY2021, and only 2 per cent in FY22.
“For the Indian IT companies, the H-1B issue was bigger back then because they weren’t prepared. However, in these last eight years, they have more or less figured it out through local and near-shore recruitment. They have amped up their recruitment in the local US geography and their workforce would now be around 25-30% higher in the last 10 years,” said Roy.
For nearshoring, Eastern European locations tend to be dominant from a delivery location standpoint, because of the quality, skilled technical workforce in locations such as Poland, Romaniaand the Czech Republic. Even countries like Ireland are gaining popularity due to low taxes.
Latin American countries such as Mexico, Argentina, Brazil, and Colombia have also emerged as a talent hub, with either region absorbing many risks faced by these IT companies. On the other hand, offshore locations such as India, the Philippines, Vietnam, Malaysia, and China, remain.
“If the companies are hiring locally in the US, their cost attractiveness goes for a toss. But some measures keep cost erosion in check. They do not hire in high-cost locations like New York or the Bay Area. Considering the size and scale differences, these companies hire on a mega scale. They look for low-cost locations in regions like Ohio, Georgia, Texas, and Indianapolis, with talent available at a relatively lower cost,” he said.
IT companies set up their center of excellence, or delivery hubs in states where they get support from the local government in terms of tax breaks and infrastructure allotment in exchange for local employment.
During Infosys’ Q3 FY’25 Earnings Conference Call, CFO Jayesh Sanghrajka said that over the years, the company’s dependence on H-1B visas has reduced significantly.
“Our onsite mix has reduced from the 30 per cent rate to the 24 per cent rate. Within that, our nearshore has increased significantly. And within our US onsite population, our H1 independent folks are now 60 plus per cent. We have built a pretty resilient model and are more confident about where we are versus where we used to be.”
Alongside, these companies also renegotiate contracts with clients to factor in the higher cost of operations due to onsite hiring, Roy shared. So, the net impact of the cost advantage is lessened by large.
Pareekh Jain, Founder of Pareekh Consulting & EIIR Trend, explained that earlier, local talent in the US did not prefer working for Silicon Valley product companies.
“The reason companies outsource talent is due to little ready-made talent for working enterprises. But this year, with GenAI, getting jobs is difficult. Most tech companies are laying off employees; even Ivy League graduates are not getting jobs in the US. While traditionally, services companies could not attract talent, in this environment, when tech companies are not recruiting much, hiring might not be as difficult as it used to be.”
However, while Indian companies have been reducing their reliance on H-1Bs for some time, these visas helped with career progression for Indian employees, he said.
“The reason people work for IT services is for opportunities abroad and a more global career. Otherwise, they would have preferred working for GCCs, who generally pay higher salaries.” This reduced reliance might present a problem in the long term if employees lack global mobility.