Is the H1-B visa system finally headed for reform?

On Tuesday, the White House issued an Executive Order directing federal agencies to offer improvements to the annual H1-B lottery, favoring an approach that allocates these guest-worker visas to the “most skilled or highest-paid applicants.”

The H-1B visa was designed to attract the world’s best talent – people with rare skills needed to help the U.S. economy. But critics on the right and the left have long complained the program is abused by global outsourcing firms.

Those critics are right, but to fix the problem, we have to look a bit deeper. It’s not just that H1-B visas often go to guest workers with common skills, displacing higher-paid American technology professionals in the process.

The bigger issue is how they accelerate the offshoring of U.S. jobs. At the same time, certain tech jobs are already coming back to America.

Unless we understand these two deeper trends, visa reform could be useless at best and harmful at worst.

First step to offshoring

Even knowledgeable observers tend to underrate the role of the H-1B in offshoring.

Having workers onsite is essential at the beginning of an offshoring engagement. Typically these are guest workers with H-1B visas. But as these workers gather information about systems and processes in the U.S., their firms gradually transition 60%-95% of the work overseas. Lower labor costs offshore mean savings for U.S. clients and higher profits for outsourcers.

Thus the H-1B has enabled an offshoring bonanza. The Indian tech industry makes about 60% of its $100-plus billion revenue through jobs outsourced by US companies.

The limits of offshoring

Despite these savings, American businesses have discovered IT offshoring isn’t a silver bullet. The reason comes down to the nature of modern software development itself.

Forget the stereotype of the lonely, introverted coder. Developers today rely on frequent, real-time communication and collaboration with their colleagues, partners and clients. Waiting for a team member on the other side of the world to wake up and answer a key question isn’t always practical. Communication disconnects often lead to misunderstandings and frequent rework.

Accordingly, American businesses are warming up to homegrown tech development. Amazon recently announced plans to train veterans to take on tech jobs.

A new breed of 100% U.S. “domestic sourcing” companies, including mine, has emerged. We build software for some of America’s most successful companies.  We employ…