International Business, Update 2003 Cases
H-1B Visas: A High-Tech Dilemma
Images of immigration typically include border crossings and refugees trying to enter a country illegally. Jobs filled by immigrants are perceived to be low-paying menial ones that cannot find takers among the residents. However, the most heated debate on immigration is being waged in the world of high tech, where industry argues for more freedom to bring in people with “a body of highly specialized knowledge” and where opponents characterize the situation as the present-day version of indentured servitude.
The H-1B is a high-tech visa that allows foreign engineers, computer scientists, and other highly trained technical workers from a variety of countries to work in the United States on a temporary basis for a maximum of six years. The program began in the 1950s to attract individuals with mathematics, engineering, and technical backgrounds during the Cold War. However, the boom of the information-technology sector, which demands 1.6 million workers yearly, has made the H-1B visa a major subject of discussion. In 1999, the full allotment of 115,000 H-1B visas was exhausted by June, and in 2000, by April.
On October 3, 2000, the U.S. Congress overwhelmingly approved legislation in a vote of 96 to 1 that would increase the number of H-1B visas issued from 115,000 to 195,000 each year for the next three years, with the possibility for renewal for another three years. In 2001, despite the severe downturn in the economy, 163,200 applications were approved. The bill passed because high-tech lobbyists were successful in positioning the visas as protection for the U.S. competitive edge in technology. In the short term, the United States needs to fill key positions immediately so opportunities are not lost to foreign competitors. The supporters’ argued that the survival of U.S. companies is at stake without foreign workers. This view was also taken by Federal Reserve Chief Alan Greenspan, who warned that labor shortages threatened the national economy and who proposed increased immigration as a way to ease labor shortages and reduce inflationary pressure.
Greenspan’s comments were only one indication of dramatic changes taking place. Two years earlier, the same legislation had been opposed by anti-immigration Republicans and the labor unions. In 1996, the U.S. Congress focused on deportation, and the U.S. Commission on Immigration Reform (the Jordan Commission) proposed to cut legal immigration by at least a third and eliminate illegal immigration.
Labor’s Position
Organized labor has also started to change its traditional stance. While historically opposing immigration on the grounds that it displaces American workers and lowers wages, organized labor abandoned its opposition to the October bill—although they did support the stipulation that U.S. employers must pay the prevailing wage—and announced it would no longer oppose illegal immigration. Union leaders increasingly see immigrants as potential recruits.
While organized labor supported the provision to pay prevailing wages of what a recent college graduate entering the computer science field would typically command, the high-tech industry opposed that provision on the grounds of increased paperwork and administrative costs involved to maintain these statistics. The industry point of view won and the provision that required employers to present tax forms showing how much H-1B holders were paid was dropped from the final version of the legislation.
There is opposition also from non-traditional workers’ groups on the issues of wages. According to critics, foreign workers in Silicon Valley earn substantially less than a U.S. citizen with comparable education and experience. For example, newly graduated immigrants with H-1B visas are paid $35,000, while the national average for new computer science graduates is $45,000. Groups of technical workers, such as the Programmers Guild and the American Engineering Association, banded together to fight the bill. Their argument is that U.S. technology businesses rely too heavily on cheaper foreign labor at the expense of older and more expensive U.S. workers. The higher numbers create a market in which employers do not have to cultivate “home grown” talent because there is a constant flow of new people. While some employers may not save on the salaries of programmers of the same age and background, they still save on salaries of employees with H-1B visas whose median age is 28 and who may replace a U.S. citizen over the age of 40.
Other groups, such as the Urban League, have demanded that corporations train more U.S. citizens for the jobs that are going to foreign engineers, computer scientists, and other highly trained technicians. Colin Powell stressed the need for increased training of U.S. students at the Republican Convention in 2000. The H-1B visa’s filing fee of $1,000 is supposed to go to programs to increase U.S. student and worker training in science and technology. Since establishing such a program in 1997, the Virginia High Tech Partnership program has placed 140 minority students at 75 firms, including AOL, IBM, and start-ups. However, it is clear that these initiatives will not have any immediate effect on the demand for H-1B visas.
Critics have also argued that, contrary to claims of programmer shortage, U.S. companies such as Cisco, Microsoft, and Qualcomm hire only a small percentage of applicants and reject most without even interviewing them. Cisco, for example, receives 20,000 applications per month but hires only 5 percent of them.
Industry View
The positive vote to increase H-1B visas is seen as further evidence of the clout the high-tech industry has in the United States. In 1999, the U.S. Congress passed a bill that protected Silicon Valley against Y2K litigation. Recent legislation has also eased restrictions on export encryption rules, and high-tech companies are not required to maintain separate tax records on foreign workers. U.S. Congressman Tom Davis, a Republican from Virginia, stated,“This is not a popular bill with the public, it is popular with the CEOs. This is a very important issue for the high-tech executives who give the money.”
The industry’s argument is straightforward: information technology has dramatically changed the composition of the U.S. workforce by producing an incredible demand for workers. In many sectors, the positions have high complexity and a scarcity of qualified applicants. U.S. companies have been forced to slow their expansion or cancel projects due to the lack of technically qualified individuals. As a result, some have argued for the elimination of H-1B caps altogether.
According to a 2000 report by the General Accounting Office, the average H-1B worker is an Indian male between the ages of 25 and 29 who earns a salary of $45,000. As shown in Figure 1, Indians account for the majority of the new arrivals, with China and Canada as distant followers. In Silicon Valley, immigrants make up one-third of IT workers, and more than 25 percent of them hold senior executive positions. More than 750 Silicon Valley companies worth US$3.5 billion and employing 16,000 workers are owned by Indians.
View from India
The IT industry is growing rapidly in India. The area around Bangalore is known as the Silicon Valley of India. In the past decade, Indian software exports to the United States have grown from $150 million to $3.9 billion. The Indian software industry is expected to grow to $80 billion by 2008. India exports software to 91 countries, with 64 percent going to the United States. In 1998, Microsoft opened a research and development center in Hyderabad. Indian laws were recently liberalized for direct foreign investment and joint ventures. The passage of the visa bill is seen in some parts of Asia — but not all—as having the potential to inspire trading interest in India’s frontline software industry.
Exactly one week after passage of the bill, the Indian press (The Statesman) issued a broadside that criticized the H-1B program as subsidizing Bill Gates. The argument was that the high-tech industries in Western countries are being fueled with workers trained at Indian institutions at Indian taxpayer expense. The replacement of Indian subsidies with grants and student loans as a way to stem “useless degrees in comparative literature” was urged. However, no mention was made of requiring Indian graduates to work at home, possibly because there are not enough employers in India. Interestingly enough, there is a sector-specific problem. So many technical professionals are leaving for foreign jobs in the United Kingdom, Germany, and Japan that there are already pockets of shortages in the Indian software industry, with projections for a widening and deepening shortage to continue for the foreseeable future.
Why is the Indian high-tech worker so prevalent or so sought after? The fact that there are not enough employers in India to employ qualified workers is only a part of the picture. Their government’s educational system has given priority to computer training far longer than many other developing countries. The India Institute of Technology (IIT) was founded in the 1950s by Prime Minister Jawaharlal Nehru to train an elite that could build and manage massive industrial development projects. Today the government runs six institute campuses and accepts only 2 percent of more than 100,000 applicants annually. IIT graduates Vinod Khosla, cofounder of Sun Microsystems, Inc., and Rakesh Gangwal, president of USAirways, have parlayed H-IB visas into lucrative careers. The value added for U.S. companies is three-fold: (1) the pick of the top tier of an educated elite from (2) the largest pool of skilled English-speaking workers second only to the United States, who (3) possess the ability to more easily adapt products for foreign markets.
The Indian Visa Holder’s Perspective
The young Indian male between the ages of 25 and 29 who is highly educated, ambitious, and eager to work but unable to find a job in India that will pay enough to attract a wife is happy to go to the United States and earn $45,000 a year, roughly four times what he would earn in India.The October bill offers longer-term attractions, having lifted restrictions that previously hampered career progression. Called the “portability provision,” it is now easier for H-1B visa-holders to change jobs without having to wait for the Immigration and Naturalization Service to formally approve the immigrant’s application with a new company. This provision facilitates movement up the career ladder, possibly to the level of an officer at an IT firm and the growing of equity in the company and accumulating wealth. In the past, foreign-born workers were often dissuaded from switching jobs because of the fear that they would run into problems in processing of their visa paperwork. Problems could mean that they would have to return home.
Immigrants who have been in the United States for three years on the H-1B visa may have a different perspective. In many cases, the renewal for another three years may come, but not without a lot of work and worry. The initial exhilaration to come to the United States is often followed by homesickness. The spouse, who may also be highly educated, is not necessarily permitted to work in the United States.
With approximately 90,000 Indians arriving every year, and with the strict quota imposed by the Immigration and Naturalization Service of 15,000 green cards per year per country, there is an additional dilemma. The October bill acknowledges this problem; the language in the bill directs the INS to make the unused green card allocations of other countries available to applicants from oversubscribed countries and to extend the amount of time H-1B workers can remain in the United States while waiting for green cards. However, many workers feel discarded at the end of the six years, leaving full of disappointment and delusion and holding much bitterness towards the United States.
The Balance
Many of the young workers who do head abroad will return home and ploy their new wealth into ventures at home. In one well-publicized story, an IIT graduate founded Internet browser Junglee.com with three other Indians, and sold it to Amazon.com in 1998 for US$180 million. He gave $1 million to his alma mater and started another company in Mountain View, California, and Bangalore, India, as well as investing a 25 percent stake in a dot.com startup in India. The “brain drain” may reveal its silver lining as more and more successful Indian entrepreneurs are seeding ventures at home. The dot.com boom in India is seen as one of the mega markets of the future. Instead of sending workers to foreign markets, the Indian IT companies are sending their work to foreign markets via the Internet; “offshore development” is now a viable alternative to onsite workers.
The nascent IT industry in India is becoming more and more attractive to foreign investment. While Indian firms will lobby for more visas and investment, their U.S. counterparts are likely to seek reciprocal concessions. U.S. multinationals interested in establishing a business in India want some improvements in infrastucture, reduction in bureaucratic interference, and quicker responses from the government. New Delhi has taken the first steps aimed at accelerating telecom reform to free long-distance telephone service from their government monopoly and allowing 100 foreign direct investments in Internet service providers.
In the United States, the issue of equitable wages needs to be addressed; currently no reporting and auditing controls are in place to protect both foreign and U.S. workers. The lack of these controls both undercuts the domestic worker and takes advantage of the foreign worker. Many programs have been very successful in training new groups of workers and could work well as a regional model in the industry corridors in the United States. In the long term, the country needs to determine what can be done to make certain that there are sufficiently trained U.S citizens to fill the demand for high-tech jobs. Perhaps not enough time has passed to judge what effect the retraining of U.S. workers, often older or displaced, has had on the new technologies. Little published data are available at this time, and anecdotal data suggest the retraining may be too little, too late.