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Infosys visa fraud settlement could impact IT offshoring model and customers

Stephanie Overby | Nov. 1, 2013
An agreement by the Indian IT service provider to pay $34 million to settle claims of visa fraud and abuse could force more outsourcers to reconsider their business models.

The announcement yesterday that Infosys reached a $34 million settlement with the U.S. after an investigation its alleged temporary worker visa fraud could have implications not just for Infosys and its customers, but for the IT offshoring model as well.

The investigation, led by the U.S. Attorney's Office for the Eastern District of Texas, centered on the Indian IT service provider's procurement of B-1 visas designed to allow foreigners to come to the U.S. for short periods of time for such things as meetings, contract negotiations or short-term training. Former Infosys employee Jack "Jay" Palmer had sued Bangalore-based Infosys, accusing the outsourcer of using the B-1 visa — easier to obtain that the H-1B visa — to bring its Indian employees to perform software development, quality assurance and testing for U.S. clients. (The judge ruled for Infosys in that case , but the federal investigation continued.)

Recent Visa Fraud Settlement Should Concern ALL IT service Providers
Industry watchers say the settlement should concern all IT service providers using not only B-1 visas, but also the more commonly employed H-1B and L-1 temporary skilled worker visas. "$35 million is a big number for Infosys and will frighten the life out of their Indian competitors, which are also exploiting the gray areas around the visa rulings," says Phil Fersht, CEO of outsourcing analyst firm HfS Research. "This fine will put a nail in the coffin of any outsourcer still trying to flout the rules."

"The most important implication of this judgment would be an increased scrutiny of visa applications, making it tougher for vendors to get visas and impacting delivery involving large on-site teams," says Hansa Iyengar, a sourcing and vendor management analyst with Forrester research. "Since the visa scrutiny process can't be selectively applied to Indian companies — no one would want to get into discrimination issues — both multi-nationals and Indian vendors will feel the pinch."

The conclusion of the investigation also sheds a light on the increasing dependence on so-called "landed resources" — offshore employees brought on- site — to make today's outsourcing model work, not just for Indian or Indian-centric outsourcers, but multinationals like IBM and Accenture. Experienced outsourcing customers are demanding a greater percentage of onshore support, but have grown accustomed to offshore prices. "The ability to price competitively and retain margins seems to be increasingly obtained via paying non-U.S. resources at low Indian wages," says David Rutchik, partner with outsourcing consultancy Pace Harmon, adding that visa holders are often forced to live cheaply when working stateside, several to a hotel room. "The entire business model may be in jeopardy."

Infosys (for whom the North American market accounts for 60 percent of its revenue) had prices typically 20 percent higher than their tier one competitors offshore. "They are being pushed to lower prices to customers," Rutchik says. "And because they don't want to sacrifice margins, they have turned to more aggressively using the 'landed' model — even when they couldn't get the appropriate visas to do so apparently."


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