If it becomes law in its present form, the Border Security, Economic Opportunity, and Immigration Modernization Act, which includes the H1-B and L-1 Visa Reform Act of 2013, is likely to increase opportunity for nearshore outsourcing providers in Mexico, according to analysts.
“There will be a huge uptick in exploring Mexico,” says Frances Karamouzis, vice president and distinguished analyst in Gartner’s Research Advisory Group. “And then there will be some work that will move to Mexico, with companies like TCS leveraging their capabilities as a mitigating strategy.”
The bill just passed the United States Senate and now moves to the House of Representatives. Once there, various components of the Visa Reform Act will come under increased scrutiny. Hot button issues include deeming a company with at least 15 percent of its workers on H1-B or L-1 visas as being “visa dependent,” which could then trigger outplacement and numerical restrictions; a $10,000 fee per additional worker for employers with more than 50 employees, of which 50 percent or more are on H-1B or L-1 visas; and an overall increase of fees to about $5,000 per visa.
“The only way for visa-dependent providers to address the issue is with a multi-pronged strategy,” says Karamouzis. “They will need to comply, and will respond with a mix of U.S. hires, acquisitions, global delivery centers and nearshoring.”
Now that the bill has passed the Senate, the earliest House vote won’t be until August. Should the legislation pass, it would then become law in early 2014. Gartner says the effect, even of a diluted bill, will be an increase in bill rates and service disruption.
“How quickly it kicks in is a different story. It’s not that simple. There has to be an alignment of skills and knowledge transfer,” says Karamouzis. “But there is a high likelihood that this will include a Mexican solution from India-centric providers, with buyers also able to pick Latin American vendors.”
Shift in Sourcing Strategies
Buyers are becoming more skilled at assessing which capabilities are best kept onshore or close at hand at a nearshore site, and which can be handled in a more remote offshore location. With pressure from the Visa Reform Act, there will be more queries as to whether nearshore providers can deliver higher value.
“The legislation will drive providers to offer more offshore services, but their clients will want some of that work done closer to home,” says Anupam Govil, a partner at Avasant in Austin, Texas. “Nearshore can be in the same time zone. A five-hour flight instead of a 24-hour flight; it is easier to travel there to conduct an assessment.”
Govil says the NAFTA agreement gives Mexico an edge over other countries in Latin America, though they stand to benefit as well.
“With NAFTA, it is easier for a nearshore provider to bring in workers to the States on a temporary basis,” he says. “As a result we expect to see more companies setting up nearshore capabilities in Mexico, but we also anticipate interest in smaller players like Trinidad and Tobago.”
Nearshore vs. Onshore
The legislation could backfire in that once buyers take a close look at the nearshoring capabilities in Latin America and the Caribbean, they might like what they see.
“In the U.S., there is a shortage of skilled IT workers,” says Govil. “It is already motivating companies to look to nearshore providers, and this will accelerate the trend.”
Retention is also an issue. Given the demand in the United States, there is a fair amount of poaching, and many IT employees feel only limited loyalty to their employers.
“A buyer can look to a nearshore location and find skilled workers who are more likely to stay in those roles,” says Govil. “Cultural issues are a factor, but the main driver is that these represent excellent jobs in nearshore environments.”
Diversified Sourcing Models
Though there is concern that the U.S. market is not fully prepared for the impact of the new legislation, it will only accelerate trends that are already in place, such as buyer movement to more dynamic sourcing models from diversified locations.
“We are seeing a definite shift to multi-sourcing, multi-vendor deals,” says Govil. “The sector is growing and the number of deals is up, but the deal sizes have shrunk. Clients prefer multiple vendors servicing different areas, and to take the best from each.”
In fact, Govil says that many clients are already diversifying away from offshore providers in order to re-locate some services closer to home, where they can explore transaction pricing.
“They may have leveraged India and the Philippines for a while, but that represents higher risk and they are now in the midst of portfolio rebalancing. People are interested in having pricing tied to outcomes, with an element of risk- and gains-sharing. And part of that means taking a close look at nearshore and Latin America.”
Source: Global Delivery Report
