Interesting article in the Healthcare News about Blue Cross Blue Shield of Michigan deciding to keep IT jobs local by investing in an Inshore IT delivery center. More and more companies are beginning to look around in their backyard and realizing that the US is after all still a very strong destination for global sourcing, especially for US enterprises with a largely domestic customer base. Kudos to GAry Harvey and the BCBS Michigan team for their progressive viewpoint on the business and social value of Inshore sourcing.

http://www.healthcareitnews.com/news/michigan-insurer-keeps-it-jobs-local

On January 09, 2010 the US Customs and Immigration Service (erstwhile INS) issued a memorandum clarifying the meaning of employer-employee relationship in H-1B visa adjudication. This memo goes out to all field officers (including embassy personnel and customs/immigration officers at entry points into the US).

The memorandum is titled: “Determining Employer-Employee Relationship for Adjudication of H-1B Petitions, Including Third-Party Site Placements:  Additions to Officer’s Field Manual (AFM) Chapter 31.3(g)(15)(AFM Update AD 10-24).” and has an associated set of Q&A .

The first Q&A query that the USCIS handles is whether the memorandum establishes any new rules (“Does this memorandum change any of the requirements to establish eligibility for an H-1B petition?”) and goes on to respond to the rhetorical question with a “No.”

Okay. So what’s the deal? If it doesn’t change any requirements, why put out a new memo?

The Inshore Blog thinks that this memo, sent out to all field officers, clarifying the meaning of employer-employee relationship is a signal to ensure that both letter and spirit of current immigration law is being strictly followed. In order to do that the memo goes very specifically into examples of what would constitute appropriate employer-employee relationship, and what would not, especially as it relates to Third-Party site placement. The memo is worth reading and internalizing.

A couple of passages from the document highlight the key issue the USCIS is trying to get across to their field officers.

While some third-party placement arrangements meet the employer-employee relationship criteria, there are instances where the employer and beneficiary do not maintain such a relationship. Petitioner control over the beneficiary must be established when the beneficiary us placed into another employer’s business, and expected to become part of that business’ regular operations. The requisite control may not exist in certain instances when the petitioner’s business is to provide its employees to fill vacancies in businesses that contract with the petitioner for personnel needs. Such placements are likely to require close review in order to determine if the required relationship exists.

In the above paragraph, the USCIS is clearly stating that if the H-1 petitioner does not have exercise control over the personnel, they will not be meaningfully engaged in an employer-employee relationship. The document further refers to a supreme court ruling for clarification:

we consider the hiring party’s right to control the manner and means by which the product is accomplished [bold in original]. Among the other factors relevant to this inquiry are the skill required; source of the instrumentalities and tools; the location of work; the duration of the relationship between the parties; whether the hiring party has the right to assign additional projects to the hired party, the extent of the hired party’s discretion over when and how long to work; the method of payment; the hired party’s role in hiring and paying assistants; whether the work is part of the regular business of the hiring party; whether the hiring party is in business; the provision of employee benefits; and the tax treatment of the hired party.

Finally, the memorandum takes a specific example of an H-1B “Job Shop” (commonly known as a body-shop):

Third-Party Placement/”Job-Shop”

The petitioner is a computer consulting company. The petitioner has contracts with numerous outside companies in which it supplies these companies with employees to fulfill specific staffing needs. The specific positions are not outlined in the contract between the petitioner and the third-party company but are staffed on an as-needed basis. The beneficiary is a computer analyst. The beneficiary has been assigned to work for the third-party company to fill a core position to maintain the third-party company’s payroll. Once placed at the client company, the beneficiary reports to a manager who works for the the third-party company. The beneficiary does not report to the petitioner for work assignments, and all work assignments are determined by the third-party company. The petitioner does not control how the beneficiary will complete daily tasks, and no proprietary information of the petitioner is used by the beneficiary to complete any work assignments. The beneficiary’s end-product, the payroll, is not in any way related to the petitioner’s line of business, which is computer consulting. The beneficiary’s progress reviews are completed by the client company, not the petitioner.

[Petitioner Has No Right to Control; No Exercise of Control]

The above effort at clarifying the employer-employee relationship is important in establishing field guidance on when to appropriately approve or reject a new H-1B visa or renewal application.

If finally taken seriously, this memorandum forces visa and immigration officers to scrutinize H-1B visas to employer-employee relationships and deny visas to any contractors that are working in a supplemental staffing mode with US enterprises (where they are effectively employed by an US enterprise, except for where their payroll checks come from).

Effective enforcement of this rule has been long overdue.

The question now is — will H-1 staffing companies find another technicality to continue to circumvent the spirit of the immigration law, or will this memo finally force the field officers to focus on enforcement. But more importantly, what is the implication of this memo on US enterprises where these H-1B staffing contractors are a critical part of the team? How are they ensuring service delivery continuity now and for the future?

Tags: Immigration, USCIS

Patrick Thibodeau’s article on Systems In Motion captures the essence of the Inshore operating model very well. Must read article available here.

Couple of points stand out.

SIM is the latest IT firm boasting a domestic business model designed to compete with offshore providers. SIM, though, has a different approach than the oft-used strategy of running operations in rural locations and home offices. SIM is focusing instead on strong employee training and development programs and on creating streamlined processes.

This is one of the primary reasons why Systems In Motion’s onshore services can create cost-efficiency while still retaining a significant ability to scale across different areas of technology and services.

In addition, Patrick is right that the start-up team from Systems In Motion could have potentially been successful in building an offshore service business, but really does the world need another offshore company?

The executive team includes CEO Neeraj Gupta, previously an executive at Patni Computer System Ltd., in Mumbai, India, and Debashish Sinha, the chief marketing officer who had held a similar post at HCL America Inc., the Sunnyvale, Calif.-based division of HCL Technologies in Noida, India. Michael Parks, the chief delivery officer, is former CIO at Virgin Mobile USA, and executive vice president in charge of IT operations at Wells Fargo & Co.

This team could have easily created an outsourcing company based offshore with offices in the U.S. While such a strategy has proven successful for many IT services firms, “I don’t think the world needs another offshore company,” Sinha said.

Instead, the SIM management team is using their offshoring experience to make a case for keeping work onshore.

The Economic Times in India published a terrific article about Systems In Motion and the Inshore Services operating model that provides US enterprises with a cost-competitive alternative to their global sourcing strategy. The main points of the article appear to be the following:

1. Systems In Motion has built a cost-efficient domestic IT services model that competes with offshore services on price, scale, quality, flexibility and business alignment
2. In some US locations like Michigan, the level of unemployment, coupled with the size of the current student population is creating the potential for significant talent development and acquisition by US enterprises and outsourcers
3. Stan Lepeak disagrees that this is going to be anything more than a niche market
4. Senior official from Indian tech firm believes that when the economy rebounds, everyone in the US will go back to those high-paying jobs.

You can read the whole Economic TImes article here.

Without delving into the opinions published in the article (which, ultimately, will only be proved or disproved over time) we’d like just get a couple of facts clarified.

In the article The Economic Times states:

In 2004, at the height of the American presidential campaign dominated among other things by offshoring and a jobless recovery, HCL’s

Vineet Nayar set off a firestorm with a comment that American graduates were not employable.

As trade unions seethed and politicians fumed, two men looked at the reaction the comments had caused and wondered if there was a business opportunity.

Since offshoring was considered a purely Indian phenomenon and sensing a backlash to the process in the years ahead, Debashish Sinha and Neeraj Gupta two IT industry executives in the US began quietly working on an alternative that would appeal to many companies and the political establishment.

It took them five years to come up with a concrete plan and get investor funding. System In Motion (SIM), a Michigan-based start up, launched few months ago plans to challenge the traditional offshore outsourcing market leaders by delivering low cost services from locations such as Ann Arbor.

Actually, Vineet’s comment was made to an NYC audience and reported in BusinessWeek last year (not in 2004), and had very little to do with triggering Systems In Motion. Though some of the ideas for the Inshore operating model did come from a whitepaper written by Conscient Partners on behalf of the IT Association of America (now TechAmerica) in 2006.

Also, the Economic Times article says:

“There are 7-8 Fortune companies including Ford, GM and Chrysler, almost 3,12,000 students are available within 75 miles and the unemployment rate is nearly 30%. If you add the local incentives and Michigan becomes a globally competitive location,” says Gupta, an IIM-Calcutta and BITS Pilani graduate. Gupta, who headed Patni Computers’ global sales and marketing until last year, is the chief executive of SIM.

Yes, there are 312,000 students within a 75-mile radius of Ann Arbor, MI and there are several large enterprises headquartered there, making Ann Arbor, MI a very powerful destination from an IT services sourcing perspective. The above statement would be entirely accurate if the Economic Times had just got Neeraj’s Alma Mater correctly as the University of Alabama (home to Mark Ingram, 2009 Heisman Trophy winner) instead of BITS, Pilani (home to many peacocks and Girdhari’s).

Finally, there’s a minor clarification on Systems In Motion’s view of wage and cost escalations in India. The Economic Times article suggests:

“We were seeing wage inflation in India, and around 20% wage inflation in the US,” says Gupta. For some of the top Indian tech firms, hiring local workers in the US had indeed picked momentum. “What these companies are doing is developing the top end of the pyramid, they will never spend time on developing the bottom, they cannot have their entire pyramid in the US,” says Sinha.

In reality, Systems In Motion believes research from several sources that suggest that wages in India will continue to escalate by double-digits over the next 3-5 years, while wage inflation in the US remains flat. As such, over time, the US workforce is likely to become more competitive against the Indian labor pool, not less.

Otherwise, this is a great article and well worth a read.

Please do visit www.systemsinmotion.com for more information, leave us a comment here, or join our conversation on twitter at www.twitter.com/systemsinmotion.

Tags: Debashish Sinha, Domestic Services, Inshoring, Mike Parks, Neeraj Gupta, Outsourcing, Systems In Motion

’nuff said?

Systems In Motion’s Ann Arbor center profitably and sustainably delivers high quality services to US enterprises by recruiting, training and developing a talented local workforce.

A few days ago, Systems In Motion announced that its Inshore software testing services will use Zephyr’s cloud based comprehensive test management platform offering a flexible and cost-effective testing solution to progressive IT and product development organizations.

With this partnership, Systems In Motion continues its promise of leveraging emerging technologies to accelerate ‘time-to-value’ of its services, and reduce cost of infrastructure/operations for its customers.

Zephyr’s comprehensive test management platform, based around the concept of Testing Desktops & Dashboards, enables enterprises to effectively manage test resources, testing projects, releases, requirements, test cases, scheduling, test execution, defects, documents, automation, collaboration, metrics and reporting.

Called the ’salesforce.com for testing teams’, Zephyr’s Software-as-a-Service (SaaS) platform is a cost-effective, enterprise-class Test Management System, and it comes free with Systems In Motion’s Testing Services.

Systems In Motions CEO, Neeraj Gupta, says “Systems In Motion’s customers look to us not only for greater efficiency in testing service, but to help them transition to on-demand service models that reduce their overall investment in resources and infrastructure. Zephyr’s real-time, web-native test management platform does exactly that”.

Zephyr’s CEO, Samir Shah noted that “The Inshore service delivery model solves a very big challenge for our US customers. By eliminating communication and time-zone barriers between teams, Systems In Motion’s testing services adds significant value to customers who buy the Zephyr Test Management platform”.

Tags: Testing

What is Inshoring, how does it create a more efficient and cost-optimized model for IT services? Can this model solve the issues with management and alignment of IT delivered through globally distributed teams? Check out the short presentation below, and let us know what you think.

Tags: Inshoring, IT Services, Offshoring

Tags: Domestic Outsourcing, Inshoring, IT Services