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No more dream placements, Indian IT cos to now hire more US freshers

Indian outsourcing giants Infosys and Tata Consultancy Services will hire more engineers from campuses in the United States as they brace themselves for stringent visa norms expected to be unveiled by the new American administration led by Donald Trump.

The move marks a change in strategy for the $150-billion Indian outsourcing industry, which until now has mostly relied on hiring large numbers of engineering graduates in India who were then posted to overseas client locations, a model that helped the industry win multi-billion dollar contracts but has also attracted the ire of locals.

Last fortnight, Senator Jeff Sessions, in his confirmation hearing for the post of attorney general of the United States, said that the Donald Trump administration will push for legislative reform to curb what he termed as “abuse of H-1B visas for foreign workers”. The Indian outsourcing industry, whose biggest market is the US, has been a beneficiary of the H-1B visa system.

“We are (now) looking at hiring from more colleges in the US. With the (new) visa rules, we will have to look at building a pyramid there,” UB Pravin Rao, chief operating officer at Infosys, told ET.

The offshore-pyramid model, the bedrock of Indian IT’s success, has a simple structure. Low-paid coders mostly hired straight out of Indian engineering colleges, formed the large base of the pyramid.

Better-paid mid-to-senior executives in roles like project managers formed the middle. While these two rungs worked predominantly out of India, a smaller number of engineers were sent on H-1B visas to work with clients onsite, in addition to sales executives who were hired in foreign markets.

These companies also hired senior-level executives with many years of industry experience in overseas locations, termed as onsite hires. Campus recruitment, however, has been minimal so far.

The structure, which kept overall costs low, helped the sector lure contracts away from more expensive multinational rivals, who promptly adopted the model themselves. But with IT companies staring at increasing costs and a more restrictive visa regime, they are looking at hiring more freshers from overseas campuses and creating a similar structure in the US.

India’s largest IT services company Tata Consultancy Services also said it would increase the number of young engineers it will hire in the US.

TCS’s HR head Ajoyendra Mukherjee, though, added that it was too early to break down the composition of the onsite pyramid. “At this stage, it will be difficult to comment as to what the percentages would be and we have to ensure that we make our deliveries as per customer requirements. I am not going to get into the percentages of the pyramid,” Mukherjee told analysts on Thursday.

Engineers with under three years of work experience comprise about 30-35 per cent of the Indian IT industry, which employs about 4 million people. A back of-the-envelope calculation would peg the number of young engineers at between 1.2 million and 1.4 million of the total workforce.

Hiring more engineers in the US has the potential to hurt margins of the Indian IT industry. Engineering graduates in the US begin with average salaries of over $40,000, or Rs 26 lakh, as talent is not readily available. In contrast, salaries for fresh engineers in India have stayed stagnant at Rs 2.5-3.5 lakh for the last five years. Over one million engineers graduate in India every year.

Industry watchers argue that while Indian IT companies are exploring multiple ways to mitigate the impact of visa restrictions, they have no other option but to increase hiring in overseas markets. “They want to do all the work they can offshore. Infosys even talks about virtual reality centres to give a sense of people working together when they are actually in other countries. They also want to automate onsite. But they will still have to hire,” an analyst with a Mumbai-brokerage told ET.

TCS has said it is committed to delivering profit margins of 26-28 per cent, despite the potential for rising costs due to visas and local hiring. Few IT services companies can afford to pass on the higher costs to customers.

“There is no way I can tell a client that they have to pay more because I need to maintain a margin of over 20 per cent. My client probably has lower margins. We can boost utilisation and other things, but mainly we will automate jobs being done by freshers in India,” a chief financial officer with a mid-sized IT company told ET.

Hiring at Indian IT companies is already dropping. Infosys said it hired 17,000 people in the first nine months of fiscal 2016. It has hired fewer than 6,000 in the same period this year.

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