Rise and Fall of an Information Technology Outsourcing Program: a qualitative Analysis of a Troubled Corporate Initiative

Staff Augmentation and H1-B Visas 
Within the last two decades, the United States became the primary destination country for 
Indian immigrants, specifically for those in the high-skilled labor market. Today, one out of four 
Information Technology (IT) workers in the United States is foreign born, and from 1990 to 
2000, one-third of all immigrants to the U.S. were IT workers, scientists, or engineers (Batalova 
& Lowell, 2007). While these workers provide U.S. businesses a flexible, although not 
necessarily less expensive, source of skilled IT talent (Luthra, 2009), labor groups often oppose 
their usage, which they argue has a negative effect on employee wages (Zavodny, 2003). 
H1-B visas reached the cap of 65,000 for the first time in 1997 and again 1998. In 
response to corporate lobbying, Congress passed the American Competitiveness Workforce 
Improvement Act (ACWIA) in 1998, which raised H1-B levels to 115,000 for both 1999 and 
2000, and set the limit at 107,500 beginning in 2001 (Watts, 2001). The American 
Competitiveness in the 21
st
Century Act of 2000 again raised the annual cap to 195,000 for 2000 
through 2003 (Banerjee, 2006). However, by 2004 Congress returned the H1-B visa levels to the 
original limit of 65,000 where the cap remains today (Batalova & Lowell, 2007). 
Many firms reserve their most strategic or “core” engineering and application 
development functions for internal staff while augmenting their IT labor force with contractors 
for work defined as low-complexity and low-value. This “staff augmentation” approach has 
remained the predominant ITO paradigm for application development since the practice began. 
Service providers who offered the lowest-cost labor and were efficient at scaling staffing levels 
up or down to meet their clients’ variable demand became market leaders. In return, client firms 

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frequently emphasized resource and cost management versus managing contract outcomes. 
Immature IT governance practices combined with lowest-rates-wins sourcing strategies 
reinforced the staff augmentation paradigm. In response, service providers focused on keeping 
costs low and developed deeper resource benches of lower-tier laborers. As firms began to 
demand more strategic capabilities from ITO vendors, some struggled to adapt (McCarthy et al., 
2011).