Walmart, Anthem, Boeing, et al: You Get What You Pay For

Multinational retailer Walmart recently announced that it will lay off almost 600 corporate employees. According to the Business Insider, the finance and accounting jobs will be outsourced to Genpact, described as a New-York based professional services firm.

Genpact isn’t a household name. So, who are they? According to Wikipedia, Genpact originally was a business unit of GE, and then spun out as an independent company in 2005, and in 2009 did a joint venture with an Indian outsourcer. In 2012, investment firm Bain Capital (co-founded by current Utah Sen. Mitt Romney) became the company’s largest shareholder. Nallicheri Vaidyanathan Tyagarajan, known as Tiger, whose total annual compensation in 2018 was $22 million, leads Genpact and its 87,000 employees. Genpact’s corporate headquarters is listed as Bermuda, and the company has offices in 12 U.S. states.

The boilerplate copy on Bloomberg says Genpact operates globally and “designs and manages business operations to manage risk and compliance,” with a focus on “finance and procurement, financial services account servicing, claims management, regulatory affairs, and industrial asset optimization.” Elsewhere, they’ve been described as an outsourcing firm for clients such as Facebook out of Genpact’s facilities in Hyderabad, India.

Like Cognizant, an outsourcer founded by Sri Lankan Kumar Mahadeva, Genpact is publicly traded in the U.S., but both companies are rooted in India. Cognizant, for example, has 195,000 employees in India. These companies, along with India-based multinational outsourcers such as HCL, Infosys and Tata Consultancy, among others, have a well-established operating method developed over three decades that systematically displaces American workers and replaces them with Indian workers. They are part of the cabal that monopolized the H-1B visa program. From 2016 through this year, Genpact was approved for several thousand H-1Bs. And that number doesn’t account for perhaps many more visas obtained through Genpact’s many subsidiaries that we didn’t research.

The H-1B, as defined by the U.S. Citizenship and Immigration Services, “allows companies in the United States to temporarily employ foreign workers in occupations that require the theoretical and practical application of a body of highly specialized knowledge and a bachelor’s degree or higher in the specific specialty, or its equivalent.” Indian companies have dominated the H-1B program; they score 70 percent or more of the visas. The program has been bastardized, and now is “dual intent,” meaning temporary employees may become Green Card seekers, which has created a whole set of other problems with the U.S. immigration system.

In the early days of American worker displacement, manufacturing jobs were offshored. The propaganda used at the time was encapsulated in the line, “There are jobs that don’t have an economic right to exist.” Then, other types of jobs, white-collar jobs, were offshored, for example, to Indian call centers. This body shop model has now been duplicated in the U.S. Initially, companies may have brought in a few workers on an H-1B, but as the outsourcing companies grew, they figured out how to use the H-1B program to offer companies lower-priced staffing via their now well-established foreign labor pipeline.

Issues of Discrimination, Competency

As the outsourcing firms provided more workers and got larger contracts, they were able to staff more management positions. Then, hiring managers had the opportunity to hire more H-1Bs over American workers to where, eventually, contracts to outsource complete IT functions were won and filled with H-1Bs. With it has come a record of discriminatory hiring, now well established, but which has been difficult to prove in several lawsuits.

But beyond the discrimination aspect comes the competency issue. These H-1B workers are not exceptional. In fact, they are quite ordinary with regard to their skills and education. As has been pointed out to me on several occasions, visit an office staffed largely by H-1Bs, and you will see the staff on the phones. They are on the phone with “job support” back in India getting assistance, because many lack basic programming skills.

Stories of laid off American tech workers required to train their foreign replacements, or lose their severance, have been widely reported in The New York Times, Computerworld and The Charlotte Observer, among many other publications. And the Walmart layoff of employees in finance and accounting just highlights that the elimination of the U.S. worker is happening in virtually every professional class. For companies now, augmentation of the labor force with foreign workers is out, and full-on replacement of American workers is in.

Displacing qualified U.S.-educated finance and accounting people, like at Walmart, isn’t new. A former CFO of two Fortune 500 companies, who is now a corporate consultant in the financial and accounting areas, said he’d been told in years past that large numbers of H-1Bs were brought in from the Philippines and India as accountants.

He also has first-hand experience working with some of these imports, including at a bio-tech company where the entire audit crew was from the Philippines. “They don’t have an accounting degree similar to that of the U.S. – it’s more like a bookkeeping credential,” he said. “So if a company wants to hire someone who will take five or six times as long to deliver an answer, solve a problem or finish a task as a U.S. degreed accountant, then, go for it!”

While companies may achieve some short-term cost reductions in salaries or elimination of benefits by having their workforce funneled through a foreign-based multinational, if it takes five to six times as long to complete a job, it seems the savings ultimately will evaporate through subpar work and excess hours required to get the work done. But maybe the latter isn’t an issue for companies, as we hear many stories of excessive hours worked by foreign laborers without full compensation – today’s version of the sweatshop.

Long-Term Impacts of American Worker Displacement

This also has a long-term detrimental effect on the skills and competency of the U.S. workforce. For instance, years ago when working in corporate tax for a Big Four accounting firm, I attended a briefing on outsourcing lower-level compliance functions to India. The Deloitte and Touche account manager at the time had just returned from a stint in Hyderabad, India, where she trained and managed a team of Indian nationals to whom D&T had outsourced its clients’ property tax compliance work.

For corporate property tax, a company with operations in multiple states and jurisdictions may have to file multiple returns for those states and jurisdictions to be compliant with state and local laws. This type of work is considered drudgery which is why many companies are keen to simply outsource it.

But it is in the preparation of the return that a junior member of the accounting team learns tax, including how various items are treated with regard to taxability and tax rate. It is an important rung in achieving competency in order to advance and climb the ladder of success. After mastering functions like the return, a tax accountant can then go on to develop other skills, such as provisioning, tax planning and strategy.

At the end of the briefing, I posed the question of how we would prepare the next generation of tax accountants when we were pulling out all the bottom rungs in the career field. Aside from a shrug from the speaker and quiet nods from the rest of the audience, there was no response.

The Walmart layoff is just one in a long list past, present and no doubt future. Also this year, the highly profitable heath care provider Anthem has let go 1,800 employees, and we have first-hand accounts of the jobs going to H-1Bs. (Watch the video of one Anthem employee’s story here.) According to sources, the company also is building facilities in the Philippines for 5,600 workers.

The $9 an Hour Engineer

The push for low-cost foreign labor, be it by outsourcing work abroad or shipping foreign workers to the U.S., has more impacts than job losses for Americans in some cases. Using cheap labor may kill people.

Last month, Bloomberg reported that $9-an-hour engineers may have played a role in problems with Boeing’s 737 MAX software. According to the article, “Increasingly, the iconic American planemaker and its subcontractors have relied on temporary workers making as little as $9 an hour to develop and test software, often from countries lacking a deep background in aerospace – notably India.”

There have been two Boeing 737 MAX crashes which killed 338. The model is now grounded, and Airbus is writing the big orders now, not Boeing.

Boeing is emblematic of the chickens coming home to roost, as my mother would often say when the consequences of bad behavior become evident. There are many Boeings out there, companies choosing cheap, near-term benefits of outsourcing as opposed to taking the long view of investing profits back into their going concerns and bringing everyone up by creating good middle-class opportunities for the many as opposed to obscene wealth for the few. And this pernicious trend has not been limited to corporations – state and local governments have dived in as well.

Neoliberalism, the frictionless movement of capital and people, must be brought to a swift end before any more chickens come home to roost and the decline of the middle class becomes truly irreversible.