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 OFFSHORING IT
THEGOO~THEBA~ANDTHEUG~

Bill Blunden

APress Media, LLC

Offshoring IT: The Good, the Bad, and the Ugly
Copyright © 2004 by Bill Blunden
Originally published by Apress in 2004
Reviewer: Professor Claus Hofhansel
Editorial Board: Steve Anglin, Dan Appleman, Ewan Buckingham, Gary Cornell,
Tony Davis, Jason Gilmore, Chris Mills, Steve Rycroft, Dominic Shakeshaft,
Jim Sumser, Karen Watterson, Gavin Wray, John Zukowski
Project Manager: Sofia Marchant
Copy Edit Manager: Nicole LeClerc
Copy Editor: Ami Knox
Production Manager: Kari Brooks
Production Editor: Kelly Winquist
Compositor: Dina Quan
Proofreader: Katie Stence
Indexer: Kevin Broccoli
Cover DeSigner: Kurt Krames
Manufacturing Manager: Tom Debolski
Library of Congress Cataloging-in-Publication Data

Blunden, Bill, 1969-

Offshoring IT : the good, the bad, and the ugly / Bill Blunden.
p.cm.
Includes index.
ISBN 978-1-59059-396-7 ISBN 978-1-4302-0740-5 (eBook)
DOI 10.1007-978-4302-0740-5
1. Information technology--Management. 2. Contracting out. I. Title.

HD30.2.B58 2004
004'.068'4--dc22

2004014679

All rights reserved. No part of this work may be reproduced or transmitted in any form or by any
means, electronic or mechanical, including photocopying, recording, or by any information storage
or retrieval system, without the prior written permission of the copyright owner and the publisher.

Trademarked names may appear in this book. Rather than use a trademark symbol with every
occurrence of a trademarked name, we use the names only in an editorial fashion and to the
benefit of the trademark owner, with no intention of infringement of the trademark.

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The information in this book is distributed on an "as is" basis, without warranty. Although every
precaution has been taken in the preparation of this work, neither the author(s) nor Apress shall
have any liability to any person or entity with respect to any loss or damage caused or alleged to be
caused directly or indirectly by the information contained in this work.
This book is dedicated to my primary sources:

The U.S. Federal Reserve System

The Bureau of Labor Statistics
The National Center for Education Statistics
The Bureau of the U.S. Census
The Department of Homeland Security
Contents at a Glance
ABOUTTHE AUTHOR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix
ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xi
PREFACE. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii

CHAPTER I SETTING THE STAGE. . . . . . . . . . . . . . . . . . . . . . . . I

CHAPTER 2 MEASURINGTHETREND . . . . . . . . . . . . . . . . . . . . 21
CHAPTER 3 THE OFFSHORING OBSTACLE COURSE ........... 53
CHAPTER 4 ARGUMENTS IN FAVOR OF OFFSHORING ......... 81
CHAPTER 5 ARGUMENTS AGAINST OFFSHORING . . . . . . . . . . . . 97

INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131

,
Contents
ABOUTTHE AUTHOR, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , ix
ACKNOWLEDGMENTS , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , xi
PREFACE, , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , xiii

CHAPTER I SETIINGTHE STAGE, , , , , , , , , , , , , , , , , , , , , , , , I

Labor and Capital , , , , , , , , , , , , , , , , , , , , , , , , , , 2
Outsourcing , , , , , , , , , , , , , , , , , , , , , , , , , , , , , 3
Noncitizen Students in the U,S, , , , , , , , , , , , , , , , , , , , 9
The Cost of Education in the U.s. " " " " " " " " II
Offshoring and Manufacturing, , , , , , , , , , , , , , , , , , , I 3
The Software Industry Matures , , , , , , , , , , , , , , , , , , I 6
Third-World Development , , , , , , , , , , , , , , , , , , , , 17
The Bottom Line ($$$) , , , , , , , , , , , , , , , , , , , , , , I 8
CHAPTER 2 MEASURINGTHETREND"""""""""" 21
Scarcity of Data, , , , , , , , , , , , , , , , , , , , , , , , , , , 22
What's Going Offshore? , , , , , , , , , , , , , , , , , , , , , , 23
Who's Going Offshore? , , , , , , , , , , , , , , , , , , , , , , 28
Who's Helping Companies Go Offshore , , , , , , , , , , , , 40
Companies Based Offshore , , , , , , , , , , , , , , , , , , , , 40
Looking Ahead: Various Studies, and a Word of Warning ,,' 46
CHAPTER 3 THE OFFSHORING OBSTACLE COURSE , , , , , , , , , , , 53
Deciding What to Outsource , , , , , , , , , , , , , , , , , , , 54
Well-Defined Scope , , , , , , , , , , , , , , , , , , , , , , , , 56
Start with Small Victories , , , , , , , , , , , , , , , , , , , , , 56
Choosing to Go Offshore , , , , , , , , , , , , , , , , , , , , , 58
Choosing a Location , , , , , , , , , , , , , , , , , , , , , , , , 59
• •Iill!iii Contents

Alternative Offshore Destinations . . . . . . . . . . . . . . . . 64

Service Provider vs. Dedicated Facilities . . . . . . . . . . . . . 67
Service Provider Requirements . . . . . . . . . . . . . . . . . . 68
Accountability and Service-Level Agreements. . . . . . .... 69
Using a Multihomed Approach . . . . . . . . . . . . . . . . . . 70
Quality Control . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Lost in Translation . . . . . . . . . . . . . . . . . . . . . . . . . 72
Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . 73
General Security Concerns . . . . . . . . . . . . . . . . . . . . 77
National Security . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Closing Remarks . . . . . . . . . . . . . . . . . . . . . . . . . . 79
CHAPTER 4 ARGUMENTS IN FAVOR OF OFFSHORING . . . . . . . . . 81
How Companies Benefit . . . . . . . . . . . . . . . . . . . . . 82
Job Losses Are No Big Deal . . . . . . . . . . . . . . . . . . . . 88
The Job Ladder . . . . . . . . . . . . . . . . . . . . . . . . . . . 89
The Labor Shortage . . . . . . . . . . . . . . . . . . . . . . . . 92
The Free Market . . . . . . . . . . . . . . . . . . . . . . . . . . 94
CHAPTER 5 ARGUMENTS AGAINST OFFSHORING . . . . . . . . . . . . 97
Manufactured Consent . . . . . . . . . . . . . . . . . . . . . . 99
Cost Savings Aren't Everything . . . . . . . . . . . . . . . . . I 00
The Myth of the Job Ladder . . . . . . . . . . . . . . . . . . . 107
Job Losses Are a Big Deal . . . . . . . . . . . . . . . . . . . . I I 3
The Myth ofthe Labor Shortage . . . . . . . . . . . . . . . . I 14
The Myth of the Free Market . . . . . . . . . . . . . . . . . . 121
The Fundamental Issue . . . . . . . . . . . . . . . . . . . . . . 125
End Game . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 126
What Can I Possibly Do? . . . . . . . . . . . . . . . . . . . . . 128

INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131
About the Author

Reverend Bill Blunden is an alumnus of Cornell

University, where he earned a bachelor of arts degree in
physics. He also holds a master of science degree in
operations research from Case Western Reserve. Reverend
Blunden is an ordained SubGenius minister and is
currently at large in the East Bay.

Ii
Acknowledgments

This book required a certain degree of willpower and devotion. That's a nice
way of saying obsession, my forte. If I am able to do one thing, it is to single-
mindedly set my mind to something, to submerge myself in carefully directed
thought. Yet, I couldn't have finished this book without the help of several
people.
I would like to thank all the people at Apress who encouraged me and put
up with my shenanigans. SpeCifically, I would like to thank the Big Kahuna
himself, Gary Cornell, for giving me the opportunity to write for Apress. I
would also like to thank my editor, Jim Sumser, who has worked tirelessly to
send this book to print. Jim knew that this was my book; that of all the poten-
tial authors, I was the one with the most fervent beliefs and the gnawing desire
to expound on them.
There are many people at Apress who labor anonymously in the back-
ground to get things done, and lowe them a debt of gratitude. This includes
people like Ami Knox, Sofia Marchant, Kelly Winquist, Dina Quan, Katie
Stence, Kevin Broccoli, Kurt Krames, and Tom Debolski.
I would specifically like to extend my thanks to Professor Claus Hofhansel
for agreeing to review the initial manuscript. Roughly fourteen years ago,
Claus was grading a lO-page term paper that I wrote for his class on interna-
tional relations. Karma has brought myoId instructor back once again to serve
as a rational counterbalance of sorts.
Noam Chomsky has had a very strong influence on the development of my
worldview. He is a voice of conscience in a nation whose foreign and domestic
policies don't always reflect the best interests of the general publiC. Chomsky's
gift is to show us that we should take nothing for granted, that we should learn
how to identify and challenge underlying assumptions.
I would also like to thank Rick Chapman, my main man in Connecticut.
Finally, I would like to thank Robert G. Morgan for taking the back cover
photograph, Lance Morgan for reading my long-winded diatribes, and Ronan
Morgan for periodically inviting me up to Glen Ellen.

Praise Bob,
Reverend Bill Blunden
Church of the Sub Genius
Preface

Offshoring is an emotional topic, and one is sorely tempted to rant. I have

strong feelings about the subject, as do hundreds of thousands of other white-
collar professionals in the u.s. This isn't a historical trend that's been archived
in high school textbooks; it's a development that's right here in front of our
faces. Offshoring has the potential to change the very nature of our economy,
for better or for worse.
Therein lies the question: will it make us better off over the long run, or
send us careening into a terminal period of violent class warfare?
If you're a corporate executive, offshoring looks like a nifty way to decrease
cost structure. If you're a not an executive, offshoring looks like a one-way
ticket to the poor house. Each side feels that it can justify its position with
credible arguments. Each side can go on and on for hours about Adam Smith's
invisible hand or the questionable ethics oflaissez faire economics. My job, as
a researcher, is to dig out the facts and connect the dots, so to speak. Or, to let
you connect them for yourself if you're so inclined.
There's an old story about how Greek philosophers sat around debating
about how many teeth a horse has. \Vhen you want to know how many teeth a
horse has, nothing beats looking a horse in the mouth. Don't take someone
else's word for it. Thus, I spent much of my time hunkered down with govern-
ment studies. Whenever possible, I've tried to cite my sources specifically so
that you can easily verify data for yourself.
There is a darker side to ambiguity, beyond sheer laziness. Which is to say
that some people are intentionally vague with the hope that you'll simply take
their word for it. They wave their hands in they air with the guarded expecta-
tion that you'll take everything they say at face value. I won't try to insult your
intelligence in this manner.
Finally, the thing about questions is that they lead to other questions.
When I started to research this book, I intended to answer a small handful of
fairly straightforward questions: Who's going offshore? Who stands to benefit?
What are the potential long-term effects? What I discovered was that the sub-
ject of offshoring led me to pose deeper, more fundamental questions about
our economic system and this country's class structure. The conclusions that I
reached disturbed me. Simply put, the system has been rigged to benefit a tiny
group of economically privileged citizens. They stand to gain from offshore
outsourcing and the rest of us stand to lose.

'S"
 - - ;

1
..:..

Setting the Stage

Chapter at a Glance
~ Labor and Capital

~ Outsourcing
~ H-IB Backgrounder
~ The L-l Option
~ L-l Visa Fallout
~ Noncitizen Students in the U.S.
~ The Cost of Education in the U. S.
~ Offshoring and Manufacturing
~ The Software Industry Matures
~ Third-World Development
~ The Bottom Line ($$$)

'What's going on . . . is the end of Silicon Valley as we know it.

-Larry Ellison, Wall Street Journal, April 8, 2003

Although human reactions like fear and greed may prohibit accurate short-
term forecasts, over the long run the fundamental axioms of economics hold
sway. Inevitably, the market obeys the laws of supply and demand (sometimes
it just takes a while). Thus, to gain insight into the enduring implications of
offshoring, it may be helpful to take a look at a few basic economic concepts.
Have no fear-I will keep my discussion to a bare minimum. I won't
stuff differential equations down your throat or assail you with equilibrium
charts. For the most part, the economics of offshOring aren't sophisticated;

•
Offshoring IT

they're trivial. Father Guido Sarducci once stated that he could teach you, in
five minutes, everything about economics that the average college student
remembered a year after graduation:

Economics, is a' simple . .. is a' supply and a' demand.

Labor and Capital

Labor and capital are essential ingredients of an economy. Nothing could hap-
pen without them. Back in the 1700s, capital (I'm using the financial definition,
as in wealth) was relatively fixed. The digital communication infrastructure that
we have today, to move assets around the globe, didn't exist. If you wanted to
move raw currency, it could take weeks to travel a few hundred miles by horse.
Furthermore, wealth was often accumulated in terms ofland ownership (Le.,
natural capital), which is immobile by nature.
Labor, on the other hand, was mobile. Plague, famine, and poverty forced
people to abandon familiar surroundings and migrate en masse to someplace
else. If living conditions went to hell for whatever reason, the peasant folk
could always pick up and move. Life was brutal during the eighteenth century.
Such was the state of affairs in 1798, when Thomas Malthus wrote An
Essay on the Principle of Population, a depressing book that spelled out what
economists now refer to as the Malthusian Doctrine. According to Malthus,
because land is fixed and populations grow at a geometric rate, eventually a
population will overwhelm the land that once sustained it. This will inevitably
lead to shortages, starvation, and death (which serve as Mother Nature's popu-
lation regulators). His pessimistic outlook is one reason why economics is
called the dismal science. I
Just because it's old doesn't mean that Malthusian Doctrine isn't relevant.
Peak Oil theorists predict that the world's production of oil will peak sometime
between the years 2000 and 2010. From that point onward, the supply will
eventually dwindle to a trickle such that the demand for oil will dwarf the
available supply. Researchers like Richard Heinberg2 believe that the end
result will be doomsday: a horrific Malthusian apocalypse in which 90 percent
of the population perishes.
In a report the U.S. Department of Defense commissioned in 2003,3 the
authors concluded that changes in the world's climate could pose the greatest
Single threat to national security in the coming century. Specifically, the
report suggested that global warming could lead to a "slOwing of the ocean's

I David Colander, Macroeconomics (Scott, Foresman and Company, 1986)

2 Richard Heinberg, The Party's Over: Oil,War and the Fate of Industrial Societies (New Society
Publishers, 2003)
3Peter Schwartz and Doug Randall, An Abrupt Climate Change Scenario and Its Implications for
United States National Security (commissioned by the U.S. Department of Defense, 2003)
 Chapter I Setting the Stage

thermohaline conveyor," resulting in catastrophic alterations in our climate

patterns and worldwide famine-in other words, a Malthusian die-off of
staggering proportions.
With the development of a global £lnancial system and immigration laws,
the relative mobility of capital and labor has been inverted. Capital is now
mobile, even more so than labor. Today it's trivial to wire a billion dollars
across the planet, but it's also well nigh impossible to move the entire popula-
tion of one country into another. The relative mobility of capital, vis-a-vis the
global banking system, coupled with the development of a worldwide informa-
tion network has given American corporations the opportunity to tum the
international labor pool into a market such that they can select the most inex-
pensive alternative from a number of competing labor providers. Corporations
are now free to rrwve between countries, playing one country's workforce
against another to obtain the cheapest possible labor.
Steven Roach, the chief economist and director of global economic analy-
sis at Morgan Stanley, has aptly referred to this phenomenon as global labor
arbitrage. 4
In £lnance, risk arbitrage is the practice of buying a commodity at a low
price in one market and then selling it for a high price in another market.
Ivan Boesky, who was indicted for insider trading with Michael Milken in the
1980s, got his start in risk arbitrage. 5 An arbitrageur is essentially a person
who has discovered a money machine. Theoretically, the markets are supposed
to be "efflcient," such that price differentials between markets don't exist.
In practice, pockets of inefflciency exist. This is why offshore outsourcing is
referred to as global labor arbitrage. Labor is being bought in one market at a
low price, and being utilized in another market where it has a higher value.

Outsourcing
In order for an international labor market to exist, there have to be alternative
sources. Back in the 1950s and 1960s, there was only one source. U.S. corpora-
tions didn't have any choice; the global communication networks were tenuous
at best. In America, they had to hire American workers. In the 1960s, software
engineering was considered a solid career path, and COBOL was a cutting-
edge technology. At cocktail parties, you could hold your head up high and tell
people that you were a programmer. Programmers were in demand; they had
respect.
Today, if you tell people you're a programmer, they'll ask you how long you
have until your unemployment bene£lts run out.

4 Stephen Roach, "The Global Labor Arbitrage," Global Economic Forum (Morgan Stanley,
Oaober 6,2003)
5 James B. Stewart, Den of Thieves (Simon & Schuster, 1992)
• •1·[11 Offshoring IT

There are immigration laws in place in the U.S. and a plethora of federal
organizations to prevent large-scale immigration. In this day and age, you'd
never see the entire population of one country move into another, although
you might see a large chunk of a nation's population move around within its
borders. For example, the U.S. Census Bureau reports that half of the
American population moved between 1995 and 2000 ... it's just that they
all stayed within the confines of the U. S. 6 If those people had moved to
Canada or Mexico, it would be a different story.
Despite the legal barriers that hinder the migration of a population en
masse, loopholes exist that corporations can use to allow for labor-based immi-
gration on a smaller scale. This has provided American corporations with the
alternative they need to create an international labor market. Specifically, I'm
talking about outsourcing.
Outsourcing is a practice whereby an external agency is hired to provide
services to a company that could normally be performed in-house. In the U.S.,
the H-1B and L-1 visa programs facilitate outsourcing. A number of outsource
service providers like Tata Consultancy Services, Wipro Ltd. (NYSE: WIT), and
Infosys Technologies Ltd. (NYSE: INFY) recruit workers in other countries on
behalf of U.S. employers, who then sponsor their visas.
The Immigration and Nationality Act (INA) spells out the foundation
of our immigration laws. The INA was created in 1952, though it has been
amended several times? For example, the America Competitiveness in the
Twenty-First Century Act, or AC21 (Public Law 106-313), which was Signed
by President Clinton in 2000, made amendments to the INA.

1"1
~
NOTE The INA is subset of the U.S. Code, which contains the same
material under title 8,Aliens and Nationality (U.S.c. 8).

H-I B Bockgrounder
The Immigration Act of 1990 (Public Law 101-649) amends the INA. Section
205 of this act establishes the H-1B nonimmigrant visa category. The H-1B
category denotes temporary workers who have specialty occupations, are
employed by the DoD, or are employed as fashion models. 8 The H-1B pro-
gram was initially created to help businesses to deal with labor shortages,
although the very nature of a "shortage" of labor in the software industry is
dubious. Which is to say that high-tech employers have allegedly used the idea
of labor shortage as an excuse to import cheaper foreign labor instead of using
local American talent.

6U.S. Census Bureau, Public Information Office news release (September 23, 2003,
http://www.census.gov/Press-Release/www/releases/archives/census_20001
001387.html)
7http://uscis.gov/graphics/lawsregs/INA.htm
8http://uscis.gov/graphics/services/visas.htm
 Chapter I Setting the Stage

What Labor Shortage?

According to researchers like Peter Cappelli, the director of Wharton's
Center for Human Resources, the U.S. won't face a shortage of workers
in the coming years. In his 2003 study, "Will There Really Be a Labor
Shortage?"9 he claims that the real problem will be retention. With baby
boomers hanging onto their careers, and an increase in the number of
college graduates, there will be a large pool of available candidates. If com-
panies encounter hurdles with regard to hiring new employees, it will be
due to changes in employee-employer relations that make it harder to
retain good workers. According to Cappelli, "There's no good argument
for sustaining the view that we have to expand immigration because there
is no basis to the view that there aren't enough people to fill jobs."

In 2000, during the dot-com boom, the AC21 temporarily lifted the
annual H-IB ceiling to 195,000 after being lobbied by the high-tech industry.
On October 1, 2003, the ceiling was lowered back down to 65,000 (see section
102, "Temporary Increase in Visa Allotments").
An H-IB visa holder can remain in the U.S. for up to six years and must
be paid the prevailing industry wage (see U.S. Code subsection 1182(n)(I)(a)).
The AC21 provides for extensions in a couple of cases (see sections 104(c)
and 106(a)). Prevailing wage information can be found in the Occupational
Employment Statistics (OES) survey compiled by the Bureau of Labor
Statistics, although the exact legal definition leaves room for interpretation.
According to the American Competitiveness and Workforce Improvement
Act of 1998, or ACWIA (Public Law 105-277), H-IB visa holders can't be used
to displace American workers. For instance, H-IB employees can't be used
to break a strike or be hired immediately after American workers are laid off.
However, this does not necessarily mean that employers will choose American
workers over H-IB workers, if given the choice.
The ambiguous nature of a prevailing wage has come under scrutiny.
Recently I spoke with Norman Matloff, a professor in the Computer Science
Department at University of California Davis, about the H-IB laws.
Matloff asserts

Actually, none of those things really matters. The wage floor for
H-1B is a sham, with a ton of loopholes that make the prevailing-wage
portion of the law meaningless. Similarly, the H-1B visa cap has never
been a genuine constraint either, because Congress always increases
the cap whenever the industry wants it.

9 Organizational Dynamics 32, no. 3 (August 2003):pp. 221-318

Offshorlng IT

David Lazarus, a columnist for the San Francisco Chronicle, looked into
some of these loopholes. 10 For example, Lazarus discovered that prevailing
wage abuses are only investigated after an H-IB employee has lodged a formal
complaint. Most H -IB workers, who are dependent upon their employers for
their H-IB status, are too scared to come forward. According to John Fraser,
deputy administrator of the Department of Labor's Wage and Hour division,
''The notion that this program can be enforced on a complaint-only basis is
naive, if not misguided."11

The L-I Option

As an alternative to importing H -IB workers, companies can rely on the more
obscure L-l visa program. The L-l visa classification, which was introduced by
an amending act in April 1970, was intended to help multinational corpora-
tions with intracompany transfers.
The L-l program doesn't bar employers from displacing American work-
ers, and L-l visa employees don't have to be paid the prevailing wage. More
importantly, there is also no upper limit with respect to the number ofL-l
workers that can be brought into the U.S. L-l visa holders can stay in the
U.S. for up to seven years if they are managers and five years if they have
"specialized knowledge."
The Bureau of Labor Statistics, in its January 2004 Employment Situation
Summary,12 reported that the working population of the U.S. consists of
roughly 147 million people. Of those, the 2002 Occupational Employment
Statistics report says that over 2.7 million are in the software industry (i.e.,
Standard Occupational Classification 150-0000, Computer and Mathematical
Science Occupations).
The 2002 Yearbook of Immigration Statistics, published by the Office of
Immigration Statistics (under the Department of Homeland Security), reports
that the number of H-lB and L-l visa admissions in the U.S. is apprOximately
684,189 (see Table 1-1).

Table 1·1 L-I and H-I BAdmissions

1985 65,349 47,322

1990 63,180 100,446
1995 112,124 117,574
1999 234,443 302,326

10 David Lazarus, "A Question of Fraud: Silicon Valley Pushes for More Foreign Workers,"
San Francisco Chronicle (September 21, 2000)
II Ibid.
12http://www.bls.gov/news.release/empsit.nro.htm
 Chapter I Setting the Stage ••••
I
Year L-I Admissions H-I B Admissions

2000 294,658 355,605

2001 328,480 384,191
2002 313,699 370,490

Source: 2002 Yearbook ofImmigration Statistics

I11'1 NOTE When visa holders leave the country and then reenter the U.S.,
they are counted again as an admission. This results in a certain amount
of admission redundancy, such that the number you see for H-I B admissions are
over the ceilings that I mentioned previously.

According to an official whom I spoke with at the Department of

Homeland Security, the u.S. government as of January 2004 doesn't know how
exactly many H-1B and L-l visa holders there are in the u.s.
This is due to the
fact that they don't know how many petitions correspond to a unique individ-
ual. In some cases, different companies may petition for the same individual,
or a company may file multiple petitions for the same individual. The point is
this: anyone who tells you how many H-1B or L-1 visa holders there are in the
U.S. is speculating, or full of it. Period.
According to the 2002 Yearbook of Immigration Statistics, there were
215,000 H-1B petitions filed in 2002. Of these, 198,000 H-1B visas were
approved (104,000 of which were for initial employment, the rest were for
extensions). Table 1-2 breaks this down according to country. As you can see,
apprOximately 33 percent of the petitions were from India.

Table 1·2 H-I B Petitions in 2002

Country Beneficiaries Median Age Median Income

India 64,980 29 60,000

China 18,841 32 48,000
Canada 11,760 34 70,000
Philippines 9,295 32 38,000
U.K. 7,171 33 68,000
Korea 5,941 34 42,000
Japan 4,937 31 38,000
Taiwan 4025 31 42,000
Pakistan 3810 31 50,000
Columbia 3320 32 38,000

Source: 2002 Yearbook ofImmigration Statistics

••IIf.i:'. Offshoring IT

Obviously, a steady stream of noncitizen workers is being let into the U.S.
through a back door. The L-1 visa category, in particular, is an insidious loop-
hole simply because not many people know about it. One of the reasons that
I've written this book is to publicize programs like L-1 and how they are
exploited.

L-I Visa Fallout

The utilization of the L-1 visa program in practice has come under scrutiny.
U.S. Senator Dianne Feinstein (D-California) claims that the L-1 visa program
is nothing more than "stealth immigration" that is stealing jobs from American
workers. 13
Corporations like Siemens Information Communication Networks (ICN)
have been accused of using L-1 workers to replace American employees. In
the winter of 2002, an engineer named Mike Emmons was let go by Siemens
ICN after the company decided to outsource his entire department. In addi-
tion to losing his $90,000 salary, Mike was offered a modest severance package
(up to $13,000) if he agreed to stay on and teach his replacements. 14

1"1
~
NOTE Can you imagine being forced to dig your own gravel Talk about
adding insult to injury! Having American workers train their imported
replacements seems to be in fashion these days. Patricia Fluno, one of Mike's
coworkers at Siemens who was forced to help her replacement climb the
learning curve, called it "humiliating:'IS Bob Simoni, a 39-year-old software
engineer who lost his job at Toshiba America in 2002, was also required to train
his replacement. 16 So was Phil Marraffinni, an engineer at First Data Corporation,
who lost his job in 2002.17 According to Marraffinni, "I had to give classes. And I
wasn't the only one:' One engineer at Bank of America, Kevin Flanagan, was so
upset by losing his job after training his replacements that he shot himself dead in
the parking lot outside of B of A's Concord Technology Center. 18

Boy, did Siemens mess with the wrong guy! Emmons, a normally well-
behaved suburbanite and father of two, went on the warpath. 19 He landed
spots on CNN and ABC World News Tonight, and now Mike is running for
Congress in Florida's seventh district.

13 Roy Mark, "High Tech Worker Visas Come Under Fire," internetnews.com Ouly 30, 2003,
http://www.internetnews.com/ec-news/article.php/2242281)
14 Ben Worthen, "The Radicalization of Mike Emmons," CIO Magazine (September 1,2003)
15 Carolyn Lochhead, "Feinstein Seeking Changes in Skilled-Worker Visas," San Francisco Chronicle
Ouly 30, 2003)
16 Spencer Ante and Paul Magnusson, "Too ManyVisas for Techies?" Business Week (August 11,2003)

17 "Imported Workers Filling U.S.jobs,"CBS News (October 22, 2003)

18 William F. jasper, "Trading Away jobs and Uberty," New American Oune 30, 2003)

19 http://www • out source congress•org: 81

 Chapter I Setting the Stage ••••••

Emmons says

I believe that powerful special interests in Washington are using illegal

immigration and foreign work visa programs to drive down the wages
of Americans, thus creating greater gains for influential corporations.
It is collusion between corporations that pour big money into politics
and Congress that passes legislation enabling the corporations to
replace American workers with substitutes, thereby keeping all wages
artificially low to increase corporate profits.

Mike's not just whistling Dixie. Florida congressman John L. Mica spoke
with Emmons in September 2002, giving him the impression that he'd look
into the problem of L-l immigration. Later on, a watchdog organization in
Washington, D.C., the Center for Responsive Politics, reports that Mica
received $3,999 in donations from Siemens between the time that Emmons
first contacted him in August 2002 and the follOwing November elections. 20

Noncitizen Students in the U.S.

One thing that exacerbates the availability of alternative labor sources is the
relative increase in the number of international students enrolled in U.S.
colleges and universities. Foreign countries, having an appreciation for their
own educational shortcomings, have been leveraging the U.S. system for the
last few decades. The United States has the world's preeminent collection of
research universities (e.g., Caltech, Princeton, MIT). It's no surprise then that
foreign governments encourage their citizens to attend. Lasting economic
growth, in the modem world, is a function of having an educated workforce.
Developing countries understand that it's in their best interest to absorb every
bit of knowledge that they can from the most powerful nation on the planet.
Over the past couple of decades, the number of foreign students receiving
advanced degrees from American institutions has dramatically increased.
According to the National Center for Education Statistics (NCES),21 which
compiled the 2002 Digest of Education Statistics, apprOximately 28 percent of
the students who were awarded Ph.D.s in 2000 were non-U.S. citizens. Over
38 percent of the physical science Ph.D.s who graduated in 2000 were non-
U.S. citizens, and over 47 percent of the mathematics Ph.D.s who graduated
in 2000 were non-U.S. citizens.

20 Ben Worthen, '7he Radicalization of Mike Emmons," ero Magazine (September 1,2003)
21 U.S. Department of Education, National Center for Education Statistics, Digest of Education
Statistics (2002):Table 298
OffshoringlT

As far as outsourcing is concerned, this is salient. To understand the true

significance of this development, look at the percentage of noncitizen physical
science Ph.D.s going back to 1980 in Table 1_3. 22

Table 1-3 Noncitizen Physical Science Ph.D.s

Year Percentage
Non-U.S. Ph.D.s

1979-80 21.6
1980-81 21.3
1985-86 27.8
1988-89 29.8
1989-90 32.4
1990-91 35.9
1991-92 39.6
1992-93 39.7
1993-94 41.7
1994-95 41.7
1995-96 41.8
1996-97 36.3
1997-98 36.4
1998-99 37.9
1999-2000 38.2

Source: Digest of Education Statistics (2002): Table 303

As you can see, the number of non-U.S. citizens who were awarded Ph.D.s
basically doubled from the level that existed back when Ronald Reagan was in
office. It may help to see this data graphically (refer to Figure 1-1).
It's getting to the point where American students are in the minority at
graduate programs in the U.S. During my two years of graduate school, at
Case Western Reserve's Department of Operations Research, American
students were a contingent of the department's composition.

I~I NOTE I have nothing against students from other countries. What I'm
trying to illustrate is how quickly emerging countries are catching up
with us, and how dire the situation is. The technological lead that we possessed
after World War II is all but gone.

22/bid.:Table 303
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