refused because they were making higher wages as temporary workers. This is not to say that U.S. clients do not take advantage of whatever lower costs the firms in the second niche can lawfully provide—but as a rule, lower costs do not appear to be the sole or primary factor in use of this temporary staff.

Business Service Firms

Business service firms (BSFs) provide IT services that clients wish to outsource (e.g., running a computer room, involving mostly hardware and operating systems maintenance, or LAN administration or PC maintenance). They also provide software maintenance and supplemental staffing for projects, although the latter would tend to be defined more by project area than by job. They might also provide consulting services, such as SAP implementation. And they may undertake the development of software products specifically customized for their clients.

A number of these firms have strong foreign ties. One rationale for the existence of firms with such ties is that they can offer their services to U.S. clients at substantially lower cost than would be charged by U.S.-only firms. These firms take advantage of lower wage structures available abroad (e.g., in Asia) to do the bulk of the necessary development work. However, because substantial interaction is required to understand client needs and requirements, it makes a great deal of sense to establish a U.S. presence through which ongoing contact, requirements analysis, testing, and liaison functions can be done in direct, physical contact with the client at the client site, while design, programming, testing, documentation, and other functions can be done abroad. Firms using this model find that a substantial amount of total project effort can be done in this manner.

To use the BSF model for H-1B workers, a U.S. employer is needed. In some cases, the U.S. employer is the parent firm, which subcontracts work to a foreign IT firm or subsidiary in, for example, India. In other cases, it is the Indian firm that is the parent, which then establishes a U.S. subsidiary to serve as the U.S. employer of record. In any event, because of the need to translate requirements into specifications that can be fed into the development process, there is a high premium on selecting for work in the United States individuals who are compatible with those abroad. Under these circumstances, it is understandable that the U.S. employer would try to use individuals from the foreign nation to perform the interface function—and these individuals are often nonimmigrant foreign workers on H-1B visas in the United States.

Payments to these U.S. employers are for practical purposes part of the fee that the U.S. client pays to the consulting or custom development firm. Because their primary goal is to provide IT products and services, these firms have less incentive to underpay workers relative to their talents compared to firms whose role is solely to provide labor. In particular, their incentives seem to be no higher or lower than those of any other IT-sector or IT-intensive firm in the United States to use nonimmigrant foreign labor.

Note that ACWIA includes several new LCA requirements designed to eliminate economic incentives for personnel supply or business service firms, and other firms that rely heavily on H-1B workers, to hire foreign born workers. These requirements are listed in the second half of Box 5.5.

SOURCE: The description of PSFs and BSFs is based largely on Salzman(Salzman, Hal, with Radha Roy Biswas, University of Massachusetts-Lowell,“The Indian IT Industry and Workforce,” commissioned paper prepared for the Committee on Workforce Needsin Information Technology, March 2000).

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