Rise in US H-1B visa rejection may force Indian tech companies to look at M&A

• The increase in US H-1B visa application rejection rates may mean that Indian tech giants will begin to acquire companies in the US according to Mohandas Pai, the former director of Infosys.
• Hiring locally is expensive and still requires at least 60% of the workforce still needs to be upskilled.
• IT companies have already shifted their business models with back end engineering in India, they will provide the requisite services through companies in the US.

Indian IT companies are in serious trouble. The number of US visa rejections has hit 40%, and looking at the Trump administration's agenda going forward, things are likely to become worse.

Mohandas Pai the former CFO of Infosys and startup investor, shares that the option left with Indian IT companies is to acquire IT companies in the US.

"The next phase will be that Indian IT firms will go acquire more companies in the US. And, those companies will have back end engineering in India," Pai told Business Insider. This will solve the problem of having engineers on-site.

Companies can either acquire a local company or setup an office in Canada or Mexico. The actual software engineering will be still be happening in India where companies have abundant talent to tap.

Can they ‘really' Hire American?

A simpler way out of visa rejections mess would be hiring in the US. This move could also achieve what US President Donald Trump wanted to achieve in the first place with his aggressive ‘Buy American and Hire American' policy.

Shivendra Singh, Vice President & Head of Global Trade Development at industry body NASSCOM, believes that Indian IT companies should get skills, whichever way they can get them.

Singh explains, "Firms can either upscale locally or bridge the sales gap by bringing in people on higher scales," adding, "You need upscale at least 60% of the workforce for them to perform on all cylinders. "

But, this is much easier said than done. For one, it would drive down profit margins of Indian IT majors. Added to that, there is a dearth of engineering talent. "Firms are hiring locally but the talent is not available. Freshers are available but they have to be trained," Pai says.

A good engineer from the Valley costs around $125,000- $150,000 per annum. That too, would be a fresher. "In fact, hiring freshers are cheaper than sending people from India." The problem with freshers is that they aren't flexible to go from place to place or work across different technologies. Unlike Indian IT professionals who have worked in India.

Who will gain?

As per experts, the Indian IT industry and their US companies, along with the US government in general, is looking at a lose-lose situation. Outsourcing to India provides a competitive advantage as they can perform the very same tasks at a better, faster and cost-effective manner.

"Digital startups can afford to pay (high salaries) because they're swimming in a lot of capital, whereas manufacturing companies can't afford it. So, they need to get it done at a much more productive and cost effective level," says Pai. If Indian IT companies lose business, their US clients will also suffer as much.

Indian IT firms contribute $58 billion to the US GDP, which is higher than six individual US states contribution according to NASSCOM. And, they work with more than 75% of the Fortune 500 companies — the majority of which are American enterprises.

"The US administration does not understand that, with unemployment at 3-4% — there are no people. More and more companies will start to move their work offshore or nearshore," says Pai.

See also:

Now, Trump administration wants to hike H1-B visa fees to train Americans in technology

US Immigration is denying more H1-B visas than ever before — without notice or authority

Spouses of H-1B visa holders may lose work permits in the US