Trump's order on H-1B program puts tech employers on notice

The H-1B program is now officially under review. Don't be the next headline, experts warn. Also: Steve Ballmer's public service project, Facebook's brain-computer interface.

In January, a leaked version of an executive order threatening big changes to the H-1B program set off alarm bells in the tech community. The rap against H-1Bamplified on the campaign trail by then-candidate Donald Trump, was that instead of importing foreign talent to fill the gaps and paying these people the prevailing wages, large tech consultancies use the 85,000 immigrant visas granted annually to bring in cheap overseas labor, depress wages and displace American workers. Under a Trump administration, tech companies could count on that to end.

So when a crisper, more synthesized version of the long-rumored overhaul of the H-1B visa program was issued Tuesday, the technology industry -- which relies on the program -- may well have breathed a sigh of relief. After all, the executive order from President Trump stipulated that government agencies review the H-1B program, but it did not take action. The reforms alluded to were wreathed in political rhetoric -- the name of the order is "Buy American and Hire American" -- and the changes did not appear to be particularly sweeping in scope or immediate. Nothing had been expressly eliminated.

But companies that rely on the H-1B program to fill technology jobs would be making a grave mistake to take the directive at face value, according to people who have followed the immigration program closely.

"The floor could be pulled out from under the feet of some of these companies that are feeling pretty comfortable they avoided a deadly blow. They don't realize that the administration has put in place a marathon of changes that will affect all of their case work," said attorney Liz Stern, a partner at Washington, D.C.-based Mayer Brown and head of the firm's global mobility and immigration practice.

In five executive announcements leading up to the official order, Stern said the administration sent clear signals to "people in the business" like her that the H-1B program was subject to change, in particular, in its renewed emphasis on granting visas to high-level workers with advanced degrees and hard-to-find expertise and in its rejection of visas for lower-paying jobs that could displace American workers.

Other changes laid out in the five announcements included: a suspension in early March of the program that let companies pay an extra $1,000 fee to get their H-1B cases expedited; a strong focus on deterring fraud and abuse; and the reversal of a longstanding policy counting a bachelor's degree in IT as sufficient eligibility for entry. And there was language from the Department of Justice and the Department of Labor echoing those themes.

"So, you already got the sense -- even though they didn't use terms like 'extreme vetting' that you hear in the travel area -- that certainly there was going to be closer vetting of the petitions, including extensions," Stern said.

Don't be the next headline

Trump's executive order -- its absence of actions notwithstanding -- and the preceding announcements do something more, according to Stern. They are "laying the groundwork to achieve some big political victories and ultimately legislative change," she said.

Indeed, over the next 180 days to the start of the new fiscal year in October, Stern said companies should not just expect greater government scrutiny of the types of workers they are seeking to bring in under the H-1B program, and at what pay. A political campaign will be waged by the new administration that includes looking for the next Disney-like story that could "build momentum for legislation for the beginning of the fiscal year," she said. (Lawsuits against Disney and consulting firms Cognizant and HCL claimed the companies colluded to replace laid-off workers with cheap foreign labor in violation of the H-1B rules.)

"Legal departments and government relationship departments need to be addressing [H-1B visa programs] -- not HR -- and thinking about how to avoid becoming the next headline," Stern said.

Goal of the reform

"I think the logical outcome of the executive order is that there will be significant changes to the H-1B program," said Johna Till Johnson, research leader at Nemertes Research and an expert in strategic IT sourcing. The big question is what the reforms aim to accomplish. A decade ago, in work she did involving Walmart, she said she witnessed an "H-1B sweatshop," so she believes the program is subject to abuse, but is that commonplace or an exception?

A look at the top 25 users of H-1B visas on the website shows big Indian service providers such as Infosys, Tata Consultancy Services and Wipro top the list, as expected, but American companies figure prominently too, with IBM in fourth place, Microsoft (10th), Google (12th), JPMorgan Chase & Co. (20th), Apple (21st), Intel (22nd) and so on. Average salaries range from a low of $69,648 at L&T Technology Services to a high of $141,294 at Apple.

"Is that cheaper than what you could get equivalent Americans for? Probably, but not by a whole lot," Johnson said.

Still, whether it becomes harder for these companies to get H-1B visa holders, or the program skews toward people with degrees and skills not found here, costs will go up, she said. Then the question becomes how the 10% to 20% pay increases for a subset of talent will be passed on by these companies. CIOs and other customers could see an increase in prices for their services, but Johnson believes that rather than protect American jobs, the new rules will accelerate the move toward automation.

"If I'm a Capgemini and I suddenly discover that my 17,479 [immigrant] employees will have to be paid 10% to 20% more, I probably at that point will rethink this arrangement. And rather than pass the costs along to my customers, I will decide that now is an excellent time for me to overhaul everything I'm doing, with the goal of eliminating jobs and reducing costs to the end customer," she said.

Automation and H-1B

Among the top IT Indian service providers that have relied on labor arbitrage to lower costs for their clients, the move to automation is already happening, said Forrester Research principal analyst Craig Le Clair, whose areas of expertise include the digitization of analog and manual processes. The lower-level tasks they built their businesses on by using cheap offshore labor are being robotized, he said, and put back onshore, spurring these outsourcing providers to change their business models.

"And what they have been doing is upscaling," Le Clair said. The big outsourcing companies are building automation practices staffed with people focused on next-generation technologies like AI and robotization, or robotic process automation -- in some ways "cannibalizing their own business," he said. "But that's the future for them."

So, what does this shift mean in terms of this week's executive order? Advanced automation and AI skills are in terribly short supply among American workers. If the objective of the reforms is to prevent visas from going to foreigners who displace American workers at lower wages, then the outsourcing companies focusing on developed higher-level skills will still get H-1B visas, Le Clair said.

"It's another one of those things that sounds good -- 'We're going to keep outsourcing firms from getting visas that put people over here to replace Harry and Sally sitting in the call center' -- but it's probably going to have very minimal effect in the short term," he said.

David Rutchik, executive managing director at sourcing advisory Pace Harmon, pointed out that Indian providers should also be credited for investments in developing the U.S. talent pool, such as TCS' recently launched Ignite My Future in School program to incorporate computer science into the curricula at school districts in 10 cities nationwide. 

"Even with these investments, Indian providers will not be able to secure all the necessary resources and capabilities without additional action, due to fewer/more restrictions on H-1B visas," Rutchik said by email. "And, as such, there will likely be an increase in their use of technology automation to help with client delivery, as well as increased reliance on offshore work, among other strategies."

Nemertes' Johnson said she's left wondering why the government doesn't use the H-1B visa program as a launch pad for citizenship. "It comes back to, 'What is the problem H-1B is trying to solve and is it solving it the right way?' If the answer is, we don't have enough qualified Americans, well, why not use the H-1B program to generate more Americans?"

CIO news roundup for week of April 17

Here's what else made news this week:

Steve Ballmer launches data project. Former Microsoft CEO Steve Ballmer has been working on a project dubbed USAFacts, which collects publicly available government data to let citizens know how their tax dollars are being spent, The New York Times reported Monday. Launched Tuesday, the searchable database provides an integrated look at revenue and spending across federal, state and local governments. "Because I'm a citizen, I don't care whether I give my money to A, B or C. I just want to know how it lands, how it impacts what's going on. ... I would like citizens to be able to use this to form intelligent opinions," Ballmer said. Ballmer has spent more than $10 million on the nonprofit civic initiative that he calls the equivalent of a 10-K for the government.

Facebook unveils new VR platform, projects. Facebook released React VR at its F8 developer conference Tuesday. The JavaScript framework lets people "with an understanding of JavaScript rapidly build and deploy VR experiences using standard web tools," Andrew Imm, software engineer at Facebook, wrote in a blog post. With React VR, developers can use components from Facebook's existing React framework to create 3D scenes by combining 360 panoramas with 2D user interfaces, text and images. The company is also working on building a brain-computer interface that will let people type with their brains. Facebook aims to create "a silent speech system capable of typing 100 words per minute straight from your brain."

HPE closes $1 billion Nimble acquisition. Hewlett Packard Enterprise announced the completion of its acquisition of San Jose, Calif.-based flash storage maker Nimble Storage on Monday. The acquisition is expected to help HPE expand its position in the flash storage market and make hybrid IT simpler for customers. "Through these strategic investments, we are continuing to strengthen and deepen our portfolio of next-generation, software-defined, differentiated solutions that meet the new challenges our customers are facing," Antonio Neri, executive vice president and general manager at HPE Enterprise Group, said in a statement. The company is working on making the Nimble flash storage range available to partners as soon as possible.

Assistant editor Mekhala Roy contributed to this week's news roundup.

Next Steps

Check out our previous Searchlight roundups on the Gartner's downward revision for 2017 tech spending, the rollback of FCC privacy rules and IBM InterConnect.

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