The U.S. faces an immigrant “brain drain” that could deeply affect the future of our technology sector.

Multiple forces are encouraging immigrant IT professionals in the U.S. to return to their home countries, raising the question: Will we be able to get them back when we finally realize how much we need them?

Here are the major forces at work in this trend:

The Recession

The current economic downturn is playing a big part in sending skilled workers back home. Many outsourced IT workers are returning to their home locations due to cost pressures faced by their clients. If a client sends more work offshore, then the IT worker who returns home is still engaged. So there is a cost saving and no loss of knowledge. If, however, the client terminates the project altogether, they lose the knowledge of the resource and there’s no saying if the client can re-engage that same resource again when the market picks up.

Lures from Abroad

Thousands of skilled immigrant IT professionals are leaving the U.S. for greener pastures elsewhere. Human resources directors in India and China report that what was a trickle of returnees a decade ago had become a flood. Job applications from the U.S. have increased tenfold over the last few years. A recent Kauffman Foundation study found that:

• The most common professional factor motivating workers to return home is the growing demand for their skills in their home countries.
• Returnees also believe that their home countries provide better career opportunities than they can find in the U.S.

There is another lure for Asian immigrants: both India and China offer skilled workers incentives to return home. In China, for example, a “green passage” project started in 2007 gives returnees guaranteed university educations for their children, along with tax benefits.

Meanwhile, the dynamics of the global war for talent are rapidly changing. The recent unveiling of the EU ‘Blue Card’ program allows high-skilled workers from outside the European Union to work in multiple EU countries. Because they are affected by a more rapidly aging population than the United States, these countries are aggressively working to liberalize their high-skilled immigration laws.

Restrictive U.S. Immigration Policies

Another factor is a provision of the U.S. economic stimulus package that would restrict H-1B hiring at companies that have received funds from the Trouble Assets Relief Program (TARP) and have more than 15 percent of their workers on visas. The political motivation is the suspicion that some U.S. high-tech companies have reduced their workforces, but aren’t necessarily cutting H-1B visa holders or foreign nationals ahead of U.S. citizen employees.

Conclusion

Restricting the immigration of highly skilled workers has a negative impact on innovation. A recent University of Michigan study found that “when the federal government increased the number of people allowed in under the [H-1B] program by 10 percent, total patents increased by around 2 percent in the short run.

In the final analysis the war for talent is a complex workforce issue and there are no easy answers. The United States needs to be aware of the risks with restricting immigration if it hopes to keep up innovation, particularly in technology-related areas. Even if economic conditions force layoffs, companies will need to think ahead to a time when they may badly need extra technical help. Many experts agree that while we may not need all these workers in the U.S. during the recession, we will absolutely need them to help us recover from it.

At M Squared Consulting we are 100% focused on helping our clients succeed. With 21 years of dedicated client service under our belts, we’ve learned that in serving our clients best interests, we also help ours. The reward for this dedication has been a high rate of returning clients for additional engagements.

The wisdom of our strategy was recently affirmed by none other than Jack Welch, the former CEO of General Electric. Welch, who is widely regarded as the father of the “shareholder value” movement that has dominated corporate America for nearly two decades, made some strong statements about the negative impacts of focusing so heavily on quarterly profits and share price gains.

In an interview with the Financial Times, Welch said “On the face of it, shareholder value is the dumbest idea in the world. Shareholder value is a result, not a strategy…Your main constituencies are your employees, your customers and your products…”

What he’s talking about is the commonly held belief that the purpose of business is to increase shareholder value. That belief is variously attributed to Milton Friedman, Adam Smith, and perhaps common sense.

It was the operating principle that resulted in two market busts and innumerous scandals in the past 10 years. The fact that Welch was one of the main proponents certainly adds a fair amount of gravitas to his comments.

Profitability, shareholder value, and measures like economic value added (EVA) completely miss a point that Welch now articulates so well. Namely, increased “shareholder value” is a result, not a strategy.

In other words: by taking care of clients, the bottom line will take care of itself. This is certainly a strategy that we at M Squared Consulting intend to continue following as we deploy our unique and powerful talent-on-demand model to help our clients solve their business challenges.

The Churchill Club recently held their 11th Annual Top Ten Tech Trends event. This event brings together a group of industry panelists who attempt to predict the next big trends in the industry. This year was a bit different from previous years as each of the five panelists outlined one trend of their own choosing and the rest were “crowd-sourced,” whereby the moderators picked them based on criteria like which areas are getting venture funding and the number of press mentions.

After each trend was presented, the panelists voted (a green paddle held up if they agreed, a red one if they disagreed). They then debated the pros/cons, before the audience voted. Here’s a rundown of the 10 trends that were identified:

1. The Millennials are here. Everything is changing. Rapidly! - Joe Schoendorf, Partner, Accel Partners

The Millenial generation is about to graduate from college and enter the workforce. Schoendorf’s observation was that this generation doesn’t remember what it was like not to be online. He feels this generation will advance innovation farther than ever because they grew up with technology and the web. From a workforce perspective it will be very interesting to see how this generation pushes the evolving world of work.

The audience mostly agreed on this trend.

2. Advanced batteries will be the most popular alternative energy investment in ‘09 and’10. But the medium term will provide the best returns - Crowd-sourced Idea

The panel noted that while the press seems to love talking about this trend, it never seems to happen. Battery technology has been very slow to develop, and there isn’t much to suggest that this will change anytime soon. Having said that, if a company can bring an advanced battery to maket, it will be huge.

The crowd was evenly mixed on this trend.

3. The unstructured data deluge will create the next great information leaders - Ann Winblad, Partner, Hummer Winblad Venture Partners

Enterprise data will continue to grow at a huge rate. In five years, 80 percent of that will be unstructured, says Winblad. Some argued that this idea isn’t particularly new - but most agreed think the time is indeed right for addressing this issue.

The crowd mostly agreed with this trend.

4. Wireless broadband will be one of the only IT sectors to see increased funding this year - Crowdsourced Idea

Everyone agreed that this is an old idea. Even with more investment, bandwidth demand will continue to grow.

The crowd almost entirely disagreed with this trend.

5. “Maintech” not “Cleantech” - Increasing carbon efficiency of global GDP - Vinod Khosla, Founder, Khosla Ventures

Khosla thinks that it’s not necessarily the hot “greentech” trend that will thrive in this economy, because it’s still too small a part of the market. Instead, he looks for innovation in more traditional energy technology. A lot of the smartest students in this country are getting into the energy tech field, he noted.

Most agreed with this trend.

6. Power and efficiency management services will see a growing level of investment and innovation - Crowd-sourced Idea

The idea that energy in the future isn’t just going to be about building new power plants, but instead will be about figuring out how better to distribute the power we’re already creating. The smart grid will be increasingly important and a number of companies are working on this.

The crowd mostly agreed with this trend.

7. The triumph of the distributed web - Steve Jurvetson, Managing Director, Draper Fisher Jurvetson

The distributed web is “the aggregate power of all of you,” according to Jurvetson. The theory is that crowds will control most of the interesting things people look for on the web. People are already spending more time in social networks than on email.

The audience was about half and half on trend.

8. Healthcare administration will see the best growth in B2B software in ‘09 and ‘10 - Crowd-sourced Idea

Because they were running short on time, the group skipped this one, which everyone dubbed as old news.

9. Consumption of digital goods on mobile devices is the biggest growth story of the coming decade - Ram Shriram, Managing Partner, Sherpalo Ventures, LLC

Shriram believes the ad-supported model cannot continue to fuel growth in the mobile space. He thinks application building may be the model that succeeds, noting that we’re already seeing it across a variety of platforms in both the mobile and social networking space. He also believes that there’s a trend towards paid applications - especially cheap ones - and that will be enough to grow the industry.

The audience mostly agreed with this trend.

10. Electronic displays will prove the hottest investment in hardware this year and the next - Crowd-sourced Idea

Again, running short on time, the panel barely talked about this one, but suggested there’s no real money to be made here even though the trend is hot.

The audience almost completely disagreed with this trend.

Two More Ideas

The two moderators, Tony Perkins, and Jason Pontin, also put up two trends:

1) DC will prove to be a poor VC

Washington DC trying to get involved in funding new ventures in technology will fail. Entrepreneurs need to be allowed to do what they do best, without government meddling.

The audience completely agreed with this trend.

2) The rumors of the demise of the reporter have been greatly exaggerated

While newspapers and magazines will continue to struggle, there must be a place for real journalism in the world - even if it is online. Bloggers cannot replace trained journalists - it’s a collaborative process between professionals. Some of the panel took exception to the notion that bloggers can’t also do journalism, but all agreed that there needs to be objective reporting on things like the Iraq war.

The audience mostly agreed with this trend.

Summary

Overall, energy, data and the web were the main themes discussed this year. It is worth noting that predictions like these must always be taken with a large grain of salt. While forward-looking views do no always come to fruition they are often directionally correct, and as such provide clues for how companies should strategize and react.

One thing is clear to me from this discussion; the U.S. technology sector addresses a wide range of business challenges and opportunities. As our M Squared Consulting teams are out in the marketplace having conversations with clients and prospects they are finding the need to innovate is still a priority. Companies will continue to need seasoned professionals, like the talent we have in the M Squared Talent Network, who can quickly execute and deliver results.

We may be in the midst of a recession with increasing unemployment and fewer jobs, but it’s very likely to be a short-term phenomenon that will not have much of a long-term effect on talent shortages. Without dramatic action, the gap between demand and supply will very likely continue to widen.

I’ve written in previous posts about the war for talent. The aging of the U.S. population and other demographic factors which will negatively impact the supply of talent, particularly among highly educated and skilled knowledge workers. But these problems are likely to be exacerbated by our immigration policy.

Here’s why:

Competition from Europe

The European Union recently approved the Blue Card program, which was modeled on the United States’ Green Card. The Blue Card (named for the color of the EU’s flag) will allow skilled foreign workers to work and live anywhere in the EU’s 27 member countries.

Currently, 85% of global unskilled labor goes to the European Union and only 5% to the United States. In contrast, 55% of highly skilled immigrants head for the United States and only 5% to Europe. With the Blue Card, the EU hopes to dramatically change this imbalance.

Singapore, Japan, and Hong Kong have implemented similar programs, following the lead of Australia and New Zealand. The goals of all these programs are the same: to attract skilled talent. These countries are also foreseeing a war for talent, and although it has not been publicly stated they are actively trying to divert some of the talent that now flows to the United States.

The EU and other countries may well succeed because their criteria for handing out permanent residency permits and work visas are much more liberal than those in the United States, and the procedures will be simpler and more streamlined. Some even allow employers to hand out residency permits along with employment offer letters.

For jobs where a citizen is not available, an immigrant to the EU would only need to show a degree and three years of experience. Recognizing the need to attract young talent to Europe, immigrants under age 30 will have even easier requirements in qualifying for Blue Card status.

H-1B Visa program

Our system of providing work visas and residency permits leaves much to be desired. It can take 5 to 10 years to get a Green Card and the system heavily favors family ties instead of skills and experience. The process is convoluted, involving multiple government agencies and arcane procedures. The number of annual work visas is still only 85,000 despite clear evidence of a shortage of skilled workers. For example, the unemployment rate in computer- and mathematics-related occupations is about 2.1%, or full employment when allowing for people in transition between jobs. The number of visas was actually lowered from 195,000 in 2004, to the current level which is the same as what existed 15 years ago.

In testimony before Congress, Bill Gates argued for elimination of the cap on H-1B visas. But in pandering to groups like FAIR (Federation for American Immigration Reform) and other isolationists, Congress has chosen to do little about the problem.

The problem is mostly political. Anti-immigrant groups are opposed to any loosening of immigration standards, though they neglect to mention that immigrant workers make up barely 3% of the skilled labor force yet disproportionately contribute to the economy. A quarter of all Nobel prizes won by Americans have gone to immigrants, and a similar proportion of IT firms were started by Indians and Chinese.

A study by the National Foundation for American Policy found that the average S&P 500 company creates five new domestic jobs for each highly skilled H-1B visa employee it hires. By raising the H-1B cap, Congress would create more domestic jobs, allowing companies to fill vital positions and enable them to expand their operations at home instead of moving overseas.

The Future

There are glimmers of hope. Representatives Gabrielle Giffords (D-AZ) and Lamar Smith (R-TX) have introduced bills raising the cap for H-1B visas. These are the Strengthen United States Technology and Innovation Now (SUSTAIN) Act and the Innovation Employment Act.

The SUSTAIN Act would temporarily raise the cap to 195,000 for FY 2008 and FY 2009, while the Innovation Employment Act would initially raise the cap to 130,000 and allow the cap to increase the following year if it is reached.

Raising the cap is necessary, but more should be done to make H-1B visas flexible. Their number should reflect the economy’s need for high-tech workers, not arbitrary limits set by Congress.

But the prospects of satisfying the U.S. need for talent solely from increased immigration are not good. The EU hopes to attract 20 million skilled workers over the next two decades as a result of the Blue Card program. That may be overly optimistic but it will undoubtedly negatively impact the flow of talent to the United States.

Companies clearly cannot count on immigration to satisfy their need for talent. They will have to continue exploring other options, like utilizing the flexible workforce to meet their talent needs.

In the midst of the worst economic contraction since 1981-82, and possibly since the Great Depression, people are looking for a silver lining in the gloom. The Ewing Marion Kaufman Foundation recently conducted some interesting research which may just be the ray of light. They found evidence that this economic climate is an opportune time for new business creation.

The research study, titled “The Economic Future Just Happened,” where they analyzed data from the U.S. Census, the Fortune 500, and the Inc. list of America’s fastest-growing companies, resulted in three main findings:

1. Recessions and bear markets, while they bring pain and often lead to short-term declines in business formation, do not appear to have a significantly negative impact on the formation and survival of new businesses.
2. Well-over half of the companies on the 2009 Fortune 500 list, and just under half of the 2008 Inc. list, began during a recession or bear market. We also find that the general pattern of founding years and decades can help tell a story about larger economic trends.
3. Job creation from startups is much less volatile and sensitive to downturns than job creation in the entire economy.

While this data is far from conclusive and can only hint at broader trends, it does illustrate a more fundamental economic reality: each year, new firms steadily recreate the economy, generating new jobs and innovations. These companies may be invisible today, but they may one day grow into household names.

“You can see the story of the American economy in these numbers,” said Carl Schramm, president and CEO of the Kauffman Foundation. “History has demonstrated this time and again: new firms create new jobs and fuel our economy. Policies that support entrepreneurship support recovery.”

The study points out that while recessions often create widespread economic grief, they also can encourage potential entrepreneurs, acting “as an extra spur to founding a new company, if the founders perceive their prospective competition might be weakened.” Rising unemployment can benefit new enterprises: entrepreneurs may view unemployment as an opportunity to start a company, and seize the advantage provided by the ability to tap into a larger pool of potential employees.

“While startups may not begin with the intention of reaching the Fortune 500 list, they’re hard at work under the radar,” said Dane Stangler, senior analyst at the Kauffman Foundation and author of the study. “These companies may remain invisible to most of us, or they may one day grow into household names. Either way, they’re steadily recreating our economy-generating jobs and innovations.”

“We imagine the Fortune 500 to be giant dinosaurs lumbering across the landscape,” Stangler said. “That’s not the case. The turnover and churn on the list is remarkable. Successful, big companies have to be entrepreneurial, and they are.”

Many startups, growth companies, and even mature Fortune 500’s use M Squared Consulting as a ready resource to quickly staff up new initiatives or vet new business initiatives. Our proven talent-on-demand model enables them to parachute in seasoned expertise that can quickly execute. No matter where clients are on the business creation continuum - whether it is strategy, assessment, proof of concept, or launch - we enable them to scale quickly and confidently with objective, proven experts who are focused on delivering results.

With the lingering effects of the recession it should come as no great surprise that the biggest worries of finance executives can best be summarized as cash, cash and cash!

This according to the latest poll of more than 1,200 senior finance executives conducted by CFO Europe, Tilburg University and Duke University. Ongoing worries about the stability of banks, scarcity of credit and health of counterparties all now rank near the top of CFOs’ top external and internal concerns in Europe, Asia and America.

Companies are tightening their grip on inventories, receivables, and credit lines. As a result, cash - making it, collecting it and hanging on to it - tops the list of CFOs’ concerns. In addition, CFOs are worrying about sputtering consumer demand, stalled credit markets, and the cost of fuel and other commodities.

For the United States the survey results were as follows (with the previous quarter’s rank shown in parenthesis):

1. Ability to forecast results (1)
2. Working capital management (NR)
3. Maintaining morale during downturn (2)
4. Balance sheet weakness (3)
5. Cost of healthcare (4)
6. Attracting/retaining qualified employees (5)
7. Supply chain risk (6)
8. Managing IT systems (7)
9. Pension obligations (8)
10. Intellectual property protection (9)

From a workforce perspective it is interesting to note that finding and retaining talent continues to be one of the CFOs’ top internal concerns. More than 60 percent of firms directly hit by the credit crunch plan to delay, reduce, or cancel hiring plans. We’re finding that many of our clients have hiring freezes or “pauses” in effect for full-time employees, yet they continue to deploy seasoned consultants to execute mission-critical projects and initiatives. The powerful value proposition of the M Squared talent-on-demand model (targeted expertise, driving results) works equally well in up and down markets!

In the business world we often find that the most successful companies are not the most complicated. Success usually comes down to knowing what business you’re in and relentless focusing on that. Relentless execution becomes the propellant.

Fortune magazine recently published an interesting article on Johnson & Johnson. “What’s frustrating about J&J’s imperatives for success is that you probably could have thought them up yourself,” wrote Geoffrey Colvin and Jessica Shambora in the article. “The secret turns out to be not the rules but rather the company’s extraordinary insistence on following them all the time.”

It’s that kind of discipline that enabled Johnson & Johnson’s sales to increase 4.3 percent last year, during a period where the overall U.S. economy declined. In addition, its profits increased 22 percent while during a period where the overall profits among the Fortune 500 dropped by 85 percent.

Johnson & Johnson achieves that kind of success by relentlessly focusing on five strategic imperatives. First, J&J diversifies within only one industry — health care — with one group in consumer products, a second group in medical devices and diagnostics, and a third in pharmaceuticals. This strategy keeps the company both focused and diversified.

Second, J&J bets heavily on the future, always thinking a decade or two out while at the same time playing it conservative by creating substantial cash reserves for hard times.

Third, J&J is decentralized, so managers can run their own businesses and, if successful, rise to the top.

Fourth, J&J stays very financially disciplined. Always. The company refuses to get caught up in bidding wars, as evidenced by its recent refusal to outbid Boston Scientific for Guidant. As soon as it became clear that it was not possible earn an acceptable ROI, J&J withdrew its bid.

Fifth, J&J famously has “a purpose beyond profits,” as expressed in its Credo: “We believe our first responsibility is to the doctors, nurses and patients, to mothers and fathers and all others who use our products and services.”

Johnson & Johnson is a great example of corporate focus and strategic discipline. As with all business rules, the secret isn’t really in talking about it, but rather in actually believing it enough to take action on it.

Client executives often refer to M Squared Consulting as their management “secret weapon”…a ready resource to help them execute on critical projects or initiatives by deploying seasoned experts from our Consultant Network. Over the years we have proven ourselves to be a true talent-on-demand partner that enables our client to focus on their core business, while we help them solve critical business problems.

Editors Note: M Squared Consulting is structured around industry focused practice areas. Today’s post is from Sam Doying who is based in the Silicon Valley and leads our Technology practice area.

Conventional wisdom holds that mergers are good; good for the economy, good for companies, good for shareholders, good for employees, and good for customers. For years Wall Street seemed to say, “The Bigger, the Better!”

And in theory, a merger between two synergetic tech companies is a good thing. Product and service synergy and compatibility give customers a more user-friendly offering and a streamlined sales process. Organizational and system integration increase efficiency, while a wider employee pool offers more talent and innovation. In theory, a merger is a beautiful marriage of two companies each designed to ‘complete’ the other. Everyone involved will reap the benefits.

Oracle and Sun Microsystems

Currently in the works is Oracle’s acquisition of Sun Microsystems. Oracle has a seemingly brilliant case for post-acquisition synergy. They have the capacity to both integrate and align Sun’s and their own preexisting product lines, increase brand exposure, and take advantage of both a larger customer base and a broader pool of employee talent.

Oracle promises its customers that it will be able to deliver serious customer benefits as costs go down while product performance, reliability and security go up. The key is Oracle’s new ownership of two significant Sun software assets, Java and Solaris. Oracle Fusion Middleware is built on top of Sun’s Java language and software, making continued innovation and investment in Java technology a virtual no-brainer. The Sun Solaris operating system is the leading platform for the Oracle database, and by acquiring it Oracle will be able to optimize the Oracle database for some of the unique features of Solaris.

Sounds good for customers but what about employees and shareholders? Sadly, the objectives of these two constituencies are usually at odds when it comes to mergers.

The Talent Impact

Some experts estimate that Oracle will layoff 10,000 to 15,000 employees. Andy Greenberg at Forbes.com writes that Sun’s hardware divisions could also see major cuts, as analyst Patrick Walravens of JMP Securities wrote in a recent note to investors. “To make the deal accretive out of the box, we expect Oracle to very rapidly right size Sun’s hardware business, which is likely to have a fairly dramatic impact on Sun’s roughly 30,000 employees.”

Of course, layoffs are necessary to help produce the ROI that Wall Street is waiting for, and layoffs are unavoidable in the process of creating and guarding efficiency. Management and corporate support organizations, such as finance, HR, marketing, legal, etc. are commonly targeted to eliminate redundancy, although no department or organization is exempt.

Unfortunately, this is the area where the best laid merger plans often go awry. When dramatic employee reductions occur without proper insight and planning, the promised financial returns will not materialize. Simply put, if there are fewer employees, but the required work hasn’t changed to reflect it, quality will plummet and/or costs will rise as both fulltime and contingent workers are brought back to help get the job done.

Employee cut-backs may be necessary, but the integration and reengineering of processes and positions are requisite first steps to creating a successful merger. If jobs are changed and energies shifted to better handle the workload, the reduction in labor will optimize efficiency permanently and make use of that broad employee talent pool that was so recently acquired. If this can be done the long term rewards are endless.

So why don’t all synergetic mergers and acquisitions succeed, in light of this knowledge? Because I’m a genius and the first human being to effectively outline the keys to post-merger integration success? No. Because executing the integration process is tough. Most companies don’t view mergers and acquisitions as an annual expense. There is no reason, then, to train or retain a highly specialized team to handle post-merger integration. It wouldn’t be cost effective.

Enter M Squared Consulting

Where most people experience only one or two major mergers in their careers, we have consultants with multiple integrations under their belts. Supplementing the merging companies’ existing staffs with M Squared teams on a temporary basis, can help ensure that not only is the Return on Investment realized quickly (which makes Wall Street happy!), but also that the process runs smoothly and in a way that optimizes efficiency and productivity, ensuring long-term success.

Cutting costs is important to every business, especially in our current economic climate. In a post-merger situation, the most important move you can make is to invest in integration. Bringing in an experienced team of M Squared consultants can fast-track your company into the black, and help it stay there.

Contributor: Jillian Doying