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MOSL: TECHNOLOGY-Implications of a supply crunch-Is it advantage tier-I, a secular cost headwind or a trigger for more offshore?

Technology: Implications of a supply crunch; Is it advantage tier-I, a secular cost headwind or a trigger for more offshore?

 

Supply challenges in the US, though not fresh, but a growing concern

• Long delays in processing H-1B visa issuances and limited availability of local talent in the US combine to challenge the industry’s ability to fulfill demand seamlessly in the US.
• Evidences of the consequent impact are manifested in: (a) The rise in subcontracting costs for companies such as INFO (and its margin guidance), (b) Elevated attrition at CTSH, (c) Impact on growth for HEXW due to inability to fulfill demand with resources in adequate time, and (d) Expectations of continued rise in costs and use of sub-contracted staff by MTCL and ZENT.

 H-1B approvals steady in 2017, but worsened towards the end

• USCIS data suggests a normal year for H-1B approvals for FY17 (October 2016 – September 2017). However, the denial rate inched up to 22.4% in 4QFY17 (1QFY18) from 15.9% in 3QFY17.
• Also, the number of requests for evidence in 4QFY17 were 63,184, almost the same as the previous nine months combined at 63,599 ().
• We are no experts to suggest that Democrats’ winning the House in the mid-term elections by ‘highest ever margin’ can reverse these trends. But what can be learnt from the past is: (1) Rhetoric around protectionism and against the “misuse” of the H-1B program has not been limited to any political party and (2) Over time, it has only gotten costlier to source new visas, with every incremental regulation providing a re-base to new normal, and few, if any reprieves.