Tighter Immigration Policy Pushes Firms to Open Foreign Satellite Offices

On June 17, 2016, technology giant Microsoft Corp. opened an engineering facility in Vancouver, British Columbia, three hours away from the company’s Redmond, Washington-based headquarters. According to an interview Microsoft President and Chief Legal Officer Brad Smith gave to GeekWire ahead of the facility’s grand opening, Vancouver’s strong tech scene bolstered by several nearby universities promoted the decision to open the new office space.

This, however, wasn’t the only reason Microsoft opened a major office not far from its world headquarters across the U.S. boarder. Canadian immigration policies, Smith said in the interview, are less stringent than those in the U.S., thus allowing the company to “pull top talent from all over the world to its Vancouver office,” the GeekWire article said.

Fast-forward nearly a year and Microsoft’s decision to set up a nearby satellite presence in Canada is looking like a smart move, more so now because new U.S. President Donald Trump aims to tighten immigration to the country even further — a threat potentially potent for industries like tech that rely heavily on immigrant talent.

In recent years companies like Microsoft could rely heavily on gaining temporary access to foreign talent through H-1B visas. Through an annual lottery system, companies are able to hire about 65,000 workers on such visas, including about 20,000 or more graduate student workers, according to Reuters. The Trump administration aims to change this by using a merit-based system to allot the visas, which will likely limit the flow of immigrant talent into the country. It is the administration’s view that too many immigrant workers coming to the country undermines the job prospects of U.S.-born workers. The H-1B visa program, the Trump administration argues, is a significant enabler of this problem, as workers hired through an H-1B are typically paid under-market wages.

“The current status of immigration law is already pretty cumbersome for companies to bring in foreign talent,” said Giovanni Peri, professor and economics department chair at University of California Davis and research associate at the National Bureau of Economic Research. H-1B visas only allow for temporary work; it then requires several more hurdles for workers on the visa to become a permanent resident. This year, H-1B applications reached 199,000 only five days after the application period opened, according to CNN. This level of competition means less than half of the companies that applied will gain a foreign worker under the program.

Additional immigration regulations could prompt more opening of satellite offices like Microsoft’s, which would allow companies to hire necessary workers from talent pools that face heavy competition in the U.S. The San Francisco Bay Area, home to many of the tech industry’s major employers, is also in reasonably close proximity to Vancouver, and many firms there have already expressed interest in moving workers to the Canadian city.  “The fact that companies are considering this is a significant sign of how cumbersome it has become,” Peri said.

According to Envoy Global Inc.’s survey, “Immigration Trends Report 2017,” 21 percent of respondents are relocating work overseas, 30 percent have had to increase budgets to address immigration challenges and 25 percent have increased staff in response to these issues. Only 17 percent of respondents don’t see the immigration system having an impact on their hiring and retention strategies, the survey by the Chicago-based global workforce management enterprise platform specializing in immigration said.

Jamie Gilpin, Envoy’s chief marketing officer and workforce trends analyst, cited an example of a small auto parts manufacturer in South Carolina, which had an open engineering role for more than a year. She declined to name the company because they are a user of the firm’s technology. Other manufacturing companies in the area posed too great of competition for this talent. The immigration system limits their options for filling this role, so the company is exploring their options in Canada.

The skills gap is an oft-cited reason why businesses say they need foreign talent. The National Federation of Independent Business found in a survey that 48 percent of small businesses had trouble gaining the right workers, reporting there were “few or no qualified applicants for the positions they were trying to fill,” according to NFIB’s May 2016 “Small Business Economic Trends.” Although immigration is only one proposed solution to this problem, the issue of qualified worker shortage remains.

“We really do have a talent shortage and a people shortage, overall,” Gilpin said. “These types of creative ways that employers are thinking about their organizational structure is really giving them an ability to open up talent pools that they otherwise wouldn’t have access to.” By opening a satellite office, other visa options could become available, Gilpin said, one of which is the L-1B visa, which allows for a U.S. employer to transfer an employee with specialized knowledge from an affiliated foreign office to the U.S.

However, opening a satellite office is often not a company’s first choice for filling their open roles, Gilpin said, nor should it be. “If they’re having an inability to fill a role, and immigration is causing a challenge for them to do so, sometimes this is one of their last resorts but now becoming a more realistic one.”

But why open an office at all? Why not just hire overseas workers and have them work remotely? Gilpin said this doesn’t make sense for all roles, as some companies favor in-person collaboration. Furthermore, manufacturing roles require workers to be on site to produce goods. “It’s a company-by-company decision,” she said.

By offshoring services, companies would benefit from the talent pool access and sometimes the lower wages that are the norm in other countries, UC Davis’ Peri said. “Just as has been done for manufacturing, it will be done for services,” Peri said. “These satellite offices or offshoring of services will continue to happen, no matter what.”

The Economic Impact of Reduced Immigration

Other countries that limited immigration now face economic hardship. Japan, for example, has historically kept a tight lid on immigration to the country. Now, it faces an aging workforce and will lose 12.4 percent of workers by 2030, according to The Guardian. Talent shortages, slow birth rates and a GDP growing by 1 percent in recent years means the Japanese government is now considering mass migration of 200,000 foreigners per year, according to The Economist.

However, not all immigration restrictions result in a weaker economy. Canada’s merit-based immigration reform, in which a points system determines the value of an immigrant’s potential success, came about in 1967, according to Economic Policy Institute. In 2010, 45.7 percent of all immigrants to Canada went through the points system. “As a result, the overall integration outcomes of the immigrant population in Canada tend to be well above those seen in most other OECD countries, and public acceptance of migration is high. Against this backdrop, Canada is widely perceived as a role model for successful management of migration,” according to “Recruiting for success: Challenges for Canada’s Labour Migration System,” published by the Organisation for Economic Co-operation and Development. Then, in 2015, the immigration system adapted to sponsor immigrants based on labor shortages and local demand. Titled “Express Entry,” the system intends to be more flexible, faster and more responsive to labor market needs, and it so far sees overall success, OECD’s report stated.

Until the U.S. changes its immigration systems to respond to labor shortages that employers face, business leaders are likely to turn to alternative sources of talent, including satellite offices. The opening of more satellite offices like Microsoft’s likely won’t help the U.S. economy, as these high-skilled, high-paying jobs leaving the U.S. will result in economic benefits for the countries that gain the tax revenue and buying power of these workers. “The U.S. is in the long run at risk of losing this leadership to countries which are going to be happy to hire some of these [workers],” Peri said. Also, when tech employers offshore services, reducing employment at home, this negatively impacts the wages and productivity of the U.S. economy. Furthermore, when immigrants come in, it’s not only the company that benefits, but they have a multiplier effect on the local economy, Peri said.

RELATED: How Would Reduced Immigration Affect the Talent Market?

“If we are talking about limiting these visas, that can not be done on any meaningful economic ground,” Peri said.

Lauren Dixon is an associate editor at Talent Economy. To comment, email editor@talenteconomy.io.