Geep assignment

GEEP Project by Group 1 Page 1
Global Economic Environment and Policy–
Group Assignment
Submitted To:
Dr. Vijaya Katti
&
Dr. Debashish Chakraborty
Professor, IIFT

Topic:
Suppose you are manager of an IT services company.
Explain how the legal and political considerations are
playing an important role on your business venture in the
European and American market.
Recent protectionist
tendencies in EU / US - visa
restrictions, outsourcing ban,
Political-Economic-Social-
Technological(PEST)
analysis – cost implications
and business strategies
Submitted By:
GROUP-1 (EPGDIB VSAT-2014-15)
Name Roll No
Sanjay Vaid 47
Puneet Diwan 39
Narendra Kumar 31
KomalGrovar 24
Anuj Abrol 10

Index
Abstract ………………………………………………………………………………………………………………………………………………….4
Overview – IT/ITeSIndustry Landscape ..........................................................................................5
Hypothesis...............................................................................................................................10
Methodology …………………………………………………………………………………………………………………………………….... 10
Introduction ………………………………………………………………………………………………………………………………………… 11
Analytics (PESTEL) ...................................................................................................................15
Political Factor..........................................................................................................................13
Economical Factor ....................................................................................................................18
Sociocultural Factor……………………………………………………………………………………………………………………………… 20
Technological Factor ………………………………………………………………………………………………………………………….… 23
Environmental Factor…………………………………………………………………………………………………………………………… 25
LegalFactor…………………………………………………………………………………………………………………………………………. 25
Cost Implication……………………………………………………………………………………………………………………………………29
Strategy………………………………………………………………………………………………………………………………………………..32
Reference……………………………………………………………………………………………………………………………………………..37

Abstract
The IT &ITesindustry hascontinuedto contributesignificantlyto the growth and development
of the Indian economy. The sector’s contribution to the domestic GDP has increased from just
1.2% inFY98to around8.0% in FY13. The IT services and BPO segment is estimated to provide
direct employment to around 3.0 mn people and indirect employment to nearly 9.5 mn people
as on FY13.
Over the years, India has emerged as the key destination for global sourcing of IT & ITeS
accountingfor around52% share in the global sourcing market during FY13. While, the growth
of the IT & ITeS industry has moderated in the past couple of years due to global economic
slowdown, there is still huge growth potential with opportunities imminent in both mature and
emerging services and verticals.
However there beenrecent protectionist tendencies in US/EU market and We going to Analyze
how legal and political consideration are playing an important role on business venture of IT
companies in the European Union and United States of America Market.
We are specifically analyzedonthe recent protectionist tendencies inEU/US – visa restrictions,
outsourcingban, Political-Economical-Technological-Environmental-Legal (PESTEL) Analysis
– Cost implications and Business Strategies.

Overview – IT/ITeS Industry Landscape
Over the past few decadesinternationaloffshoringof serviceshasgrownconsiderably.
Outsourcingtook off inthe late 1990swith technologicaldevelopment, globalisation, changesin
business modelsand liberalisationof domestic markets. Despite the globalslowdown, the global
sourcingmarket, includinginformationtechnology (IT)andIT enabledservices(ITeS)1, grew
fromaround$106billion2 to $118billionbetween2010 and2011.3 Indiahasdevelopedasa
major outsourcinghub on account of itsproficient, technicallyskilledandcost effective human
capitalbase (Ghibutiuand Dumitriu, 2008). Outsourcingof servicesfromIndiatook off inthe
late 1990swithtechnologicaldevelopment, globalisation, changesinbusinessmodelsand
liberalisationof domestic markets. In2008, Indiaaccountedfor 55 per cent of globalIT
offshoringandabout 35 per cent of BPO (business processoutsourcing)services (Palugodand
Palugod, 2011). AmongIndia‟smajor export destinationsof computer software andservices, the
UnitedStates(US), with a share of 55 per cent, toppedthe chartsin 2009-10, followedby the
EuropeanUnion(EU) (mainly the UnitedKingdom (UK), Netherlandsand Hungary)with a
share of 31.33 per cent.
India IT/ITeS sector Revenue Breakup

Ranking of India vis-a-vis other countries for People Skills and Availability
Ranking of India vis-a-vis
other countries for People
Skills and Availability Country
2007 2009 2011
United States 2.74 (1) 9.03 (1) 9.60 (1)
India 2.34 (2) 8.26 (2) 9.20 (2)
China 2.25 (3) 7.76 (3) 8.51 (3)
United Kingdom 2.16 (5) 7.08 (4) 7.55 (4)
Germany 2.19 (4) 6.99 (5) 7.23 (5)
France 2.07 (7) 6.77 (6) 7.05 (7)
Spain 1.71 (8) 6.33 (7) 6.85 (9)
Ireland 1.54 (11) 5.21 (10) 5.79 (12)
Poland 1.17 (24) 4.07 (20) 4.25 (23)
Hungary 0.95 (40) 3.36 (29) 4.15 (25)
Czech Republic 1.10 (28) 3.79 (25) 3.79 (29)
Portugal 1.14 (26) 3.35 (26) 3.63 (30)
Romania 0.87 (45) 3.02 (36) 3.42 (32)
Estonia 0.96 (37) 3.10 (32) 3.18 (33)
Latvia 0.91 (41) 2.86 (40) 3.11 (37)
Lithuania 0.83 (48) 2.69 (42) 3.10 (38)
Slovakia 1.04 (30) 3.13 (31) 3.10 (39)
Source: Compiled from AT Kearney Global ServicesLocation Index, variousissues

Top 5 India-Based IT Services Providers’ Worldwide Revenue, 2012 (Millions of
Dollars)
Company Global
Ranking
2011
Global
Ranking
2012
2011
Revenue
2012
Revenue
2012-2011
Growth
(%)
2011
Market
Share (%)
2012
Market
Share
(%)
TCS
16 16 9,451 10,888 15.2 1.1 1.2
Cognizant
28 23 5,875 7,053 20.1 0.7 0.8
Infosys
27 26 6,279 6,691 6.6 0.7 0.7
Wipro
31 31 5,334 5,737 7.6 0.6 0.6
HCL
Technologies
47 41 3,316 3,916 18.1 0.4 0.4
Total 30,255 34,285 13.3 3.5 3.7
Source: Gartner (May 2013)

Hypothesis
ThisPresentationisnot based on Empiricalresearch, so we propose ahypothesis, inthe sense of
the Oxford English Definition of ‘a Supposition or proposed explanation made on the basis of
limited evidence as starting point for Future Investigation.
By “offshore” outsourcing “we simply adopt the Gartner definition of offshore outsourcing as
Outsourcing coming from “halfway around the world”, as opposed to “onshore” (no definition
Needed)or “nearshore” outsourcing(“ina neighbouring country”). See generally: Gartner, Inc.,
Gartner on Outsourcing, 2005, n 28, para 2.1, p 5. To those adjectives one might add a host of
newer ones, including “rightshore”, “northshore” or (in the context of cloud computing)
“noshore”
It is common, especiallyinthe context of outsourcingor sourcing, to refer to the outsourcing or
Sourcing of IT processes, IT-enabled services (ITeS) or business processes (the last from
customer contact, throughmiddle office researchandanalyticsto back office data processing). I
focusonthose processesandservices in this presentation, though I shall refer to developments
in manufacturing sectors as well.
Offshore outsourcingmay include the outsourcingby anorganisationto its own offshore Captive
or hybrid operations as well as outsourcing by that organisation to a third party.
Methodology
We would be conductingPESTELAnalysisto determine the cause and impact. By “PESTEL” we
mean a macro-environmental approach to the political, economic, social, technological,
environmentalandlegal factorsaffectingoffshore outsourcing. For the sake of simplicity, I refer
to “PESTEL”, though I consider local, national and global factors in our hypothesis. Strictly
speaking, I have adopted the “LoNGPESTEL” framework.

Introduction
- Protectionism
Protectionism isthe economic policy of restraining trade between states (countries) through
methodssuchas tariffsonimportedgoods, restrictive quotas, anda variety of other government
regulations designed to allow (according to proponents) fair competition between imports and
goods and services produced domestically.
This policy contrasts with free trade, where government barriers to trade are kept to a
minimum. In recent years, protectionismhasbecome closelyalignedwith anti-globalization and
anti-immigration. The term is mostly used in the context of economics, where protectionism
refers to policies or doctrines which protect businesses and workers within a country by
restricting or regulating trade with foreign nations.
A varietyof policieshave beenusedto achieve protectionist goals. These include:
1. Tariffs: Typically, tariffs(or taxes)are imposedonimportedgoods. Tariff ratesusually
vary accordingto the type of goodsimported. Import tariffswillincrease the cost to
importers, andincrease the price of importedgoodsin the localmarkets, thuslowering
the quantity of goodsimported, to favourlocalproducers. Tariffsmay also be imposed
on exports, andin an economy with floatingexchange rates, export tariffshave similar
effectsasimport tariffs. However, since export tariffsare oftenperceivedas'hurting'
localindustries, while import tariffsare perceivedas'helping' localindustries, export
tariffsare seldomimplemented.
2. Import quotas: To reduce the quantity andtherefore increase the market price of
importedgoods. The economiceffectsof animport quotais similar to that of a tariff,
except that the tax revenue gainfroma tariff will instead be distributedto those who
receive import licenses. Economistsoftensuggest that import licensesbe auctionedto
the highest bidder, or that import quotasbe replacedby anequivalent tariff.
3. Administrative barriers:Countriesare sometimesaccusedof usingtheir various
administrative rules(e.g. regarding foodsafety, environmentalstandards, electrical
safety, etc.)asa way to introduce barriersto imports.
4. Anti-dumping legislation: Supportersof anti-dumpinglaws argue that they prevent
"dumping" of cheaper foreigngoodsthat wouldcause localfirmsto close down.
However, inpractice, anti-dumpinglaws are usually used to impose trade tariffson
foreignexporters.
5. Direct subsidies: Government subsidies(inthe formof lump-sum paymentsor cheap
loans) are sometimesgivento localfirmsthat cannot compete wellagainst imports.
These subsidiesare purportedto "protect" localjobs, andto help localfirmsadjust to the
worldmarkets.
6. Export subsidies:Export subsidiesare oftenusedby governmentsto increase exports.
Export subsidieshave the opposite effect of export tariffsbecause exportersget payment,
which is a percentage or proportionof the value of exported. Export subsidiesincrease
the amount of trade, and in a country withfloatingexchange rates, have effectssimilar to
import subsidies.
7. Exchange rate manipulation:A government may intervene inthe foreignexchange
market to lower the value of its currencyby sellingitscurrency inthe foreignexchange
market. Doing so will raise the cost of importsand lower the cost of exports, leadingto

an improvement inits trade balance. However, suchapolicy isonly effective inthe short
run, as it will most likely leadto inflationin the country, whichwillin turnraise the cost
of exports, andreduce the relative price of imports.
8. International patent systems:There isan argument for viewingnationalpatent systems
as a cloak for protectionist trade policiesat anational level. Two strandsof thisargument
exist:one when patentsheld by one country formpart of asystem of exploitable relative
advantage in trade negotiations against another, and a secondwhere adhering to a
worldwide systemof patentsconfers"goodcitizenship" statusdespite 'de facto
protectionism'.Peter Drahos explainsthat "Statesrealizedthat patent systemscouldbe
used to cloak protectionist strategies. There were also reputationaladvantagesfor states
to be seen to be stickingto intellectualpropertysystems. One couldattendthe various
revisionsof the Parisand Berne conventions, participate inthe cosmopolitanmoral
dialogue about the need to protect the fruitsof authoriallabor andinventive
genius...knowingallthe while that one'sdomestic intellectualproperty systemwasa
handy protectionist weapon."
9. Employment-basedimmigrationrestrictions, suchas labor certificationrequirementsor
numericalcapson work visas.
10. Politicalcampaignsadvocatingdomestic consumption(e.g. the "Buy American"
campaign in the UnitedStates, whichcouldbe seenas an extra-legalpromotionof
protectionism.)
11. Preferentialgovernmentalspending, suchas the Buy AmericanAct, federallegislation
which calleduponthe UnitedStatesgovernment to prefer U.S.-made productsinits
purchases.
In the moderntrade arenamany other initiativesbesidestariffshave beencalledprotectionist.
For example, some commentators, suchas Jagdish Bhagwati, see developedcountrieseffortsin
imposing their own labor or environmentalstandardsas protectionism. Also, the impositionof
restrictive certificationproceduresonimportsare seenin this light.
Further, otherspoint out that free trade agreementsoftenhave protectionist provisionssuchas
intellectualproperty, copyright, andpatent restrictionsthat benefit large corporations. These
provisionsrestrict trade inmusic, movies, pharmaceuticals, software, andother manufactured
items to high cost producerswithquotasfromlowcost producersset to zero
- Scenario on the Visa and Out Sourcing in US and EU
On the day the US Senate passed its comprehensive immigration-reform bill1 this June,
undocumented immigrants watching the vote from the Senate gallery burst into applause and
chanted “Yes we can!” They had good reason to cheer, given the bill’s promise of a path to
citizenshipfor millions of immigrants now living in the country illegally. But that promise is just
one of severalreformsthe billproposes, and affected groups are finding less to applaud in some
of the others. Inparticular, much of the IT outsourcing industry faces significant disruptions if
the bill’s temporary-work-visaprovisionsbecome law. Outsourcing companies based in India —
Wipro, Infosys, and TCS, to name a few of the largest such companies — constitute a major
segment of the industry, and they rely heavily on Indian employees to fill both the managerial
and technicalranksof their US labor forces. The billwouldplace anumber of restrictions on the
H-1B and L-1 skilled-worker visas that allow those employees to enter and remain in the
country.

EU on the other hand has need for skilled Man power due to aging population, however the
since it’s an Economic Unions there is prefencial factor movement of labour is within the EU
member nation countries The member nation countries with in EU have different laws, work
visa requirement and taxation which are specific to the country or the block of countries for
Skilled man power movement from outside the Union – India.
There two typesof trade barrier withEU direct and Indirect.
Direct:Is relatedto Visa and different requirement for factor movement for example:
Since April2012 the UK government discontinuedthe Tier I Post Study Work Visaand
there are restrictionsonTier II visainthe formof a capon the number of visasissued to
Indian nationalsand an increase in the salary limit of professionalseligible to get a visa
for five years. These impose restrictionsonmovement of professionals. Giventhat UK is
the largest market for IndianIT/ITeS service providersit impact IT/ITES Business.
Indirect:Thereare some indirect barrierswhichadversely impact the cross-country
movement of people betweenIndiaand EU. A key barrier is dataprotection. Thisissue is
being extensivelydiscussedunder the on-goingBTIA negotiations. The mainconcerns
for Indian companiesandsome EU companiesis that India is not accordedthe statusof
a data secure nationby the EU.
- India Mode 4 Trade: Existing Literature on Type of Movement
ElectronicsandComputer Software Promotion Councilexistingliterature showsthat movement
of professionalsbetweenIndiaand US/EU isbroadly at two levels- company andindividual
level. Differencesbetweenthemare givenin Table 1.
Table 1:DifferencesacrossCompany and
IndividuallevelMovement of Professionals
Company levelMovement
IndividuallevelMovement
Categorisationunder WTO-Business
Visitors, IntraCorporate Transfereesand
ContractualService Suppliers
Categorisationunder WTO-Independent
Professionals
Time Duration– Short Term Time Duration– Long Term
Purpose –Company Projects Purpose –Immigration/Short termwork
Partiesresponsible for paper andlegal work
and compensation–Company
Partiesresponsible for paper andlegal work
and compensation–Migrating Individual
Nature of Visa – non-immigrant visa/short
termwork permit
Nature of Visa – mostly Immigrant Visa
Factorsaffecting –qualificationof the
employee andcompany andclient demand
Factorsaffecting –qualification, experience,
language skills, work experience, education
and age.
Job guarantee – 100 per cent Job guarantee – individualmay or may not
have a job at the time of migration.
Under the GATS Mode 4 negotiationsthere are four broadcategoriesof temporarymovement of
professionals. These include:

a) Business visitorisa personwho visitsanother country for ashort durationspecificallyfor
business negotiationsand/or for preparatorywork towardsestablishingabusiness;
b) Intra corporate transferee isan employee of acompany who is transferredfromanoffice
in the country of originto an office of the same company in another country;
c) Contractual service supplier (CSS) isan employee of aforeigncompany who enters
another country temporarilyinorder to performaservice pursuant to acontract;
d) Independent professional (IP) is a self-employedpersonbasedinthe territory of
another country who suppliesa service onthe basisof a servicescontract witha consumer in the
host country.

Analysis
We have carriedout PESTELAnalysisPolitical;Economic, Social, Technological, Environmental
and Legal in this report identify the causesandimpact of these trade barriers, cost implication
of same and suggestedstrategiesto overcome the same.
PESTEL Analysis
POLITICAL FACTORS
- External – US & EU
US Presidential election rhetoric
President Obama, State of the Union, January 2012:“We have ahuge opportunity, at this
Moment, to bring manufacturingback….We shouldstart withour tax code. Right now,
companiesget tax breaksfor movingjobsand profitsoverseas. Meanwhile, companiesthat
choose to stay in Americaget hit with one of the highest tax ratesin the world. It makesno
sense, and everyone knowsit. So let’schange it.”
Local US federal and state legislative initiatives
Ohio State:inSeptember 2010 the US state of Ohio banned outsourcingof government IT and
back-office projectsto offshore locationssuchasIndia, raising fearsof similar movesby other
Americanstatesstrugglingto cope withhigh unemployment rates:
http://www.computerworld.com/s/article/9183570/Ohio_bans_offshoring_as_it_gives_tax_r
elief_to_outsourcing_firm
The Bring Jobs Home Act:promotedby agroupof Democratic senators, to enable atax credit
for up to 20% of “eligible insourcingexpenses” ineliminating business units locatedoutside the
USA and relocatingto the USA. Proceedingsendedin the US Senate on 19thJuly 2012, but a
similar measure has been referredto committee proceedingsinthe House of Representatives.
Offshoring PreventionAct:introducedJanuary 2011by Senator Whitehouse, but made no
progressand unlikely to get anywhere. Itspurpose wasto "amendthe InternalRevenue Code of
1986to provide for the taxationof income of controlledforeigncorporationsattributable for
importedproperty." Asof 15th October 2012, referredto committee.
The Outsourcing Accountability Act of 2012:introducedonFebruary 1, 2012 andproposes to
amend §13 of the SecuritiesExchange Act of 1934. It willrequire that each issuer file annual
reportswiththe SecuritiesandExchange Commissiondisclosingto the Commissionand
shareholdersthe totalnumber of employeesinthe UnitedStates, the total number in each state,
and the totalnumber physicallyworkinginany country other thanthe UnitedStates. Asof 15th
October 2012, referredto committee.

The Rebuild America Act: introduced April 2012 by Senator Harkin. The bill requiresending
tax breaks that reward the offshoring of jobs. As of 15th October 2012, referred to committee.
United States Call Center Worker and Consumer Protection Act: proposedinDecember
2011.
Among the more draconian provisions is the cataloguing of all firms that are moving agent
positions overseas in order to disqualify them from federal loans and loan guarantees for five
years. This is in addition to requiring any firm that plans to move contact centre operations
overseas to give 120 days' notice to the US Labor Secretary (with failure to do so meaning a
penalty of $10,000 per day for late notification). Inaddition, agentsoverseaswouldbe forced to
informcallersof their locationand offer the optionof a US-basedagent. It is consideredunlikely
to pass. As of 15th October 2012, referred to committee.
One of the cumulative effects of this political pressure is that a number of the top Indian
offshore Outsourcers are steppinguphiring in the USA. “The recruitment drive comes as Indian
outsourcingCompanies, whichhave longbeenaccusedby critics as stealing jobs from the West,
are now Encountering intensified scrutiny ahead of the U.S. presidential election.” see Indian
Outsourcing Firms Hire in U.S, The Wall Street Journal Online, 7th August 2012, Dhanya Ann
Thoppil. See also India to launch IT staff drive in US, Financial Times, 22nd September 2010,
Companies –International, p 21, Stefan Wagstyl and James Lamont.
Local EU works council, trade union, professional body and employee pressure
EU labour, trade unionsand workscouncilpressure to keepjobslocalandanti-outsourcing, e.g.
Edinburgh City Council outsourcing to Mitie: http://www.ft.com/cms/s/0/e8677a74 -4386-
11e1-9f28-00144feab49a.html#axzz1nAYIleLI
The AustralianFinance Sector Union has called for an end to the offshoring and outsourcing of
finance Sector jobsthere, following the Commonwealth Bank of Australia’s announcement that
it would not offshore jobsbecause to do so would leadto poorer customer servicesandincreased
operationalrisk:AustralianFinancialReview, 23rdApril 2012, Financial Services, Outsourcing
overseas seen as risk, George Liondis, p 23.
It was reported in June 2011 that Birmingham City workers were to strike over pay and
conditions, while their trade union, Unite, attacked proposals to offshore up to 100 IT posts to
Pune through the irmingham City Council and Capita joint venture, Service Birmingham: see
Birmingham strike threat over pay, Financial Times, 3rd June 2011, National News, p 4, Brian
Groom.
The InternationalForumof Independent Audit Regulators (IFIAR) has challenged the Big Four
Audit firms ontheir offshore andnearshore outsourcingto captivesof audit work. The situation
in questionwas brought about by PwCstating that, by 2014, it wouldoffshore about 20%of each
core audit process to its Kolkata service delivery centre. This would amount to an increase of
about 18% in each audit process from financial year 2009. The Kolkata facility is used for
verifying audit statements sent by PwC firms in the UK, the USA, Australia, Canada and India.
The IFIAR’s concern was expressed to be that, on the face of it, 20% of an audit being

undertaken without direct client contact seemed too high. See: T he Financial Times, 26th July
2011, Companies, International, p 16.
Visas: Mobility of staff from offshore to onshore locations
USA: B-1/H-1B visa and immigration processes are still a concern for the Indian offshore
outsourcers -not helpedby the recent Texasfederalgrandjury proceedings concerning, and US
Federal government investigations into, the alleged abuse by Infosys of B-1/H-1B visas.
B1 visas entitle holders to enter the USA for training, educational, professional and/or
commercial purposes, excluding engaging in employment in the USA. The H-1B visa, which is
harder and more expensive to obtain, entitlesholdersto render services to US companies in the
USA. It is alleged that Infosys has committed visa fraud by deliberately and systematically
bringing into the USA offshore workers to provide services to US companies under B-1 visas.
One of the consequencesof the US visachallengesto Indianoffshore IT outsourcersisthat India
is complaining to the World Trade Organisation about the rising cost of H1-B visas, which
entitle The Challengesto Offshore OutsourcingMark Lewis www.blplaw.com Page 05 © Berwin
Leighton Paisner LLP, 2012 offshore workers to enter the USA to provide services to US
companies, as well as L-1 visas.
“India’sIT outsourcingindustry, whichexpectsto generate $78bn in export revenues this year,
complains that the cost of a US visa for a skilled worker has doubled to $4,500, adding about
$200m in visa costs to Indian companies.”: see India to take US work visa grievance to WTO,
Financial Times, 11th April 2012, World News, p 6, James Fontanella-Khan and James Politi.
Additional regulatory and compliance challenges to offshore operations
In August 2012 BenjaminLawsky, the Superintendent of the New York Department of Financial
Services, accused Standard Chartered of using its offshore captive BPO centre in Chennai to
establish a sham compliance system to process $250 billion worth of trading and financial
transactions with Iran, which may (or may not) have been illegal at the time. Standard
Chartered, whichemployssome 8,500 staff inits Chennai captive (it has other offshore captives
in China and Malaysia) has vehemently denied these allegations.
Lawsky claimedthat StandardChartered’sIndian staff was not trainedto determine whether the
thousands of transactions concerning Iran were legal or illegal under then US law. See:
Outsourcingby bigbanks in spotlight after Iran row, The Times, 10th August 2012, Business, p
37, Robin Pagnamenta. See also: http://www.businessinsider.com/who-is-benjamin-lawsky-
2012- 8#ixzz29MK8Odo9
- Internal – India
- Counter-trade Agreement to benefit IndianIT companiesonIntellectualProperty
Rights, Data Security, Technology Patents andFactor Mobility of manpower.
- Increase inGlobalization, Liberalizationand Privatization.
- Liberalizing the rules and trade barriersleviedonForeignSoftware Companiesin India

Conclusion:
The is a political risk in American market and not as much in European market which has led
new Immigration Bill being passed in US which restricts Outsourcing and VISA, the Indian
Government needsto work for on formulating Trade agreement with US and take up this issue.
Indian IT companies should realign and work in the current frame work.
European Market political environment does not seems to be as restrictive and Indian
Government is already in discussion with EU for bilateral trade agreement, EU further has
demand for Skill Manpower due to their aging population.
ECONOMIC FACTORS
External –EU and US
Global economic pressures on customers and providers
See Outsourcing in India threatened, not threatening, Financial Times, 1st August 2012, Inside
Business, p 18, James Crabtree. This article highlights the following points. (See Indian
outsourcing, Financial Times, 25th January 2012, Lex Column, p 14.)
• At a time when Indian offshore outsourcers are facing significant levels of political pressure
from the USA, they face even more challenging structural, longer term, issues.
• Reviewing the latest quarterly figures for four of India’s biggest offshore outsourcers (Tata
Consultancy Services, Infosys, Wipro and HCL Technologies), the article notes that all four are
suffering as their US and European corporate customers, which make up the vast majority of
their customers, face continuing economic pressures. The result is that growth in the Indian
offshore ITO and BPO industries is likely to run at 11-14% for 2012, which is about 50% of the
growth rate of those industries five/six years ago.
• There is significant shrinkage in US corporates of the number of “outsourceable” back and
middle office jobs. In other words, unless the offshore outsourcing industry can offer much
higher value add services and greater efficiencies, pretty much all the onshore services jobs in
the USA that could have been offshored, have been.
• There may be a trend – in my view, it is too soonto say – of corporates in the USA and Europe
preferring to “insource” rather than outsource and even if they outsource, to do so onshore.
• The other challenge for Indian outsourcers is that, despite CEO rhetoric, none of them has so
far solved the problem of non-linear growth (NLG), i.e. breaking the link between full time
equivalent (FTE) positions (i.e. “hours for rent” or “body shopping”) and valuable outputs.
• However, the “size of the prize” of the offshore outsourcing market remains vast – it has the
potential to remain - in the description by Princeton economist Alan Blinder - as “the next
industrial revolution”. But unless the Indian and/or any other offshore outsourcing providers

are able to address the economic, social and technological challenges, they will fail to win the
ultimate prize.
Current and future US taxation policy
During the Election Campaign there were two opposing approaches of the US presidential
contendersto the taxationof income earnedoffshore by US and other corporates within the US
tax net - at least in technique, if not in projected outcome: see Presidential rivals clash over
corporate tax reforms, Financial Times, 18th July 2012, World News, p 3, Alan Beattie.
See also: US offshoring;Compromise isneededto reformcorporation tax, Financial Times, 2nd
August 2012, Leader, p 12.
LIMITS ON THE PERCENTAGE OF A COMPANY’S EMPLOYEES THAT ARE VISA
HOLDERS
Asof 2015, the proposed US immigration bill would cap the combined number of H-1B and L-1
employees at 75 percent of a company’s US workforce. In 2016, the cap would decrease to 65
percent, and from 2017 on, the maximum would be 50 percent. For companies with high
percentages of nonimmigrant-visa-holding employees, which again means most of the top
Indian outsourcers, the immediate difficulty will, again, be to find enough US replacements to
keep their stateside staff numbers and service quality at existing levels.
HIGHER WAGES FOR H‐1B WORKERS
Under a new three-levelwage systemfor H-1Bemployees, H-1B-dependent companieswould be
required to pay H-1B visa holders at the second level, or 100 percent of average prevailing
wages in the worker’s job category as determined by the Department of Labor. This rule would
effectively raise the cost of H-1B
labor for Indian outsourcers by an estimated 5 percent to 15 percent. Companies might absorb
the extra costs or, again, pass them on to customers, but either way, those costs will further
erode the advantages of relying on a nonimmigrant-visa-holding workforce.
HIGHER FEES FOR VISA APPLICATIONS
For companiesemployingH1-BandL-1 workers at a combined rate of 30 to 50 percent of their
US workforce, the bill would create a filing fee of $5,000 for every new H-1B or L-1 visa
application. If the rate is more than 50 percent (in the years before exceeding 50 percent is
prohibitedoutright), the fee will be $10,000 per application. Given that visa applications by the
top India-based outsourcers ranged from 2,000 to over 9,200 per employer, these fees could
become an onerous expense. Companies may seek to pass that expense to their customers, but
that might only trade a financial cost for a relational one, pushing US buyers away toward non-
Indian competitors or otherwise fraying business ties.
Change in EU VAT place of supply rules
From 1st January 2010, VAT isimposedin relationto the place of consumptionof supplies(i.e.

Where the customer receivesthe supplies), not the place fromwhichthe supplieswere made
(i.e.
fromthe offshore base of the outsourcingprovider):
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=tru
e&_pageLabel=pageLibrary_ShowContent&id=HMCE_PROD1_029955&propertyType=docum
ent#P3_51
Internal India
Internal Factors - India
- The fourthLargest economy in the world (Measured in terms of purchase power parity)
- Has the second largest group of software developers after the US.
- The IT/ITeS industry as a whole represents 8.0% of GDP
Conclusion:
There isrestrictiononVisa and IT outsourcing in US market however India at present does not
have a trade frame work and would need to work on same to discuss its concern under the
bilateral Agreement. In the meantime Indian IT companies to be Agile and realign to the new
frame work.
EU on the other hand has demand for Indian IT engineers due to aging population and their
concern are more on Intellectual Property Right which are also US concern though.
There isdefinite possibility for IndianIT companiesto work inEuropeanand AmericanMarkets
which has great potential and vice-e-versafor AmericanandEuropeanIT Companies to work in
Indian Market which again has great potential.
SOCIOCULTURAL FACTORS
- External at EU and US
A new concept has emerged of Corporate Citizen and employees carry a sense of belonging to
their companies so when these employees see their job being replaced by low wage contract
employee or if their wages is reduced in view of the alternative low cost employee it is not seen
as a good thing, more so because of economic reasons as well since the cost of living, tax
structure, employees contribution towards National Insurance etc are high in developing
countries the reduction in wage /salary effect the quality standard of living.
This also has led to negative perceived image of corporates that out source.
Anti-offshore sentiment, translating into political and economic and legal challenges There are
broadpublic opinionand occasionalbusinessexecutive surveys, but scant detailed and focused
research:however, see ShajiKhan, Mary Lacity, (2012) Survey results: are client organizations
respondingto anti-offshoringpressures?, Strategic Outsourcing: An International Journal, Vol.
5 ISS: 2, pp.166 – 179,

http://www.emeraldinsight.com/journals.htm?articleid=17038692.
The rise of economic insecurity is clearly critical in perceptions of offshoring: Actual and
perceived effects of offshoring on economic insecurity: The role of labour market regimes,
Milberg & Winkler, 2011, published by the WTO.
September 2010 WallStreet Journal/NBCNewsPoll:86% of those surveyedsaidoutsourcingof
jobs by US companies to low-wage foreign countries contributed to economic sluggishness
http://online.wsj.com/article/SB20001424052748703882404575520091126205702.html
Companies need to responsible in handling outsourcing and focus & communication to the
customer needsto by our sourcing they are extendingthe capabilities to address global demand
and hence by creating more and better paying Jobs and higher shareholder value.
Internal – India.-
Supply Side Factors: training and employability
Human developing in India
India remains the top offshore outsourcing destination: see Offshoring Opportunities Amid
Economic Turbulence – The A.T.Kearney Global Services Location Index™ 2011,
Because so many of India’s vast population work in the agricultural and informal sectors,
because of corruption at every level of life in India, and because of the lack of basic education
and healthcare, 850-900 million of India’s population live in abject poverty. In the United
Nations Development Programme’s Human Development Report 2010, India was ranked 119
out of 169 countries in social development: India: in-depth PESTLE insights, Datamonitor,
October 2011, p 2.
The disparity between the fabulously wealthy and those with nothing appears to be growing, as
is the regional disparity between developed states (e.g. Maharashtra, of which Mumbai is
capital) and lesser developed states (e.g. Uttar Pradesh, Bihar and Orissa).
Primary, secondary and tertiary educational systems
India has over 3 million scientific and technical graduates, and produces more than 60,000 IT
professionals and 440,000 engineers graduates annually: India: in-depth PESTLE insights,
Datamonitor, October 2011, p2.
India is producing more educated workers than ever before, with engineering colleges now
providing seats for 1.5 million students (up 400% on such seats in 2000). Yet, according to
results from assessment tests administered by India’s top IT, ITeS and BPO industry
association, The NationalAssociationof Software andServicesCompanies(NASSCOM), 75% of
technicalgraduatesandmore than 85% of general graduates are unemployable by India's high-
growth global industries, including the IT and ITeS sectors:

http://online.wsj.com/news/articles/SB10001424052748703515504576142092863219826?mg
=reno64-
wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052748703515504576142
092863219826.html
The “Unemployablity” of so many of India’s graduates is a direct challenge to its continued pre-
eminence as an ITO and BPO offshoring destination.
First, Indiahas a huge populationbase of 1.21 billion. It accountsfor 17.5 per cent of the world‟s
population, whichis expectedto increase to 17.9per cent by 2030. Second, alarge percentage of
India‟spopulationis literate. In2011 India‟sliteracyrate was at 74.04 per cent up from 64 per
cent in 2001. India has a large pool of skilled IT personnel (see Figure 2). This makes it
relativelyeasy for companiesof allsizes to recruit professionalsin the IT/ITeS sector. Majority
of the Indian population is in the age group of 15-64 and 54 per cent of Indians are under 25
yearsof age.29On the contrary across EU‟sstrongeconomies – the UK, Netherlands, Germany
and Italy, growthin this age group(particularly 15-59)isstagnating. For instance, it is estimated
that in the UK, population in this age group will increase from 40 million in 2008 to only 41
million in 2020 while it is estimatedto decline from 55 million to 53 million in Germany during
the same period.30 Thisimpliesthat the growing youngpopulationof India can meet the future
job demands in the EU if proper education and training is provided in India. India has over
3,300 engineering colleges which helped to create abundant skilled IT professionals and meet
the growing needs of this sector. According to All India Council for Technical Education's
(AICTE), Indiaproduced4.6lakhengineersin2004-05, out of which31 per cent were computer
engineers. According to NASSCOM, the number of IT graduates and post graduates in India
increased by 57.8 per cent between 2008 and 2011 .
No of Graduates and Post Graduates
Conclusion:
While Indian IT companies have been successful globally they need to be consciously working
on their Image in the countriesthey operate andtraintheir resources on the message they pitch
in their out sourcingpresentationwhichshouldbe value creationandnot merely cost reduction
and be sensitive in their communication once the project hasstartedandspecially incase if there

is a downsizing due to outsourcing, employeesonsite at variouscountriesshouldalso be trained
on countries cultures and should respect the same.
TECHNOLOGICAL FACTORS
External – EU and US
US and EU companies would like India do the following:
- Pass the amendments to the existing IT Act, 2000, which were recommended by
NASSCOM and the Indian Ministry of Technology, or (to act more expeditiously)
issuance of an Executive Order.
- Obtain E.U. approval of Safe Harbor Principles that meet the "adequacy" requirement of
the E.U. Data Privacy Directive.
- Trustworthy sourcing center' in the area of data privacy and information security.
- Data Encryption and Decryption
- Examine the laws and regulations of the countries or regions with which they do
outsourcing business, and development of international initiatives for data privacy laws
based on a Western model to maintain the level of confidence now enjoyed by Indian
companies.
- Reference the OECD Privacy Guidelines and the Council of Europe Convention as
models for a data privacy law.
Internal –India
India at macro level has strategically buildClusterfor Technological Excellence withcomplete
support systemin Citieslike: Ananalysisof the headquartersof the top 600 software
companiesdemonstrates the followingstatistics:
Mumbai 131
Bangalore 122
Delhi 43
Gurgaon & Noida 68
Hyderabad 64
Chennai 55
Calcutta 25
Pune 23
Tirvandururm 14
Ahmedabad 10
Bhubaneshwar 10
Others 35

 These Centers of excellence have state of the Art Infrastructure, High Speed
Internet Access, Virtual Private Network; International Private leased Circuit
through Fiber Optics lease lines, undersea fiber optic cables. (Supported STPI)
 Online Project tracking and Time sheet for project and resource tracking.
 State of the Art and latest testing equipment’s are available with redundancy.
 Know-how and extensive experience of various Software Development Life Cycle
– methodology like Agile, waterfall etc
 Specialized skilled and trained resources covering the complete Lifecycles.
 State of the Art setup for weekly, Bi- Monthly, six monthly, annual of manual
review of projects or milestones via Video Conference, Webex, Net meeting etc.
 Companies specializing in a vertical carry of the relevant software and hardware
tools required required for the project.
 Also Location based cluster provide specialized services like Trivandrum is where
Indian Space research Organization is based hence the cluster location offer
specialized services in area of Space, Aviation and Automobiles since the location
has abundance of relevant skills, similar Mumbai and Pune provide specialization
office in BFSI apart from Bangalore, Bangalore provides expertise in round
specialization however Bangalore, Chennai and Kolkata provide specialization in
Product design, Telecom due to IIT, IISC, proximity, BEL and aid in research,
Pune and Chennai Specialize in Automotive and Semiconductor due parallel
Automotive cluster based in the geographies, Delhi - NCR in Semiconductor,
Semicon Tools and defense segments, for example., Hyderabad for Board Design.
Conclusion:
The American and European companies acknowledge the fact that India has the
Technological know-how, equipment’s, tools, Security, Infrastructure, Connectivity,
highly Skilled Human Resource, English Language fluency etc enabler to deliver high
quality IT projects however the concern is one data protection, cyber security,
Intellectual Property Laws in India.
Also most Indian IT companies have been pitching or are perceived for Low cost
offering and focus offering has been cost competitiveness and with large Indian IT
companies additional it is Scalability factor. But then we are competing Globally with
Russian Companies IT companies, European IT companies, American IT companies and
Asian IT companies who bring their own core competency and strategic Tie-up with the
large customers for project and we need to also build our own as well.
However with the resource capabilities India has and which can be further build by in-
house R&D, Intellectual Property Development and patenting them, Indian IT
companies can leverage from the same further and develop core competencies to create
value for customer where the Global customer sees perceived value in Indian IT

companies as a partners to manage their existing product and projects, to work on end
to end project inline to their technological road map in order to leverage from each
other strength.
ENVIROMENTAL FACTORS
Two issueshave driven environmental concerns related to IT outsourcing and both are related
to increasing power consumption by IT. First, the increasing cost of energy is having an
economic impact onIT operations. Second, the productionof electricalpower ofteninvolvesthe
bi-production of greenhouse gases (GHGs) which have been strongly linked to global warming.
GHGs and global warming belong to a discussion which is beyond the scope of this paper.
However, the role of outsource providers in electrical power consumption is an environmental
responsibility issue withinscope. Bothof these environmental concerns affect IT Outsourcing.
Conclusion:
Both Companies from Outsourcing Countries and Indian IT companies need to work to energy
saving and reduce carbon foot print by formulating Carbon Management Strategy and Plan.
LEGAL FACTORS
Home country sector regulation
Note that there are no specific EU supranational, regional or local anti-offshoring regulations.
Indirect, “objective” sector regulation, e.g. as in the financial services sector.
UK FSA rules on outsourcing (including offshore outsourcing): see Chapter 8 of the Senior
Management Arrangements, Systems and Controls sourcebook (SYSC 8). They implement the
outsourcing requirements of Directive 2004/39/EC on markets in financial instruments
(MiFID).
These mandatory rules apply to common platform firms (broadly, firms within the scope of MiFID
and/or Directive 2006/49/EC .
Any regulated financial services institution contemplating offshore outsourcing is expected to
consider:
• The local business operating environment (including the likelihood and impact of political
disruption or cultural differences),
• The applicationof UK andEU data protectionlegislationandthe restrictionsonthe transfer of
personal data across borders, especially outside the EEA, and

• The extent to which local law and regulation may restrict the UK institution in meeting UK
regulatory obligations, e.g. customer confidentiality, access to information by the FSA and
internal audit.
The USA has similar rules. And note that the largest independent US securities regulator, the
Financial law, TUPEhasbeenheld at Employment AppealTribunal(EAT) level to be capable of
applying to offshore outsourcing: Holis Metal Industries Ltd v (1) GMB (2) Newell Ltd
UKEAT/0171/07;[2008]IRLR 187.Industry Regulatory Authority (FINRA) has proposed Rule
3190, Use of Third-PartyService Providers, whichemphasises initial and continuing third-party
due diligence, on-point contract terms, compliance with existing and specific function-related
regulations and oversight control. Accordingly, procedures will need to be established for
continuousmonitoringrequirements. Also, it will be necessary to revisit existing contract terms
to ensure that they comply with 3190’s requirements.
Any organisation considering international outsourcing as an option will need to consider the
legal implications of the process and will have to be aware of the judicial system of the
outsourced country if the process fails to work satisfactorily. Inherently, all outsourcing
engagements face the challenges regarding loss of control and management. The risks are
infinitely higher when the outsourced work is being undertaken in a different time zone or in a
different jurisdiction – especially if the outsourcing partner has in possession the software and
data of the outsourcing company. Importance of legal issues is further elevated as, at every
phase of an outsourcingagreement, compliance issuesandcontractualobligationscanaffect the
successof the enterprise customer andits relationshipwithits service providers. Some common
pitfalls affecting the relationship can be outlined:
. Choosinga governinglawfor the contract, andestablishingwhichregulatory lawsapply
. Resolvinglicensesandusage permissions;
. Consideringdata protectiondelegations;
. Establishing the effect of any mandatory locallawswhichmay prejudice the relationshipor
impact later litigations;
. Making sure that all IP rights are protectedso that they are not violatedinthe foreigncountry;
and
. Coveringfor the insolvency of the supplier.
. Frame work NonDisclosure clausesof the Agreements.
. Frame working the Liability Clause.
In addition to the legal issues mentioned above, there are also numerous other possibilities.
However, asa matter of commercialpracticality, clausesina contract withan overseascompany
are completelyworthlessunless there is a mechanism for enforcing the contract in a way which
actually worksquickly and effectively. In jurisdictions where no reciprocal legal arrangements
exist, or where it is unrealistic to expect genuine cooperation from the foreign legal system, the
only sensible approach would to embed practical measures in the contract itself as discussed
later in this section, which do not necessarily require the intervention of the legal process.
Labour mobility, flexibility

Governinglawcontainedin the AcquiredRightsDirective 2001/23 (ARD)asimplemented
throughout EU - in the UK as the Transfer of Undertakings(Protectionof Employment)
Regulations2006, SI 2006/246(TUPE).
Under EU law, suchrules must be interpretedpurposively(“spirit andintent” rather than by the
actualwordsof the law).
Eachcountry hasimplementedARDsomewhat differently, e.g. the UK, Denmark and the Czech
Republic have liberalinterpretationof whenthe ARDapplies, whereasBelgium and France take
a stricter view. Insome EU countries, there are strict requirementsfor workscouncilandsimilar
employee representative body consultationsandagreement before aworkforce canbe
rationalised, e.g. before or after the applicationof the ARDin the context of anoffshore
outsourcing.
Under TUPE, consultationwithtradesunionsand/or staff representativesmust take place. If
there are to be redundanciesbefore or after any TUPEtransfer, correct legalprocessesmust be
adheredto. Failure to do so will likely result inmaterial financialawards against either the
customer or the outsource provider(or both).
The cross-border/offshore outsourcingeffect of the ARDthroughout the EU is unclear. Under
English
Cross-border controls on the movement of personal data
Data protectionandprivacy:see the EU dataprotectiondirective, 95/46/ EC:
http://ec.europa.eu/justice/policies/privacy/docs/95-46-ce/dir1995-46_part1_en.pdf
In the UK, the Data Protection Act 1998 applies.
See also the UK InformationCommissioner’swebsite at: http://www.ico.gov.uk/ andfor an
overviewonthe specificsof cross-border datatransfers, i.e. those most relevant to offshore
outsourcingsee:
http://www.ico.gov.uk/Global/Search.aspx?collection=ico&keywords=data+transfer
 Appliesto personaldata: coversemployees, customersandother livingindividuals, but
also corporate datain some countries, e.g. Austria, Switzerland.
 Cross-border dataflowsare regulated, bothintra-groupandbetweenonshore (within
EEA)
 organisationsand offshore (outside EEA)thirdparty organisations. Transfersof
personaldata to
 offshore destinationsare generally permittedby using“bindingcorporate rules” for
intra-group
 cross-border dataflowsandthe EU “ModelClauses” betweenEEA data controllers
(customers)and
 offshore dataprocessors(offshore outsource providers).
Note that each EEA country hasimplementeddataprotectionlawsomewhat differently.

There isa proposalfor a new data protectionframework for the EU that was introducedon25th
January 2012.
Data Privacy Laws that Directly Affect Continuing Relationships with Indian Service
Providers
 In order for Indiato protect itscompetitive position, the countrymust meet the privacy
expectationsof outsourcingcompaniesincountriesabroad. At present, Indiafacesa
seriousproblemwith meetingthe adequacy standardsof the E.U. Directive. Additionally,
U.S. companiesare putting pressure onthe companieswith whichthey do business to
protect their customersagainst identity theft.
Internal – India
The Constitutionof Indiadoesnot patently grant the fundamentalright to privacy. However, the
Courtshave readthe right to privacyinto the other existing fundamental rights, i.e., freedom of
speechand expressionunder Article 19(1)(a)and right to life and personal liberty under Article
21 of the Constitution of India. However, these Fundamental Rights under the Constitution of
India are subject to reasonable restrictions given under Article 19(2) of the Constitution that
may be imposed by the State.
India presently does not have any express legislation governing data protection or privacy.
However, the relevant laws in India dealing with data protection are the Information
TechnologyAct, 2000 andthe (Indian) Contract Act, 1872. A codified law on the subject of data
protection is likely to be introduced in India in the near future.
Conclusion:
We need to relook at our Data Privacylaws, possibly NASSCOM needto work withIndustry and
Government and get law passed via Indian Judiciary and Industry should ensure mandatory
training to employees on Data Privacy Law, Code of Conduct and Ethics.

Cost Implication of Visa Restriction:
If the US ImmigrationBill S744 is clearedIndianEconomy couldlose USD$ 30 Billion
http://articles.economictimes.indiatimes.com/2014-08-15/news/52846099_1_indian-it-h1b-or-l1-visas-
us-immigration-bill
Cost Implication would be direct and in direct, the brief impact of current Immigration bill
at US senate would be as follows:
1. Increased visa Quota: TheH-1Bvisaquotawouldbe increasedfrom65,000 to 110,000 and
can be further increasedto 180,000dependingonfurther demand. But this quotaincrease
would benefit US MNC’smore rather than Indian MNC. We will discuss about the same in the
comingpoints.
2. Increase in VISAcost The Current billin US senate if passed wouldhave a definite impact
on Indian IT companies. If youare not a US MNC and your IT work force isgreater than50
members:-
 Youneedto pay $5000 more if youare filingmore than 30% and less than 50% H1 -B
visaof your totalIT work force.
 Youneedto pay $10000more if youare filingmore than 50% H1-Bvisaof your totalIT
work force.
For US MNC’s the visa cost will be around$500 for every H1-Bthey recruit.
2. Client side restriction
For an Indian MNCwith employeesinUS comprisingmore than 15% H1-Bof your totalUS
work force, youcannot place employeesdirectlyonclient side. Client side means your
employeescannot work in clientspremises. Most of the IndianIT companiesfeedonthis.
Personally I feel15%isa very lessnumber. ThisclearlybenefitsUS MNCasthey do not have
any restrictions.
3. H1 B mandated salaries
Indian MNC’shave beenpaying down rated salariesto Indian H1-B professionalsinUS. Due to
this US MNC’s were not able to compete withthem and seconda localUS developer hadto
compete withthe down ratedsalaries. So now if this bill passes there will be strict H1 -B
mandated salaries. So this is goodnews onan individuallevel, but for IndianMNC’s its taking
their profit pie out and loosing edge over competitive rateswithUS MNC’s.
4. Visa restriction in 3 phases
There isincrease in visaquota. But this increase in visaquotawill not help out individualIndian
MNC’s. It will help Indian IT overallbut not individualMNC’s.
There isa 3 phase visarestrictionwhichhasbeen planned and it is as follows:-
 From the year 2014 youcanonly apply for 75% H1-B’sof yourtotalworkforce.
 In 2015 only 65%.
 In 2016only 50%.

The Impact of the Cost to IT Companies by Trade Restriction on Visa and Out Sourcing
via US Immigration Bill S744 would be as follow:
1. In case of UnitedStatesof America Under the Provisionof the Comprehensive
ImmigrationReformBillunder this any H-1B dependent employer (acompany with
more than 15 percent of the workforce onH-1Bs), wouldbe prohibitedfromplacingH-1B
workersat client sites or Contracting for the Servicesof those worker , thiswould disrupt
companiescurrent arrangement andwould mandate them placing only Localemployees
at client site
a. This would benefit US based companies and move market share from Indian IT
companies to MNC IT.
b. This would Increase the cost of the project as local engineer cost would be high,
but than this wouldallow the company to be lean and have low bench strength as
US employeesor Engineer are open to temporary contract based on the project.
2. For Companieswhich are not H-1Bdependent, they are allowed to place H-1B resource,
they are allowed to place H-1B resources on customer sites after paying a fine of $ 500
per person. So essentially, US centric companies(Accenture andIBM) less dependent on
Visas and having offshore operations are likely to benefit from this move.
3. There might be prospective revenue loss is the clients hold back given the perceived
disruption in services and risk associated with an Indian IT vendor if the bill is passed.
4. Also, a change in businessmodelimplies setting up of delivery centers near clients, near
shoringof delivery, immediate hiringof localsto ma projectsetc. Thisincreasedoffshore
could result in reduction in revenue and profit ability.
5. Thiswouldlead to either 1)hire localsin lieu of H-1Bvisa staff, 2) offshore more; 3) lose
some business to competitionand4) Shift Staff at clientslocationsto proximity Centers.
6. Currently, H-1B visa salaries are mandated by USCIS, depending on the geographical
area, skill or experience levelthat apersonhas, with which companiesneedto comply by
paying at least the same or higher salaries. The bill proposes to increase mandated
salaries for H-1B visa holders to prevent H1B workers from undercutting wages paid to
American workers. This would further increase the cost.
7. Also, if a company has 30-50% of its people on H-1B or L1 visas, the bill proposes to
charge $5,000 extrafor additionalpeople above the 30% norm. If, a company has more
than 50% of its people onH-1B or L1 visas, the bill proposesto charge $10,000 extra for
every additionalpersonabove the 50% norm. This would lead to companies restraining
frombidding for project less than a year period or adding the cost to customer proposal
and risking being un competitiveand would reduce the companies flexibility to scale up
project or meet existing customer requirement at short notice.
8. Indian IT firms will have to employ more U.S. residents, which will increase their
spending on wages and benefits. Leadership at the companies say an increase in
Americanhireswill also reduce their flexibility in managing onsite employee utilization.
9. Indian firmswill have to pay more by way of visa fees and pay higher wages to H1B visa
holders. All of this could disrupt the companies’ business model. “Hypothetically,

FY2017[earnings before interest and tax] margins could be 60-120 [basis points] lower
and FY2017 [earning per share] could be 3% to 6% lower,”.
10. Accordingto SomMittal, president of the NationalAssociation of Software and Services
Companies (NASSCOM), while the visa provisions in the immigration bill impact other
countries also, “India will be hit the hardest because it has a 55% market share of the
global IT outsourcing industry.”

Strategy to overcome the Visa and Out Sourcing Restriction:
The proposed Strategiesarefor Marcolevel at Government level as well for Business Level:
Internal: Business Level
1. Move up the Value Chain: The Indian Firm need to move up the value chain and increase
Customer Value be more of a consultant and partner to customer by advising them where the
next round of their investment in technology should be and devising a roadmap and if required
business model with customer and providing complete end to end solution to the customer like
a fixed cost milestone based project or risk reward based model rather than the time-and-
materials contracts of earlier years. Customer should see distinctive value, long term certainty,
alignment with their long term road map, alignment with long term Industrial road map apart
from faster time to market, cost benefit, etc.
2. Near Shore Centers in US and delivery Center near US or in EU, local recruitment
for Temporary requirement on contract basis from US itself so that company is lean and
low bench Strength would keep the companies Operating margin high, focus on getting
complete end to end projects in India.
3. The other option to give the benefit of choosing the option of outsource over offshore –
which is alternative to customer own Center in India by Cost, quality, IPR etc benefits.
4. Most Product Companies still need a Test, Certification, Development, Re-spin, Integration
Center with Technical capabilities and Supply Chain Management Capability in Asia due to Time
zone difference for the Asia Pacific, Middles East and CIS customer or partner which is a Market
where Companies from Asia, CIS and Eastern Europe compete and India definitely has an
advantage over other countries here.
Competitive Assessment of Emerging Nations – 1

5. Indigenous Product Development, Semiconductor Development, Defense product
development can bring in Specialization of the products and Factor movement of Manpower
would be requiredfor TOT –Transfer of Technology, Training, Support or Maintenance
for the product bought by different Countries.
6. Further Most companies would have to deal with Political and Legal risk based on the
levelof their exposure to these marketsandwould needto protect their new and existing
global investment and operation accordingly.
a. The following factors can characterize a corporation high sensitivity toward
political and Legal Risk:
i. Large Capital asset base in these Geographies.
ii. High Ratio of International to domestic revenues.
iii. High ratio of International revenue originating from these territories.
iv. Dependence on a global supply chain.
v. Heavy concentration of assets and/or operations in a single country or
region.
vi. Strategic reliance on international growth.
vii. Reputation sensitivity
viii. Expansion plan.
ix. Dependency on International Growth
b. Companies would need to realign their organisation structure, Delivery
Mechanism, growth & investment plan in wake of the present developments.
c. Companies would need to train their teams including engineers, project
managers, mid-level and Senior level Manager, Operational, Human Resources,
Finance and Management on the implication of the new political and legal
framework and inculcate compliance for same.
d. A requirement for the adoptionof the international standards of best practices if
not already of ISO/IEC 17799(and BS 7799) on data privacy and an assessment
by an accredited third-party certification body against BS 7799.(All
participating businesses should be certified/accredited.)
e. An international arbitration provision for dispute resolution, which covers at a
minimum, the scope of arbitration; arbitration institution; and choice of
law,forum, and language. (If not already in place)
f. An obligationfor mandatory trainingof all employees regarding legal and ethical
conduct.
g. A stipulationrequiringinsurance to cover liabilitiesthat may arise from potential
law suits.
h. Mandatory adoptionof multilayered encryption/decryption techniques to deny
employees direct knowledge of customer data. A requisite for the signing of
nondisclosure agreements by employees.
7. Companies also now need to relook at their existing contracts, obligation in view on the
recent immigration & out sourcing policy and consult their project team, CEO, CTO,
finance, Human Resource, Recruitment, Operation, legal, Sales and review their
resource structure based no of employees onsite on H1B or L1 Visa along with their
customer relationship/engagement or Account Directors and Regional Vice President

and re-draft the project execution plan, project execution methodology and
milestone/delivery time lines in considerationto the recent lawand prepare contingency
plan as well.
a. Companieswould needto relook at their overallresource allocationinthe Region
basedon existing H1B visa and L1 Visa employees on projects and application in
processfor the Visabasedon contract commitments inthe Geography and do the
planning of various project execution while complying to the new immigration
law and priorities resource allocation and planning.
b. Companies would need to relook at the project profitability of existing projects
and relook at the contract if they cango back to the customer and request themto
pay for the increase in the project cost due to change in legal Frame work.
c. Once they have project execution plan along with contingency back up plan
ready the IT company Account Directorsshouldsetupa Senior levelmeeting with
their customers in the region and present them brief on the recent Legal frame
work, its implication, compliance requirement, companies plan to execute the
project while it meetsthe compliance requirement, resource restructure to meet
the compliance, any delay expected in project execution or meeting project
milestone and any financial implication if the customer wants to retain specific
engineers or Project lead or project Manager on the project over and above the
quota to comply the new Visa requirement over which there is an additional fee
and customer desire to fiancé cost of such retention.
8. Also IT companies would need to relook at new sales opportunity and design their
proposalin wake of new Immigrationand Outsourcinglawsin termsof project execution
plan, methodology proposed and Commercials.
9. IT Companies would also need to send communication to customer or prospects where
they have already send proposal before the law came into effect and they had not taken
the compliance into consideration while draftingand subsequently sendingthe customer
proposal earlier, by resend redrafted proposal with new project execution plan,
methodology if applicable andcommercialsinline to comply withlatest Immigration and
out sourcing legal frame work, clearly mentioning non validity of previous proposal
shared and explaining the reason.
10. Companies would need to relook at the compliance with local labour laws and
registration in order to hire local staff to meet their project requirement.
11. Support Activities: Companies would also need to realign its support activities like
Human Resources in these Geographies.
External - Macro Level or Government Level Strategies that are required to be taken up
by the Government:
12. Take forward India- United States Trade Policy Forum (TPF) toward Trade
Agreement with US by initially signing frame work, with United States Trade and
Investment Framework Agreement (TIFA) followed by Bilateral Trade Agreement and
subsequently aFree Trade Agreement;the Trade PolicyForumprovides opportunity for
bothGovernmentsto discussand share their concernsandwork towardsresolvingthem.

In the 2014 Special301 Report publishesinApril, USTR calledfor renewedandintensive
engagement on intellectual property (IP) issues with the Government of India,
announcing that the United States would “redouble our effort to seek constructive
engagement that will both improve IP protection and enforcement in India and support
India’s effort to achieve a ‘decade of innovation’ and advance its legitimate public goals,
including accessto affordable medicines.” USTR also announcedthat they would initiate
an Out-of-Cycle Review (OCR) of India in the fall of 2014to evaluate progress on this
engagement
http://www.ustr.gov/about-us/press-office/press-releases/2014/October/USTR-Begins-Special-
301-Report-Out-of-Cycle-Review-of-India
13. Safe Harbour Nation status in India EU BTIA (Broad-based Trade and Investment:
Agreement): While India needs to modify the Information Technology Rules, 2011 to
include an „enforcement clause so as to ensure accountability and identify an
independent authority clearly defining the procedures and penalties in case of failure to
compliance, the EU needs to work with India to find out ways in which India can be
accordedaSafe Harbour Nationstatus. Alternatively if the EU does not declare India as
a safe harbour nationthen NASSCOM pointed out that there can be three ways in which
data protectionsbarrierscanbe reduced. These include (a)clearly define benchmark safe
harbour principles and audit each country trading with the EU; (b) appoint a self-
regulator that identifies data secure companies in India; (c) provide a clear pathway
recommending changes in Indian legislations so that India can become a data secure
nation. Thiswill enhance trade and investment and movement of professionals between
the two economies.
14. Single window clearance: The paper highlights a number of barriers to trade in this
sector. Some of these can be addressed through domestic reforms in India and the EU
and others under the on-going BTIA negotiations and through inter-governmental
collaborations. One area where there is an urgent need for inter-governmental
collaborations is the collection of data on movement of people between India and EU
member states by some key professional categories including IT/ITeS. The two
economiesshouldalso have a commondefinitionfor different categoriesof movement of
professionals. It will facilitate movement of professionals between the two economies if
the definitionusedby India in the RevisedOffer submittedto the WTO (August 2005) is
adoptedby bothIndiaand the EU in the BTIA. The BTIAcan have a separate chapter on
movement of people, which focuses on movement of certain skills including those
engaged in the IT/ITeS sector. The EU government needsto harmonise the EU market to
introduce single window clearance for fast tracking investment approvals for
establishing commercial presence (Mode 3) in the EU member states. India and
Governments of EU member states can sign social security agreements. India and
Swedish governments should finalise the signing of the Social Security Agreement. In
addition the Indian and the UK government should enter into a social security
agreement.
15. Government should encourage government and university level collaborations
with foreign universities especially from the EU. This will expose Indian students to

global standards and increase their employability. Government should also set
employment standards in collaboration with IT companies. The IT companies can
outline the necessary skills required in the IT/ITeS sector, which should be adopted in
the course and curriculum of education institutes. Higher focus on in-house R&D
facilities in educational institutes and in IT companies will automatically increase the
skill level of the students and professionals.
16. Focus on R&D: There isneed for more investment inR&D bothat the government level
and at the company level. Joint R&D between Indian and EU companies will facilitate
movement of IT/ITeS professional and also lead to skill up gradation. Under the BTIA
there can be a separate chapter on R&D collaboration with specific reference to R&D
related to the ICT sector. Since IT/ITeS sector is interlinked to other services sector,
commitments of India and EU in other services sectors under the BTIA will have an
implicationfor trade and movement of professionalsinIT/ITeS sector. If both India and
EU offer commitmentsacross a wide range of services sectors and liberal commitments
in temporary movement of people across different categories it will facilitate trade in
IT/ITeS sector.

Reference
Mayer-Brown Legal Update July 31, 2013 Impact of US Senate Immigration Bill on Out
Sourcing.
Movement of IT Professionals between India and the EU: Issues and the Way Forward – IIM
Banaglore – Prof. Divya Satija (ICRIER) and Prof. Aprita Mukerjee.
Shaji Khan, Mary Lacity, (2013) Survey result: are client organisations responding to anti-
offshoring pressure?, Strategic Outsourcing: An International Journal, Vol 5 IFF: 2, pp. 166-
1709
- ThomasA. Hemphill, (2004),"Globaloutsourcing:effective functionalstrategyor deficient
corporate governance?", Corporate Governance:The internationaljournalof businessin society,
Vol. 4 Iss4 pp. 62 – 68 Permanent link to this document:
http://dx.doi.org/10.1108/14720700410558880
PaulTeague, (1994),"Labour Market Governance inthe NewEurope", Employee Relations, Vol.
16Iss 6 pp. 5 – 108Permanent link to this document:
http://dx.doi.org/10.1108/01425459410069352
Ministry of Commerce IndiaWebsite:
http://commerce.nic.in/trade/jt_statement_usindia_trade_policy_forum.pdf
Office of the UnitedStates Trade Representative: http://www.ustr.gov/trade-agreements/bilateral-
investment-treaties
Dun & Bradstreet:IT &ITessector Outlook2014
https://www.dnb.co.in/News_Press.asp?pid=1369
Business Law Journal - Offshore Outsourcingto Indiaby U.S. andE.U. Companies; Legal and
Cross-CulturalIssuesthat Affect DataPrivacyRegulationinBusinessProcessOutsourcing
BarbaraCrutchfieldGeorge |DeborahRoachGaut | http://blj.ucdavis.edu/archives/vol-6-no-
2/offshore-outsourcing-to-india.html

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