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Global Economic Environment and Policy –

Group Assignment

Submitted To:

Dr. Vijaya Katti

&

Dr. Debashish Chakraborty

Professor, IIFT

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Topic:

Suppose you are manager of an IT services company.

Explain how the legal and political considerations are

playing an important role on your business venture in the

European and American market.

Recent protectionist

tendencies in EU / US - visa

restrictions, outsourcing ban,

Political-Economic-Social-

Technological (PEST) analysis – cost implications

and business strategies

Submitted By:

GROUP-1 (EPGDIB VSAT-2014-15)

Name Roll No

Sanjay Vaid 47

Puneet Diwan 39

Narendra Kumar 31

KomalGrovar 24

Anuj Abrol 10

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Index

Abstract ………………………………………………………………………………………………………………………………………………….4

Overview – IT/ITeS Industry Landscape ..........................................................................................5

Hypothesis............................................................................................................................... 10

Methodology …………………………………………………………………………………………………………………………………….... 10

Introduction ………………………………………………………………………………………………………………………………………… 11

Analytics (PESTEL) ................................................................................................................... 15

Political Factor.......................................................................................................................... 13

Economical Factor .................................................................................................................... 18

Sociocultural Factor……………………………………………………………………………………………………………………………… 20

Technological Factor ………………………………………………………………………………………………………………………….… 23

Environmental Factor…………………………………………………………………………………………………………………………… 25

Legal Factor …………………………………………………………………………………………………………………………………………. 25

Cost Implication ……………………………………………………………………………………………………………………………………29

Strategy ………………………………………………………………………………………………………………………………………………..32

Reference ……………………………………………………………………………………………………………………………………………..37

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Abstract

The IT & ITes industry has continued to contribute significantly to the growth and development of the Indian economy. The sector’s contribution to the domestic GDP has increased from just 1.2% in FY98 to around 8.0% in FY13. The IT services and BPO segment is estimated to provide direct employment to around 3.0 mn people and indirect employment to nearly 9.5 mn people as on FY13.

Over the years, India has emerged as the key destination for global sourcing of IT & ITeS accounting for around 52% share in the global sourcing market during FY13. While, the growth of the IT & ITeS industry has moderated in the past couple of years due to global economic slowdown, there is still huge growth potential with opportunities imminent in both mature and emerging services and verticals.

However there been recent protectionist tendencies in US/EU market and We going to Analyze how legal and political consideration are playing an important role on business venture of IT companies in the European Union and United States of America Market. We are specifically analyzed on the recent protectionist tendencies in EU/US – visa restrictions,

outsourcing ban, Political-Economical-Technological-Environmental-Legal (PESTEL) Analysis

– Cost implications and Business Strategies.

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Overview – IT/ITeS Industry Landscape

Over the past few decades international offshoring of services has grown considerably.

Outsourcing took off in the late 1990s with technological development, globalisation, changes in

business models and liberalisation of domestic markets. Despite the global slowdown, the global

sourcing market, including information technology (IT) and IT enabled services (ITeS)1, grew

from around $106 billion2 to $118 billion between 2010 and 2011.3 India has developed as a

major outsourcing hub on account of its proficient, technically skilled and cost effective human

capital base (Ghibutiu and Dumitriu, 2008). Outsourcing of services from India took off in the late 1990s with technological development, globalisation, changes in business models and

liberalisation of domestic markets. In 2008, India accounted for 55 per cent of global IT

offshoring and about 35 per cent of BPO (business process outsourcing) services (Palugod and

Palugod, 2011). Among India‟s major export destinations of computer software and services, the

United States (US), with a share of 55 per cent, topped the charts in 2009-10, followed by the

European Union (EU) (mainly the United Kingdom (UK), Netherlands and Hungary) with a

share of 31.33 per cent.

India IT/ITeS sector Revenue Breakup

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Ranking of India vis-a-vis other countries for People Skills and Availability

Ranking of India vis-a-vis other countries for People Skills and Availability Country

2007 2009 2011

United States 2.74 (1) 9.03 (1) 9.60 (1)

India 2.34 (2) 8.26 (2) 9.20 (2)

China 2.25 (3) 7.76 (3) 8.51 (3)

United Kingdom 2.16 (5) 7.08 (4) 7.55 (4)

Germany 2.19 (4) 6.99 (5) 7.23 (5)

France 2.07 (7) 6.77 (6) 7.05 (7)

Spain 1.71 (8) 6.33 (7) 6.85 (9)

Ireland 1.54 (11) 5.21 (10) 5.79 (12)

Poland 1.17 (24) 4.07 (20) 4.25 (23)

Hungary 0.95 (40) 3.36 (29) 4.15 (25)

Czech Republic 1.10 (28) 3.79 (25) 3.79 (29)

Portugal 1.14 (26) 3.35 (26) 3.63 (30)

Romania 0.87 (45) 3.02 (36) 3.42 (32)

Estonia 0.96 (37) 3.10 (32) 3.18 (33)

Latvia 0.91 (41) 2.86 (40) 3.11 (37)

Lithuania 0.83 (48) 2.69 (42) 3.10 (38)

Slovakia 1.04 (30) 3.13 (31) 3.10 (39)

Source: Compiled from AT Kearney Global Services Location Index, various issues

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Top 5 India-Based IT Services Providers’ Worldwide Revenue, 2012 (Millions of

Dollars)

Company Global

Ranking

2011

Global

Ranking

2012

2011

Revenue

2012

Revenue

2012-2011

Growth

(%)

2011

Market

Share (%)

2012

Market

Share

(%)

TCS 16 16 9,451 10,888 15.2 1.1 1.2

Cognizant 28 23 5,875 7,053 20.1 0.7 0.8

Infosys 27 26 6,279 6,691 6.6 0.7 0.7

Wipro 31 31 5,334 5,737 7.6 0.6 0.6

HCL

Technologies

47 41 3,316 3,916 18.1 0.4 0.4

Total 30,255 34,285 13.3 3.5 3.7

Source: Gartner (May 2013)

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Hypothesis

This Presentation is not based on Empirical research, so we propose a hypothesis, in the sense of

the Oxford English Definition of ‘a Supposition or proposed explanation made on the basis of

limited evidence as starting point for Future Investigation.

By “offshore” outsourcing “we simply adopt the Gartner definition of offshore outsourcing as

Outsourcing coming from “halfway around the world”, as opposed to “onshore” (no definition

Needed) or “nearshore” outsourcing (“in a neighbouring country”). See generally: Gartner, Inc.,

Gartner on Outsourcing, 2005, n 28, para 2.1, p 5. To those adjectives one might add a host of

newer ones, including “rightshore”, “northshore” or (in the context of cloud computing)

“noshore”

It is common, especially in the context of outsourcing or sourcing, to refer to the outsourcing or

Sourcing of IT processes, IT-enabled services (ITeS) or business processes (the last from

customer contact, through middle office research and analytics to back office data processing). I

focus on those processes and services in this presentation, though I shall refer to developments

in manufacturing sectors as well.

Offshore outsourcing may include the outsourcing by an organisation to its own offshore Captive

or hybrid operations as well as outsourcing by that organisation to a third party.

Methodology

We would be conducting PESTEL Analysis to determine the cause and impact. By “PESTEL” we

mean a macro-environmental approach to the political, economic, social, technological,

environmental and legal factors affecting offshore outsourcing. For the sake of simplicity, I refer

to “PESTEL”, though I consider local, national and global factors in our hypothesis. Strictly

speaking, I have adopted the “LoNGPESTEL” framework.

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Introduction

- Protectionism

Protectionism is the economic policy of restraining trade between states (countries) through

methods such as tariffs on imported goods, restrictive quotas, and a variety of other government

regulations designed to allow (according to proponents) fair competition between imports and

goods and services produced domestically.

This policy contrasts with free trade, where government barriers to trade are kept to a

minimum. In recent years, protectionism has become closely aligned with anti-globalization and

anti-immigration. The term is mostly used in the context of economics, where protectionism

refers to policies or doctrines which protect businesses and workers within a country by

restricting or regulating trade with foreign nations.

A variety of policies have been used to achieve protectionist goals. These include:

1. Tariffs: Typically, tariffs (or taxes) are imposed on imported goods. Tariff rates usually vary according to the type of goods imported. Import tariffs will increase the cost to importers, and increase the price of imported goods in the local markets, thus lowering the quantity of goods imported, to favour local producers. Tariffs may also be imposed on exports, and in an economy with floating exchange rates, export tariffs have similar effects as import tariffs. However, since export tariffs are often perceived as 'hurting' local industries, while import tariffs are perceived as 'helping' local industries, export tariffs are seldom implemented.

2. Import quotas: To reduce the quantity and therefore increase the market price of imported goods. The economic effects of an import quota is similar to that of a tariff, except that the tax revenue gain from a tariff will instead be distributed to those who receive import licenses. Economists often suggest that import licenses be auctioned to the highest bidder, or that import quotas be replaced by an equivalent tariff.

3. Administrative barriers: Countries are sometimes accused of using their various administrative rules (e.g. regarding food safety , environmental standards, electrical safety, etc.) as a way to introduce barriers to imports.

4. Anti-dumping legislation: Supporters of anti-dumping laws argue that they prevent "dumping" of cheaper foreign goods that would cause local firms to close down. However, in practice, anti-dumping laws are usually used to impose trade tariffs on foreign exporters.

5. Direct subsidies: Government subsidies (in the form of lump-sum payments or cheap loans) are sometimes given to local firms that cannot compete well against imports. These subsidies are purported to "protect" local jobs, and to help local firms adjust to the world markets.

6. Export subsidies: Export subsidies are often used by governments to increase exports. Export subsidies have the opposite effect of export tariffs because exporters get payment, which is a percentage or proportion of the value of exported. Export subsidies increase the amount of trade, and in a country with floating exchange rates, have effects similar to import subsidies.

7. Exchange rate manipulation: A government may intervene in the foreign exchange market to lower the value of its currency by selling its currency in the foreign exchange market. Doing so will raise the cost of imports and lower the cost of exports, leading to

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an improvement in its trade balance. However, such a policy is only effective in the short run, as it will most likely lead to inflation in the country, which will in turn raise the cost of exports, and reduce the relative price of imports.

8. International patent systems: There is an argument for viewing national patent systems as a cloak for protectionist trade policies at a national level. Two strands of this argument exist: one when patents held by one country form part of a system of exploitable relative advantage in trade negotiations against another, and a second where adhering to a worldwide system of patents confers "good citizenship" status despite 'de facto protectionism'. Peter Drahos explains that "States realized that patent systems could be used to cloak protectionist strategies. There were also reputational advantages for states to be seen to be sticking to intellectual property systems. One could attend the various revisions of the Paris and Berne conventions, participate in the cosmopolitan moral dialogue about the need to protect the fruits of authorial labor and inventive genius...knowing all the while that one's domestic intellectual property system was a handy protectionist weapon."

9. Employment-based immigration restrictions, such as labor certification requirements or numerical caps on work visas.

10. Political campaigns advocating domestic consumption (e.g. the "Buy American" campaign in the United States, which could be seen as an extra-legal promotion of protectionism.)

11. Preferential governmental spending, such as the Buy American Act, federal legislation which called upon the United States government to prefer U.S.-made products in its purchases.

In the modern trade arena many other initiatives besides tariffs have been called protectionist. For example, some commentators, such as Jagdish Bhagwati, see developed countries efforts in imposing their own labor or environmental standards as protectionism. Also, the imposition of restrictive certification procedures on imports are seen in this light.

Further, others point out that free trade agreements often have protectionist provisions such as intellectual property, copyright, and patent restrictions that benefit large corporations. These provisions restrict trade in music, movies, pharmaceuticals, software, and other manufactured items to high cost producers with quotas from low cost producers set to zero

- Scenario on the Visa and Out Sourcing in US and EU

On the day the US Senate passed its comprehensive immigration-reform bill1 this June,

undocumented immigrants watching the vote from the Senate gallery burst into applause and

chanted “Yes we can!” They had good reason to cheer, given the bill’s promise of a path to

citizenship for millions of immigrants now living in the country illegally. But that promise is just

one of several reforms the bill proposes, and affected groups are finding less to applaud in some

of the others. In particular, much of the IT outsourcing industry faces significant disruptions if

the bill’s temporary-work-visa provisions become law. Outsourcing companies based in India —

Wipro, Infosys, and TCS, to name a few of the largest such companies — constitute a major

segment of the industry, and they rely heavily on Indian employees to fill both the managerial

and technical ranks of their US labor forces. The bill would place a number of restrictions on the

H-1B and L-1 skilled-worker visas that allow those employees to enter and remain in the

country.

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EU on the other hand has need for skilled Man power due to aging population, however the

since it’s an Economic Unions there is prefencial factor movement of labour is within the EU

member nation countries The member nation countries with in EU have different laws, work

visa requirement and taxation which are specific to the country or the block of countries for

Skilled man power movement from outside the Union – India.

There two types of trade barrier with EU direct and Indirect.

Direct: Is related to Visa and different requirement for factor movement for example:

Since April 2012 the UK government discontinued the Tier I Post Study Work Visa and

there are restrictions on Tier II visa in the form of a cap on the number of visas issued to

Indian nationals and an increase in the salary limit of professionals eligible to get a visa

for five years. These impose restrictions on movement of professionals. Given that UK is

the largest market for Indian IT/ITeS service providers it impact IT/ITES Business.

Indirect: There are some indirect barriers which adversely impact the cross-country

movement of people between India and EU. A key barrier is data protection. This issue is

being extensively discussed under the on-going BTIA negotiations. The main concerns

for Indian companies and some EU companies is that India is not accorded the status of

a data secure nation by the EU.

- India Mode 4 Trade: Existing Literature on Type of Movement

Electronics and Computer Software Promotion Council existing literature shows that movement

of professionals between India and US/EU is broadly at two levels - company and individual

level. Differences between them are given in Table 1 .

Table 1: Differences across Company and Individual level Movement of Professionals Company level Movement

Individual level Movement

Categorisation under WTO - Business Visitors, Intra Corporate Transferees and Contractual Service Suppliers

Categorisation under WTO - Independent Professionals

Time Duration – Short Term Time Duration – Long Term

Purpose – Company Projects Purpose – Immigration/Short term work Parties responsible for paper and legal work and compensation – Company

Parties responsible for paper and legal work and compensation – Migrating Individual

Nature of Visa – non-immigrant visa/short term work permit

Nature of Visa – mostly Immigrant Visa

Factors affecting – qualification of the employee and company and client demand

Factors affecting – qualification, experience, language skills, work experience, education and age.

Job guarantee – 100 per cent Job guarantee – individual may or may not have a job at the time of migration.

Under the GATS Mode 4 negotiations there are four broad categories of temporary movement of

professionals. These include:

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a) Business visitor is a person who visits another country for a short duration specifically for

business negotiations and/or for preparatory work towards establishing a business;

b) Intra corporate transferee is an employee of a company who is transferred from an office

in the country of origin to an office of the same company in another c ountry;

c) Contractual service supplier (CSS) is an employee of a foreign company who enters

another country temporarily in order to perform a service pursuant to a contract;

d) Independent professional (IP) is a self-employed person based in the territory of

another country who supplies a service on the basis of a services contract with a consumer in the

host country.

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Analysis

We have carried out PESTEL Analysis Political; Economic, Social, Technological, Environmental

and Legal in this report identify the causes and impact of these trade barriers, cost implication

of same and suggested strategies to overcome the same.

PESTEL Analysis

POLITICAL FACTORS

- External – US & EU

US Presidential election rhetoric

President Obama, State of the Union, January 2012: “We have a huge opportunity, at this

Moment, to bring manufacturing back….We should start with our tax code. Right now,

companies get tax breaks for moving jobs and profits overseas. Meanwhile, companies that

choose to stay in America get hit with one of the highest tax rates in the world. It makes no

sense, and everyone knows it. So let’s change it.”

Local US federal and state legislative initiatives Ohio State : in September 2010 the US state of Ohio banned outsourcing of government IT and back-office projects to offshore locations such as India, raising fears of similar moves by other American states struggling to cope with high unemployment rates: http://www.computerworld.com/s/article/9183570/Ohio_bans_offshoring_as_it_gives_tax_relief_to_outsourcing_firm

The Bring Jobs Home Act: promoted by a group of Democratic senators, to enable a tax credit for up to 20% of “eligible insourcing expenses” in eliminating business units located outside the

USA and relocating to the USA. Proceedings ended in the US Senate on 19th July 2012, but a

similar measure has been referred to committee proceedings in the House of Representatives.

Offshoring Prevention Act: introduced January 2011 by Senator Whitehouse, but made no

progress and unlikely to get anywhere. Its purpose was to "amend the Internal Revenue Code of

1986 to provide for the taxation of income of controlled foreign corporations attributable for

imported property." As of 15th October 2012, referred to committee.

The Outsourcing Accountability Act of 2012: introduced on February 1, 2012 and proposes to

amend §13 of the Securities Exchange Act of 1934. It will require that each issuer file annual

reports with the Securities and Exchange Commission disclosing to the Commission and

shareholders the total number of employees in the United States, the total number in each state,

and the total number physically working in any country other than the United States. As of 15th

October 2012, referred to committee.

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The Rebuild America Act: introduced April 2012 by Senator Harkin. The bill requires ending

tax breaks that reward the offshoring of jobs. As of 15th October 2012, referred to committee.

United States Call Center Worker and Consumer Protection Act : proposed in December

2011.

Among the more draconian provisions is the cataloguing of all firms that are moving agent

positions overseas in order to disqualify them from federal loans and loan guarantees for five

years. This is in addition to requiring any firm that plans to move contact centre operations

overseas to give 120 days' notice to the US Labor Secretary (with failure to do so meaning a

penalty of $10,000 per day for late notification). In addition, agents overseas would be forced to inform callers of their location and offer the option of a US-based agent. It is considered unlikely

to pass. As of 15th October 2012, referred to committee.

One of the cumulative effects of this political pressure is that a number of the top Indian

offshore Outsourcers are stepping up hiring in the USA. “The recruitment drive comes as Indian

outsourcing Companies, which have long been accused by critics as stealing jobs from the West,

are now Encountering intensified scrutiny ahead of the U.S. presidential election.” see Indian

Outsourcing Firms Hire in U.S, The Wall Street Journal Online, 7th August 2012, Dhanya Ann

Thoppil. See also India to launch IT staff drive in US, Financial Times, 22nd September 2010,

Companies –International, p 21, Stefan Wagstyl and James Lamont.

Local EU works council, trade union, professional body and employee pressure

EU labour, trade unions and works council pressure to keep jobs local and anti-outsourcing, e.g.

Edinburgh City Council outsourcing to Mitie: http://www.ft.com/cms/s/0/e8677a74 -4386-

11e1-9f28-00144feab49a.html#axzz1nAYIleLI

The Australian Finance Sector Union has called for an end to the offshoring and outsourcing of

finance Sector jobs there, following the Commonwealth Bank of Australia’s announcement that

it would not offshore jobs because to do so would lead to poorer customer services and increased

operational risk: Australian Financial Review, 23rd April 2012, Financial Services, Outsourcing

overseas seen as risk, George Liondis, p 23.

It was reported in June 2011 that Birmingham City workers were to strike over pay and

conditions, while their trade union, Unite, attacked proposals to offshore up to 100 IT posts to

Pune through the irmingham City Council and Capita joint venture, Service Birmingham: see Birmingham strike threat over pay, Financial Times, 3rd June 2011, National News, p 4, Brian

Groom.

The International Forum of Independent Audit Regulators (IFIAR) has challenged the Big Four

Audit firms on their offshore and nearshore outsourcing to captives of audit work. The situation

in question was brought about by PwC stating that, by 2014, it would offshore about 20% of each

core audit process to its Kolkata service delivery centre. This would amount to an increase of

about 18% in each audit process from financial year 2009. The Kolkata facility is used for

verifying audit statements sent by PwC firms in the UK, the USA, Australia, Canada and India.

The IFIAR’s concern was expressed to be that, on the face of it, 20% of an audit being

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undertaken without direct client contact seemed too high. See: T he Financial Times, 26th July

2011, Companies, International, p 16.

Visas: Mobility of staff from offshore to onshore locations

USA: B-1/H-1B visa and immigration processes are still a concern for the Indian offshore

outsourcers - not helped by the recent Texas federal grand jury proceedings concerning, and US

Federal government investigations into, the alleged abuse by Infosys of B-1/H-1B visas.

B1 visas entitle holders to enter the USA for training, educational, professional and/or commercial purposes, excluding engaging in employment in the USA. The H-1B visa, which is

harder and more expensive to obtain, entitles holders to render services to US companies in the

USA. It is alleged that Infosys has committed visa fraud by deliberately and systematically

bringing into the USA offshore workers to provide services to US companies under B-1 visas.

One of the consequences of the US visa challenges to Indian offshore IT outsourcers is that India

is complaining to the World Trade Organisation about the rising cost of H1-B visas, which

entitle The Challenges to Offshore Outsourcing Mark Lewis www.blplaw.com Page 05 © Berwin

Leighton Paisner LLP, 2012 offshore workers to enter the USA to provide services to US

companies, as well as L-1 visas.

“India’s IT outsourcing industry, which expects to generate $78bn in export revenues this year,

complains that the cost of a US visa for a skilled worker has doubled to $4,500, adding about

$200m in visa costs to Indian companies.”: see India to take US work visa grievance to WTO,

Financial Times, 11th April 2012, World News, p 6, James Fontanella-Khan and James Politi.

Additional regulatory and compliance challenges to offshore operations

In August 2012 Benjamin Lawsky, the Superintendent of the New York Department of Financial

Services, accused Standard Chartered of using its offshore captive BPO centre in Chennai to

establish a sham compliance system to process $250 billion worth of trading and financial

transactions with Iran, which may (or may not) have been illegal at the time. Standard

Chartered, which employs some 8,500 staff in its Chennai captive (it has other offshore captives

in China and Malaysia) has vehemently denied these allegations.

Lawsky claimed that Standard Chartered’s Indian staff was not trained to determine whether the

thousands of transactions concerning Iran were legal or illegal under then US law. See:

Outsourcing by big banks in spotlight after Iran row, The Times, 10th August 2012, Business, p

37, Robin Pagnamenta. See also: http://www.businessinsider.com/who-is-benjamin-lawsky-

2012- 8#ixzz29MK8Odo9

- Internal – India

- Counter-trade Agreement to benefit Indian IT companies on Intellectual Property

Rights, Data Security, Technology Patents and Factor Mobility of man power.

- Increase in Globalization, Liberalization and Privatization.

- Liberalizing the rules and trade barriers levied on Foreign Software Companies in India

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Conclusion:

The is a political risk in American market and not as much in European market which has led

new Immigration Bill being passed in US which restricts Outsourcing and VISA, the Indian

Government needs to work for on formulating Trade agreement with US and take up this issue.

Indian IT companies should realign and work in the current frame work.

European Market political environment does not seems to be as restrictive and Indian

Government is already in discussion with EU for bilateral trade agreement, EU further has

demand for Skill Manpower due to their aging population.

ECONOMIC FACTORS

External –EU and US

Global economic pressures on customers and providers

See Outsourcing in India threatened, not threatening, Financial Times, 1st August 2012, Inside

Business, p 18, James Crabtree. This article highlights the following points. (See Indian

outsourcing, Financial Times, 25th January 2012, Lex Column, p 14.)

• At a time when Indian offshore outsourcers are facing significant levels of political pressure

from the USA, they face even more challenging structural, longer term, issues.

• Reviewing the latest quarterly figures for four of India’s biggest offshore outsourcers (Tata

Consultancy Services, Infosys, Wipro and HCL Technologies), the article notes that all four are

suffering as their US and European corporate customers, which make up the vast majority of

their customers, face continuing economic pressures. The result is that growth in the Indian

offshore ITO and BPO industries is likely to run at 11 -14% for 2012, which is about 50% of the

growth rate of those industries five/six years ago.

• There is significant shrinkage in US corporates of the number of “outsourceable” back and

middle office jobs. In other words, unless the offshore outsourcing industry can offer much

higher value add services and greater efficiencies, pretty much all the onshore services jobs in

the USA that could have been offshored, have been.

• There may be a trend – in my view, it is too soon to say – of corporates in the USA and Europe

preferring to “insource” rather than outsource and even if they outsource, to do so onshore .

• The other challenge for Indian outsourcers is that, despite CEO rhetoric, none of them has so

far solved the problem of non-linear growth (NLG), i.e. breaking the link between full time

equivalent (FTE) positions (i.e. “hours for rent” or “body shopping”) and valuable outputs.

• However, the “size of the prize” of the offshore outsourcing market remains vast – it has the

potential to remain - in the description by Princeton economist Alan Blinder - as “the next

industrial revolution”. But unless the Indian and/or any other offshore outsourcing providers

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are able to address the economic, social and technological challenges, they will fail to win the

ultimate prize.

Current and future US taxation policy

During the Election Campaign there were two opposing approaches of the US presidential

contenders to the taxation of income earned offshore by US and other corporates within the US

tax net - at least in technique, if not in projected outcome: see Presidential rivals clash over

corporate tax reforms, Financial Times, 18th July 2012, World News, p 3, Alan Beattie.

See also: US offshoring; Compromise is needed to reform corporation tax, Financial Times, 2nd

August 2012, Leader, p 12.

LIMITS ON THE PERCENTAGE OF A COMPANY’S EMPLOYEES THAT ARE VISA

HOLDERS

As of 2015, the proposed US immigration bill would cap the combined number of H-1B and L-1

employees at 75 percent of a company’s US workforce. In 2016, the cap would decrease to 65

percent, and from 2017 on, the maximum would be 50 percent. For companies with high

percentages of nonimmigrant-visa-holding employees, which again means most of the top

Indian outsourcers, the immediate difficulty will, again, be to find enough US replacements to

keep their stateside staff numbers and service quality at existing levels.

HIGHER WAGES FOR H‐1B WORKERS

Under a new three-level wage system for H-1B employees, H-1B-dependent companies would be

required to pay H-1B visa holders at the second level, or 100 percent of average prevailing

wages in the worker’s job category as determined by the Department of Labor. This rule would

effectively raise the cost of H-1B

labor for Indian outsourcers by an estimated 5 percent to 15 percent. Companies might absorb

the extra costs or, again, pass them on to customers, but either way, those costs will further

erode the advantages of relying on a nonimmigrant-visa-holding workforce.

HIGHER FEES FOR VISA APPLICATIONS

For companies employing H1-B and L-1 workers at a combined rate of 30 to 50 percent of their

US workforce, the bill would create a filing fee of $5,000 for every new H-1B or L-1 visa

application. If the rate is more than 50 percent (in the years before exceeding 50 percent is prohibited outright), the fee will be $10,000 per application. Given that visa applications by the

top India-based outsourcers ranged from 2,000 to over 9,200 per employer, these fees could

become an onerous expense. Companies may seek to pass that expense to their customers, but

that might only trade a financial cost for a relational one, pushing US buyers away toward non-

Indian competitors or otherwise fraying business ties.

Change in EU VAT place of supply rules

From 1st January 2010, VAT is imposed in relation to the place of consumption of supplies (i.e.

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Where the customer receives the supplies), not the place from which the supplies were made (i.e. from the offshore base of the outsourcing provider): http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=tru

e&_pageLabel=pageLibrary_ShowContent&id=HMCE_PROD1_029955&propertyType=docum

ent#P3_51

Internal India

Internal Factors - India

- The fourth Largest economy in the world (Measured in terms of purchase power parity)

- Has the second largest group of software developers after the US. - The IT/ITeS industry as a whole represents 8.0% of GDP

Conclusion:

There is restriction on Visa and IT outsourcing in US market however India at present does not

have a trade frame work and would need to work on same to discuss its concern under the

bilateral Agreement. In the meantime Indian IT companies to be Agile and realign to the new

frame work.

EU on the other hand has demand for Indian IT engineers due to aging population and their

concern are more on Intellectual Property Right which are also US concern though.

There is definite possibility for Indian IT companies to work in European and American Markets

which has great potential and vice-e-versa for American and European IT Companies to work in

Indian Market which again has great potential.

SOCIOCULTURAL FACTORS

- External at EU and US

A new concept has emerged of Corporate Citizen and employees carry a sense of belonging to

their companies so when these employees see their job being replaced by low wage contract

employee or if their wages is reduced in view of the alternative low cost employee it is not seen

as a good thing, more so because of economic reasons as well since the cost of living, tax

structure, employees contribution towards National Insurance etc are high in developing

countries the reduction in wage /salary effect the quality standard of living.

This also has led to negative perceived image of corporates that out source.

Anti-offshore sentiment, translating into political and economic and legal challenges There are

broad public opinion and occasional business executive surveys, but scant detailed and focused

research: however, see Shaji Khan, Mary Lacity, (2012) Survey results: are client organizations

responding to anti-offshoring pressures?, Strategic Outsourcing: An International Journal, Vol.

5 ISS: 2, pp.166 – 179,

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http://www.emeraldinsight.com/journals.htm?articleid=17038692.

The rise of economic insecurity is clearly critical in perceptions of offshoring: Actual and

perceived effects of offshoring on economic insecurity: The role of labour market regimes,

Milberg & Winkler, 2011, published by the WTO.

September 2010 Wall Street Journal/NBC News Poll: 86% of those surveyed said outsourcing of

jobs by US companies to low-wage foreign countries contributed to economic sluggishness

http://online.wsj.com/article/SB20001424052748703882404575520091126205702.html

Companies need to responsible in handling outsourcing and focus & communication to the

customer needs to by our sourcing they are extending the capabilities to address global demand

and hence by creating more and better paying Jobs and higher shareholder value.

Internal – India.-

Supply Side Factors: training and employability

Human developing in India

India remains the top offshore outsourcing destination: see Offshoring Opportunities Amid

Economic Turbulence – The A.T.Kearney Global Services Location Index™ 2011,

Because so many of India’s vast population work in the agricultural and informal sectors,

because of corruption at every level of life in India, and because of the lack of basic education

and healthcare, 850-900 million of India’s population live in abject poverty. In the United

Nations Development Programme’s Human Development Report 2010, India was ranked 119

out of 169 countries in social development: India: in-depth PESTLE insights, Datamonitor,

October 2011, p 2.

The disparity between the fabulously wealthy and those with nothing appears to be growing, as

is the regional disparity between developed states (e.g. Maharashtra, of which Mumbai is

capital) and lesser developed states (e.g. Uttar Pradesh, Bihar and Orissa).

Primary, secondary and tertiary educational systems

India has over 3 million scientific and technical graduates, and produces more than 60,000 IT

professionals and 440,000 engineers graduates annually: India: in-depth PESTLE insights,

Datamonitor, October 2011, p2.

India is producing more educated workers than ever before, with engineering colleges now

providing seats for 1.5 million students (up 4 00% on such seats in 2000). Yet, according to

results from assessment tests administered by India’s top IT, ITeS and BPO industry

association, The National Association of Software and Services Companies (NASSCOM), 75% of

technical graduates and more than 85% of general graduates are unemployable by India's high-

growth global industries, including the IT and ITeS sectors:

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http://online.wsj.com/news/articles/SB10001424052748703515504576142092863219826?mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052748703515504576142092863219826.html The “Unemployablity” of so many of India’s graduates is a direct challenge to its continued pre-

eminence as an ITO and BPO offshoring destination.

First, India has a huge population base of 1.21 billion. It accounts for 17.5 per cent of the world‟s

population, which is expected to increase to 17.9 per cent by 2030. Second, a large percentage of

India‟s population is literate. In 2011 India‟s literacy rate was at 74.04 per cent up from 64 per

cent in 2001. India has a large pool of skilled IT personnel (see Figure 2). This makes it

relatively easy for companies of all sizes to recruit professionals in the IT/ITeS sector. Majority

of the Indian population is in the age group of 15-64 and 54 per cent of Indians are under 25

years of age.29 On the contrary across EU‟s strong economies – the UK, Netherlands, Germany

and Italy, growth in this age group (particularly 15-59) is stagnating. For instance, it is estimated

that in the UK, population in this age group will increase from 40 million in 2008 to only 41

million in 2020 while it is estimated to decline from 55 million to 53 million in Germany during

the same period.30 This implies that the growing young population of India can meet the future

job demands in the EU if proper education and training is provided in India. India has over

3,300 engineering colleges which helped to create abundant skilled IT professionals and meet

the growing needs of this sector. According to All India Council for Technical Education's

(AICTE), India produced 4.6 lakh engineers in 2004 -05, out of which 31 per cent were computer

engineers. According to NASSCOM, the number of IT graduates and post graduates in India

increased by 57.8 per cent between 2008 and 2011 .

No of Graduates and Post Graduates

Conclusion:

While Indian IT companies have been successful globally they need to be consciously working

on their Image in the countries they operate and train their resources on the message they pitch

in their out sourcing presentation which should be value creation and not merely cost reduction

and be sensitive in their communication once the project has started and specially incase if there

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is a downsizing due to outsourcing , employees onsite at various countries should also be trained

on countries cultures and should respect the same.

TECHNOLOGICAL FACTORS

External – EU and US

US and EU companies would like India do the following:

- Pass the amendments to the existing IT Act, 2000, which were recommended by NASSCOM and the Indian Ministry of Technology, or (to act more expeditiously) issuance of an Executive Order.

- Obtain E.U. approval of Safe Harbor Principles that meet the "adequacy" requirement of the E.U. Data Privacy Directive.

- Trustworthy sourcing center' in the area of data privacy and information security. - Data Encryption and Decryption

- Examine the laws and regulations of the countries or regions with which they do outsourcing business, and development of international initiatives for data privacy laws based on a Western model to maintain the level of confidence now enjoyed by Indian

companies. - Reference the OECD Privacy Guidelines and the Council of Europe Convention as

models for a data privacy law.

Internal –India

India at macro level has strategically build Cluster for Technological Excellence with complete

support system in Cities like: An analysis of the headquarters of the top 600 software companies demonstrates the following statistics: Mumbai 131 Bangalore 122

Delhi 43 Gurgaon & Noida 68 Hyderabad 64

Chennai 55 Calcutta 25 Pune 23

Tirvandururm 14 Ahmedabad 10 Bhubaneshwar 10

Others 35

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These Centers of excellence have state of the Art Infrastructure, High Speed

Internet Access, Virtual Private Network; International Private leased Circuit

through Fiber Optics lease lines, undersea fiber optic cables. (Supported STPI)

Online Project tracking and Time sheet for project and resource tracking.

State of the Art and latest testing equipment’s are available with redundancy.

Know-how and extensive experience of various Software Development Life Cycle

– methodology like Agile, waterfall etc

Specialized skilled and trained resources covering the complete Lifecycles.

State of the Art setup for weekly, Bi- Monthly, six monthly, annual of manual

review of projects or milestones via Video Conference, Webex, Net meeting etc.

Companies specializing in a vertical carry of the relevant software and hardware

tools required required for the project.

Also Location based cluster provide specialized services like Trivandrum is where

Indian Space research Organization is based hence the cluster location offer

specialized services in area of Space, Aviation and Automobiles since the location

has abundance of relevant skills, similar Mumbai and Pune provide specialization

office in BFSI apart from Bangalore, Bangalore provides expertise in round

specialization however Bangalore, Chennai and Kolkata provide specialization in

Product design, Telecom due to IIT, IISC, proximity, BEL and aid in research,

Pune and Chennai Specialize in Automotive and Semiconductor due parallel

Automotive cluster based in the geographies, Delhi - NCR in Semiconductor,

Semicon Tools and defense segments, for example., Hyderabad for Board Design.

Conclusion:

The American and European companies acknowledge the fact that India has the

Technological know-how, equipment’s, tools, Security, Infrastructure, Connectivity,

highly Skilled Human Resource, English Language fluency etc enabler to deliver high

quality IT projects however the concern is one data protection, cyber security,

Intellectual Property Laws in India.

Also most Indian IT companies have been pitching or are perceived for Low cost

offering and focus offering has been cost competitiveness and with large Indian IT

companies additional it is Scalability factor. But then we are competing Globally with

Russian Companies IT companies, European IT companies, American IT companies and

Asian IT companies who bring their own core competency and strategic Tie-up with the

large customers for project and we need to also build our own as well.

However with the resource capabilities India has and which can be further build by in-

house R&D, Intellectual Property Development and patenting them , Indian IT

companies can leverage from the same further and develop core competencies to create

value for customer where the Global customer sees perceived value in Indian IT

GEEP Project by Group 1 Page 25

companies as a partners to manage their existing product and projects, to work on end

to end project inline to their technological road map in order to leverage from each

other strength.

ENVIROMENTAL FACTORS

Two issues have driven environmental concerns related to IT outsourcing and both are related

to increasing power consumption by IT. First, the increasing cost of energy is having an

economic impact on IT operations. Second, the production of electrical power often involves the

bi-production of greenhouse gases (GHGs) which have been strongly linked to global warming.

GHGs and global warming belong to a discussion which is beyond the scope of this paper.

However, the role of outsource providers in electrical power consumption is an environmental

responsibility issue within scope. Both of these environmental concerns affect IT Outsourcing.

Conclusion:

Both Companies from Outsourcing Countries and Indian IT companies need to work to energy

saving and reduce carbon foot print by formulating Carbon Management Strategy and Plan.

LEGAL FACTORS

Home country sector regulation

Note that there are no specific EU supranational, regional or local anti-offshoring regulations.

Indirect, “objective” sector regulation, e.g. as in the financial services sector.

UK FSA rules on outsourcing (including offshore outsourcing): see Chapter 8 of the Senior

Management Arrangements, Systems and Controls sourcebook (SYSC 8). They implement the

outsourcing requirements of Directive 2004/39/EC on markets in financial instruments

(MiFID).

These mandatory rules apply to common platform firms (broadly, firms within the scope of MiFID and/or Directive 2006/49/EC .

Any regulated financial services institution contemplating offshore outsourcing is expected to

consider:

• The local business operating environment (including the likelihood and impact of political

disruption or cultural differences),

• The application of UK and EU data protection legislation and the restrictions on the transfer of

personal data across borders, especially outside the EEA, and

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• The extent to which local law and regulation may restrict the UK institution in meeting UK

regulatory obligations, e.g. customer confidentiality, access to information by the FSA and

internal audit.

The USA has similar rules. And note that the largest independent US securities regulator, the

Financial law, TUPE has been held at Employment Appeal Tribunal (EAT) level to be capable of

applying to offshore outsourcing: Holis Metal Industries Ltd v (1) GMB (2) Newell Ltd

UKEAT/0171/07; [2008] IRLR 187.Industry Regulatory Authority (FINRA) has proposed Rule

3190, Use of Third-Party Service Providers, which emphasises initial and continuing third-party

due diligence, on-point contract terms, compliance with existing and specific function-related

regulations and oversight control. Accordingly, procedures will need to be established for

continuous monitoring requirements. Also, it will be necessary to revisit existing contract terms

to ensure that they comply with 3190’s requirements.

Any organisation considering international outsourcing as an option will need to consider the

legal implications of the process and will have to be aware of the judicial system of the

outsourced country if the process fails to work satisfactorily. Inherently, all outsourcing engagements face the challenges regarding loss of control and management. The risks are

infinitely higher when the outsourced work is being undertaken in a different time zone or in a

different jurisdiction – especially if the outsourcing partner has in possession the software and

data of the outsourcing company. Importance of legal issues is further elevated as, at every

phase of an outsourcing agreement, compliance issues and contractual obligations can affect the

success of the enterprise customer and its relationship with its service providers. Some common

pitfalls affecting the relationship can be outlined:

. Choosing a governing law for the contract, and establishing which regulatory laws apply

. Resolving licenses and usage permissions;

. Considering data protection delegations;

. Establishing the effect of any mandatory local laws which may prejudice the relationship or impact later litigations; . Making sure that all IP rights are protected so that they are not violated in the foreign country; and . Covering for the insolvency of the supplier. . Frame work Non Disclosure clauses of the Agreements. . Frame working the Liability Clause. In addition to the legal issues mentioned above, there are also numerous other possibilities.

However, as a matter of commercial practicality, clauses in a contract with an overseas company

are completely worthless unless there is a mechanism for enforcing the contract in a way which

actually works quickly and effectively. In jurisdictions where no reciprocal legal arrangements

exist, or where it is unrealistic to expect genuine cooperation from the foreign legal system, the

only sensible approach would to embed practical measures in the contract itself as discussed

later in this section, which do not necessarily require the intervention of the legal process.

Labour mobility, flexibility

GEEP Project by Group 1 Page 27

Governing law contained in the Acquired Rights Directive 2001/23 (ARD) as implemented

throughout EU - in the UK as the Transfer of Undertakings (Protection of Employment)

Regulations 2006, SI 2006/246 (TUPE).

Under EU law, such rules must be interpreted purposively (“spirit and intent” rather than by the

actual words of the law).

Each country has implemented ARD somewhat differently, e.g. the UK, Denmark and the Czech

Republic have liberal interpretation of when the ARD applies, whereas Belgium and France take

a stricter view. In some EU countries, there are strict requirements for works council and similar

employee representative body consultations and agreement before a workforce can be

rationalised, e.g. before or after the application of the ARD in the context of an offshore

outsourcing.

Under TUPE, consultation with trades unions and/or staff representatives must take place. If

there are to be redundancies before or after any TUPE transfer, correct legal processes must be

adhered to. Failure to do so will likely result in material financial awards against either the

customer or the outsource provider (or both).

The cross-border/offshore outsourcing effect of the ARD throughout the EU is unclear. Under

English

Cross-border controls on the movement of personal data

Data protection and privacy: see the EU data protection directive, 95/46/ EC:

http://ec.europa.eu/justice/policies/privacy/docs/95-46-ce/dir1995-46_part1_en.pdf

In the UK, the Data Protection Act 1998 applies.

See also the UK Information Commissioner’s website at: http://www.ico.gov.uk/ and for an overview on the specifics of cross-border data transfers, i.e. those most relevant to offshore

outsourcing see:

http://www.ico.gov.uk/Global/Search.aspx?collection=ico&keywords=data+transfer

Applies to personal data: covers employees, customers and other living individuals, but

also corporate data in some countries, e.g. Austria, Switzerland.

Cross-border data flows are regulated, both intra-group and between onshore (within

EEA)

organisations and offshore (outside EEA) third party organisations. Transfers of personal data to

offshore destinations are generally permitted by using “binding corporate rules” for

intra-group

cross-border data flows and the EU “Model Clauses” between EEA data controllers (customers) and

offshore data processors (offshore outsource providers).

Note that each EEA country has implemented data protection law somewhat differently.

GEEP Project by Group 1 Page 28

There is a proposal for a new data protection framework for the EU that was introduced on 25th

January 2012.

Data Privacy Laws that Directly Affect Continuing Relationships with Indian Service

Providers

In order for India to protect its competitive position, the country must meet the privacy

expectations of outsourcing companies in countries abroad. At present, India faces a

serious problem with meeting the adequacy standards of the E.U. Directive. Additionally,

U.S. companies are putting pressure on the companies with which they do business to

protect their customers against identity theft.

Internal – India

The Constitution of India does not patently grant the fundamental right to privacy. However, the Courts have read the right to privacy into the other existing fundamental rights, i.e., freedom of speech and expression under Article 19(1) (a) and right to life and personal liberty under Article 21 of the Constitution of India. However, these Fundamental Rights under the Constitution of India are subject to reasonable restrictions given under Article 19(2) of the Constitution that may be imposed by the State. India presently does not have any express legislation governing data protection or privacy. However, the relevant laws in India dealing with data protection are the Information Technology Act, 2000 and the (Indian) Contract Act, 1872. A codified law on the subject of data protection is likely to be introduced in India in the near future.

Conclusion: We need to relook at our Data Privacy laws, possibly NASSCOM need to work with Industry and Government and get law passed via Indian Judiciary and Industry should ensure mandatory training to employees on Data Privacy Law, Code of Conduct and Ethics.

GEEP Project by Group 1 Page 29

Cost Implication of Visa Restriction:

If the US Immigration Bill S744 is cleared Indian Economy could lose USD $ 30 Billion

http://articles.economictimes.indiatimes.com/2014-08-15/news/52846099_1_indian-it-h1b-or-l1-visas-

us-immigration-bill

Cost Implication would be direct and in direct, the brief impact of current Immigration bill

at US senate would be as follows:

1. Increased visa Quota: The H-1B visa quota would be increased from 65,000 to 110,000 and

can be further increased to 180,000 depending on further demand. But this quota increase

would benefit US MNC’s more rather than Indian MNC. We will discuss about the same in the

coming points.

2. Increase in VISA cost The Current bill in US senate if passed would have a definite impact

on Indian IT companies. If you are not a US MNC and your IT work force is greater than 50

members:-

You need to pay $5000 more if you are filing more than 30% and less than 50% H1 -B visa of your total IT work force.

You need to pay $10000 more if you are filing more than 50% H1 -B visa of your total IT work force.

For US MNC’s the visa cost will be around $500 for every H1-B they recruit.

2. Client side restriction

For an Indian MNC with employees in US comprising more than 15% H1 -B of your total US

work force, you cannot place employees directly on client side. Client side means your

employees can not work in clients premises. Most of the Indian IT companies feed on this.

Personally I feel 15% is a very less number. This clearly benefits US MNC as they do not have

any restrictions.

3. H1 B mandated salaries Indian MNC’s have been paying down rated salaries to Indian H1-B professionals in US. Due to

this US MNC’s were not able to compete with them and second a local US developer had to

compete with the down rated salaries. So now if this bill passes there will be strict H1 -B

mandated salaries. So this is good news on an individual level, but for Indian MNC’s its taking

their profit pie out and loosing edge over competitive rates with US MNC’s.

4. Visa restriction in 3 phases

There is increase in visa quota. But this increase in visa quota will not help out individual Indian

MNC’s. It will help Indian IT overall but not individual MNC’s.

There is a 3 phase visa restriction which has been planned and it is as follows:-

From the year 2014 you can only apply for 75% H1-B’s of your total workforce. In 2015 only 65%. In 2016 only 50%.

GEEP Project by Group 1 Page 30

The Impact of the Cost to IT Companies by Trade Restriction on Visa and Out Sourcing via US Immigration Bill S744 would be as follow:

1. In case of United States of America Under the Provision of the Comprehensive

Immigration Reform Bill under this any H-1B dependent employer ( a company with

more than 15 percent of the workforce on H-1Bs), would be prohibited from placing H-1B

workers at client sites or Contracting for the Services of those worker , this would disrupt

companies current arrangement and would mandate them placing only Local employees

at client site

a. This would benefit US based companies and move market share from Indian IT

companies to MNC IT.

b. This would Increase the cost of the project as local engineer cost would be high,

but than this would allow the company to be lean and have low bench strength as

US employees or Engineer are open to temporary contract based on the project.

2. For Companies which are not H-1B dependent, they are allowed to place H-1B resource,

they are allowed to place H-1B resources on customer sites after paying a fine of $ 500

per person. So essentially, US centric companies (Accenture and IBM) less dependent on

Visas and having offshore operations are likely to benefit from this move.

3. There might be prospective revenue loss is the clients hold back given the perceived

disruption in services and risk associated with an Indian IT vendor if the bill is passed.

4. Also, a change in business model implies setting up of delivery centers near clients, near

shoring of delivery, immediate hiring of locals to ma projects etc. This increased offshore

could result in reduction in revenue and profit ability.

5. This would lead to either 1) hire locals in lieu of H-1B visa staff, 2) offshore more; 3) lose

some business to competition and 4) Shift Staff at clients locations to proximity Centers.

6. Currently, H-1B visa salaries are mandated by USCIS, depending on the geographical

area, skill or experience level that a person has, with which companies need to comply by

paying at least the same or higher salaries. The bill proposes to increase mandated

salaries for H-1B visa holders to prevent H1B workers from undercutting wages paid to

American workers. This would further increase the cost.

7. Also, if a company has 30-50% of its people on H-1B or L1 visas, the bill proposes to charge $5,000 extra for additional people above the 30% norm. If, a company has more

than 50% of its people on H-1B or L1 visas, the bill proposes to charge $10,000 extra for

every additional person above the 50% norm. This would lead to companies restraining

from bidding for project less than a year period or adding the cost to customer proposal

and risking being un competitive and would reduce the companies flexibility to scale up

project or meet existing customer requirement at short notice.

8. Indian IT firms will have to employ more U.S. residents, which will increase their

spending on wages and benefits. Leadership at the companies say an increase in

American hires will also reduce their flexibility in managing onsite employee utilization.

9. Indian firms will have to pay more by way of visa fees and pay higher wages to H1B visa

holders. All of this could disrupt the companies’ business model. “Hypothetically,

GEEP Project by Group 1 Page 31

FY2017 [earnings before interest and tax] margins could be 60-120 [basis points] lower

and FY2017 [earning per share] could be 3% to 6% lower,”.

10. According to Som Mittal, president of the National Association of Software and Services

Companies (NASSCOM), while the visa provisions in the immigration bill impact other

countries also, “India will be hit the hardest because it has a 55% market share of the

global IT outsourcing industry.”

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Strategy to overcome the Visa and Out Sourcing Restriction:

The proposed Strategies are for Marco level at Government level as well for Business Level:

Internal: Business Level

1. Move up the Value Chain: The Indian Firm need to move up the value chain and increase

Customer Value be more of a consultant and partner to customer by advising them where the

next round of their investment in technology should be and devising a roadmap and if required

business model with customer and providing complete end to end solution to the customer like

a fixed cost milestone based project or risk reward based model rather than the time-and-

materials contracts of earlier years. Customer should see distinctive value, long term certainty,

alignment with their long term road map, alignment with long term Industrial road map apart

from faster time to market, cost benefit, etc.

2. Near Shore Centers in US and delivery Center near US or in EU, local recruitment

for Temporary requirement on contract basis from US itself so that company is lean and

low bench Strength would keep the companies Operating margin high, focus on getting

complete end to end projects in India.

3. The other option to give the benefit of choosing the option of outsource over offshore –

which is alternative to customer own Center in India by Cost, quality, IPR etc benefits.

4. Most Product Companies still need a Test, Certification, Development, Re-spin, Integration

Center with Technical capabilities and Supply Chain Management Capability in Asia due to Time

zone difference for the Asia Pacific, Middles East and CIS customer or partner which is a Market

where Companies from Asia, CIS and Eastern Europe compete and India definitely has an

advantage over other countries here.

Competitive Assessment of Emerging Nations – 1

GEEP Project by Group 1 Page 33

5. Indigenous Product Development, Semiconductor Development, Defense product

development can bring in Specialization of the products and Factor movement of Manpower

would be required for TOT – Transfer of Technology, Training, Support or Maintenance

for the product bought by different Countries.

6. Further Most companies would have to deal with Political and Legal risk based on the

level of their exposure to these markets and would need to protect their new and existing global investment and operation accordingly.

a. The following factors can characterize a corporation high sensitivity toward

political and Legal Risk:

i. Large Capital asset base in these Geographies.

ii. High Ratio of International to domestic revenues.

iii. High ratio of International revenue originating from these territories.

iv. Dependence on a global supply chain.

v. Heavy concentration of assets and/or operations in a single country or

region.

vi. Strategic reliance on international growth.

vii. Reputation sensitivity

viii. Expansion plan.

ix. Dependency on International Growth

b. Companies would need to realign their organisation structure, Delivery

Mechanism, growth & investment plan in wake of the present developments.

c. Companies would need to train their teams including engineers, project

managers, mid-level and Senior level Manager, Operational, Human Resources,

Finance and Management on the implication of the new political and legal

framework and inculcate compliance for same.

d. A requirement for the adoption of the international standards of best practices if

not already of ISO/IEC 17799(and BS 7799) on data privacy and an assessment

by an accredited third-party certification body against BS 7799.(All

participating businesses should be certified/accredited.)

e. An international arbitration provision for dispute resolution, which covers at a

minimum, the scope of arbitration; arbitration institution; and choice of

law,forum, and language. (If not already in place)

f. An obligation for mandatory training of all employees regarding legal and ethical

conduct.

g. A stipulation requiring insurance to cover liabilities that may arise from potential

law suits. h. Mandatory adoption of multilayered encryption/decryption techniques to deny

employees direct knowledge of customer data. A requisite for the signing of

nondisclosure agreements by employees.

7. Companies also now need to relook at their existing contracts, obligation in view on the

recent immigration & out sourcing policy and consult their project team, CEO, CTO,

finance, Human Resource, Recruitment, Operation, legal, Sales and review their

resource structure based no of employees onsite on H1B or L1 Visa along with their

customer relationship/engagement or Account Directors and Regional Vice President

GEEP Project by Group 1 Page 34

and re-draft the project execution plan, project execution methodology and

milestone/delivery time lines in consideration to the recent law and prepare contingency

plan as well.

a. Companies would need to relook at their overall resource allocation in the Region

based on existing H1B visa and L1 Visa employees on projects and application in

process for the Visa based on contract commitments in the Geography and do the

planning of various project execution while complying to the new immigration

law and priorities resource allocation and planning.

b. Companies would need to relook at the project profitability of existing projects

and relook at the contract if they can go back to the customer and request them to

pay for the increase in the project cost due to change in legal Frame work.

c. Once they have project execution plan along with contingency back up plan

ready the IT company Account Directors should setup a Senior level meeting with

their customers in the region and present them brief on the recent Legal frame

work, its implication, compliance requirement, companies plan to execute the project while it meets the compliance requirement, resource restructure to meet

the compliance, any delay expected in project execution or meeting project

milestone and any financial implication if the customer wants to retain specific

engineers or Project lead or project Manager on the project over and above the

quota to comply the new Visa requirement over which there is an additional fee

and customer desire to fiancé cost of such retention.

8. Also IT companies would need to relook at new sales opportunity and design their

proposal in wake of new Immigration and Outsourcing laws in terms of project execution

plan, methodology proposed and Commercials.

9. IT Companies would also need to send communication to customer or prospects where

they have already send proposal before the law came into effect and they had not taken

the compliance into consideration while drafting and subsequently sending the customer

proposal earlier, by resend redrafted proposal with new project execution plan,

methodology if applicable and commercials inline to comply with latest Immigration and

out sourcing legal frame work, clearly mentioning non validity of previous proposal

shared and explaining the reason.

10. Companies would need to relook at the compliance with local labour laws and

registration in order to hire local staff to meet their project requirement.

11. Support Activities: Companies would also need to realign its support activities like

Human Resources in these Geographies.

External - Macro Level or Government Level Strategies that are required to be taken up

by the Government:

12. Take forward India- United States Trade Policy Forum (TPF) toward Trade

Agreement with US by initially signing frame work, with United States Trade and

Investment Framework Agreement (TIFA) followed by Bilateral Trade Agreement and

subsequently a Free Trade Agreement; the Trade Policy Forum provides opportunity f or

both Governments to discuss and share their concerns and work towards resolving them.

GEEP Project by Group 1 Page 35

In the 2014 Special 301 Report publishes in April, USTR called for renewed and intensive

engagement on intellectual property (IP) issues with the Government of India,

announcing that the United States would “redouble our effort to seek constructive

engagement that will both improve IP protection and enforcement in India and support

India’s effort to achieve a ‘decade of innovation’ and advance its legitimate public goals,

including access to affordable medicines.” USTR also announced that they would initiate

an Out-of-Cycle Review (OCR) of India in the fall of 2014to evaluate progress on this

engagement

http://www.ustr.gov/about-us/press-office/press-releases/2014/October/USTR-Begins-Special-

301-Report-Out-of-Cycle-Review-of-India

13. Safe Harbour Nation status in India EU BTIA (Broad-based Trade and Investment:

Agreement): While India needs to modify the Information Technology Rules, 2011 to

include an „enforcement clause so as to ensure accountability and identify an

independent authority clearly defining the procedures and penalties in case of failure to

compliance, the EU needs to work with India to find out ways in which India can be

accorded a Safe Harbour Nation status. Alternatively if the EU does not declare India as

a safe harbour nation then NASSCOM pointed out that there can be three ways in which

data protections barriers can be reduced. These include (a) clearly define benchmark safe

harbour principles and audit each country trading with the EU; (b) appoint a self-

regulator that identifies data secure companies in India; (c) provide a clear pathway

recommending changes in Indian legislations so that India can become a data secure

nation. This will enhance trade and investment and movement of professionals between

the two economies.

14. Single window clearance: The paper highlights a number of barriers to trade in this

sector. Some of these can be addressed through domestic reforms in India and the EU

and others under the on-going BTIA negotiations and through inter-governmental

collaborations. One area where there is an urgent need for inter-governmental

collaborations is the collection of data on movement of people between India and EU

member states by some key professional categories including IT/ITeS. The two

economies should also have a common definition for different categories of movement of

professionals. It will facilitate movement of professionals between the two economies if

the definition used by India in the Revised Offer submitted to the WTO (August 2005) is

adopted by both India and the EU in the BTIA. The BTIA can have a separate chapter on

movement of people, which focuses on movement of certain skills including those

engaged in the IT/ITeS sector. The EU government needs to harmonise the EU market to

introduce single window clearance for fast tracking investment approvals for

establishing commercial presence (Mode 3) in the EU member states. India and

Governments of EU member states can sign social security agreements. India and

Swedish governments should finalise the signing of the Social Security Agreement. In

addition the Indian and the UK government should enter into a social security

agreement.

15. Government should encourage government and university level collaborations

with foreign universities especially from the EU. This will expose Indian students to

GEEP Project by Group 1 Page 36

global standards and increase their employability. Government should also set

employment standards in collaboration with IT companies. The IT companies can

outline the necessary skills required in the IT/ITeS sector, which should be adopted in

the course and curriculum of education institutes. Higher focus on in-house R&D

facilities in educational institutes and in IT companies will automatically increase the

skill level of the students and professionals.

16. Focus on R&D: There is need for more investment in R&D both at the government level

and at the company level. Joint R&D between Indian and EU companies will facilitate

movement of IT/ITeS professional and also lead to skill up gradation. Under the BTIA

there can be a separate chapter on R&D collaboration with specific reference to R&D

related to the ICT sector. Since IT/ITeS sector is interlinked to other services sector, commitments of India and EU in other services sectors under the BTIA will have an

implication for trade and movement of professionals in IT/ITeS sector. If both India and

EU offer commitments across a wide range of services sectors and liberal commitments

in temporary movement of people across different categories it will facilitate trade in

IT/ITeS sector.

GEEP Project by Group 1 Page 37

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