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Vanguard crew and fans wary of Infosys outsourcing as company adds Malvern center

After deal, Vanguard "crew" and customers are wary of outsourcing; Infosys adopts to Trump cuts in Indian tech visas.

Salil Parekh is the chief executive of Infosys. Shares rose 15% on July 15 as the India-based outsourcing and IT services company announced higher sales and profits, and a deal to take over 1,300 employees of Pennsylvania-based Vanguard Group.
Salil Parekh is the chief executive of Infosys. Shares rose 15% on July 15 as the India-based outsourcing and IT services company announced higher sales and profits, and a deal to take over 1,300 employees of Pennsylvania-based Vanguard Group.Read moreInfosys

Shares of Infosys Ltd., an India-based company to which scores of U.S. corporations are outsourcing information-technology work, rose sharply last week after announcing a pact to move 1,300 jobs from Malvern-based Vanguard Group to Infosys by October.

Those Vanguard staff — or “crew,” as Vanguard calls its 18,000 workers — track five million Americans’ retirement money in 401(k) plans and other defined-contribution accounts. That work accounts for about $1.7 trillion of Vanguard’s $6.5 trillion in total customer assets. The Times of India reported the value of the deal to Infosys, with $13 billion (corrected) in annual sales, at $700 million. Chief operating officer PravinRao declared the Vanguard agreement “the largest deal in Infosys history” when he announced it Wednesday at an investor conference call.

It was a big step for Vanguard. The company already hires contractors, but in-house technology was at the heart of founder John Bogle’s vision of Vanguard as a branchless, low-cost investment alternative to Wall Street firms with their Main Street sales offices.

Focused on marketing and cost-cutting, Bogle’s successors let Vanguard tech fall behind. The company has relied for too long on dated mainframe computers and “software that is decades old,” according to a video presentation by the transferred workers’ boss, Martha King, who will also join Infosys.

She said Infosys will move record-keeping “into the cloud” of remote servers, easier to update. Transferred workers are guaranteed Vanguard benefits and no salary cuts if they remain with Infosys during the next year.

If investors cheered, the news concerned some Vanguard crew, as well as customers and investors so fond of the firm that they are known as “fans.” Founded in 1981, Infosys, along with its U.S.-, Europe-, and India-based competitors, saves clients’ money by consolidating IT work. This work starts in U.S. locations, where it reviews and update client technology, then moves to low-cost centers in countries such as India, where most of Infosys’ 240,000 employees work.

Dozens of callers to The Inquirer and online comments on the Tuesday news story expressed concern Vanguard is setting crew adrift and leaving customer service partly dependent on a third party. The Bogleheads message boards for Vanguard fans logged 240 comments, many expressing concern about service and employees, before a moderator shut off new posts the day after the Infosys announcement.

Not all the comments were hostile to the Infosys move. Some praised Vanguard for cutting costs and fees.

To allay fears that Vanguard is shipping work to India, Vanguard spokespeople stressed that Infosys has promised a new Mid-Atlantic Center of Excellence in Malvern. New business from other clients could keep U.S. staff there busy even after the Vanguard work has been assimilated by Infosys.

Infosys has a history of importing its own engineers and tech staff from India to do initial client work, using the U.S. government’s H-1B temporary visa program for technical employees.

Of the 65,000 visas issued under the program each year, Infosys staff renewed or received over 14,000 in 2016 and 2017, according to U.S. immigration data. Some of the workers went home to train lower-paid India-based IT staff; others renewed the visas to remain in the United States. Supporters of the program say that helps build the U.S. software workforce.

(Added July 22) “Since the visas can be used for up to six years, and in some cases indefinitely, the number of H-1B workers that Infosys actually emloys today is likely around 25,000,” estimates Ron Hira, associate professor of political science at Howard University who has studied the program and author of the book Outsourcing America. He adds that the number of first-time H-1B visas approved for Infosys workers has risen in each of the past two years.

Infosys, like its large rivals, typically moves work offshore after its U.S.-based and Indian-national partners have learned how to do it, says the India-born head of a Pennsylvania software company, who agreed to speak on the condition he was not named because he competes with Infosys for corporate and government contracts.

The savings start, he added, when the work moves offshore. He said Infosys and other outsourcers had offered to do engineering work for $20 to $30 an hour, relying on newly credentialed engineers in India, in competition with his own firm and U.S. rivals charging $80 or $90 an hour for seasoned engineers, including Indian immigrants with long experience.

Critics like Kevin Lynn, head of the Washington-based Progressives for Immigration Reform, say the H-1B program has been abused at the expense of U.S. tech workers and wages. Nonunion tech workers are often “taken advantage of” by U.S. and foreign-based outsourcing firms, including Infosys, which has workers teach their lower-paid replacements before ending their jobs, he added.

President Donald Trump campaigned against U.S. tech companies’ reliance on foreign labor, and the number of H-1B visas collected for Infosys workers in the U.S. dropped by half in 2018 and 2019. This year’s total is just 2,300.

Since 2017, Infosys says it has hired more than 13,000 to work at digital centers “focused on agility, collaboration and codesign” in Arizona, Connecticut, Indiana, North Carolina, Rhode Island, and Texas, including recent college grads. The Vanguard crew will form a ready addition to Infosys’ U.S. workforce.

In an investor conference call Wednesday, CEO Salil Parekh said more than half the company’s U.S. workforce is now “local” instead of imported from India. The company also says around one-quarter of its staff are now “on-site” near companies like Vanguard, instead of “offshore” in India.

With unemployment higher since the coronavirus shutdowns, “politics in visas will probably increasingly be an issue, regardless of which party wins” the presidential election in November, warned Keith Bachman, an analyst at BMO Capital Markets, during Wednesday’s investor conference.

Parekh acknowledged coronavirus travel restrictions, as well as visa cuts, make it harder to move Indian workers to the U.S. So, he added, ”we’ve really built a completely new business model, recruiting from colleges, building digital centers” in places like Malvern.

That model keeps evolving, however. Parekh also pointed out that “99%” of Infosys workers are now working mostly from home.

“A good percentage of things can be worked anywhere,” said Rao at the investor conference. “It doesn’t necessarily have to be in front of the client.”

With voluntary quit rates declining as the world economy slows, Rao added, if things don’t go smoothly, Infosys can easily switch staff: “Wherever people are not delivering, we let them go.”