Is the H-1B visa crisis a blessing in disguise for IT?

Indian information technology (IT) services companies' strategy of servicing US clients from offshore locations to offset the impact of the H-1B visa fee hikefrom $1,000 to $100,000-is boosting their operating margins.

- Jas Bardia

In the July-September quarter, HCLTech, the country's third-largest IT firm, booked the highest quarteron-quarter jump in operating margin of 110 bps (basis points) to 17.4%.

It was followed by Tech Mahindra (100bps to 12.1%), Persistent Systems (80bps, 16.3%), and Infosys (20bps, 21%). L&T Technology Services Ltd (LTTS), too, saw margins rise 10bps to 13.4%. A hundred basis points equal 1%.

These companies cited offshoring and nearshoring as contributing to this rise, and expect it to continue.

Offshoring involves relocating work to countries farther from a client's base, while nearshoring involves shifting employees to neighbouring countries. Both approaches help companies lower operating cost, especially employee salaries.

While offshoring has been integral to operations, IT firms are now relocating employees to even Canada or Mexico.

"Project Ascend helped us obtain 50bps gain from a higher utilization during the quarter," said Shiv Walia, HCLTech's chief financial officer, during the 13 October analyst call, referring to the company's margin expansion programme announced in August that banks on increasing nearshore and offshore locations.