Listings

Home
Sitemap
Temples
Gurudwaras
Jain Temple
Mosques
Churches
Restaurants
Bazaars
Jewellers
Beauty
Travel
Weddings
Theaters
Students
Education
Associations
Newspapers

Hot Spots

Finance
India Links
Immigration
Insurance
Call Home

Society

Adoption
Charities
Art & Culture
Talent
Movies
Book Shelf

Personal

Ask-A-Desi
Chat and Blog
Homepages
Insurance
Classifieds
Return2India

About Us

Contact Us
Submit
Register
Search
Affiliates
About Us
Advertise to NRIs
Adverts
GaramChai?

Section 2: Finances (Professional Life in the US, and Information on Life in America)

 GaramChai.com >> Book >> Section 2

Finances for Immigrants

In recent times, aided by the demand for a mobile global workforce, hordes of young professionals from India moved to the US, Europe and other western lands in search of opportunities and wealth. Their quest was aided by the strong demand from western nations that were experiencing unprecedented growth. The real motivator was the dynamics of exchange rate differences between the Indian rupee and other currencies, making migration abroad especially attractive. For instance, a budding professional in India who would have to save for about two years to buy a snazzy motorcycle back home could save enough in a year to buy a compact car.  

For people from developing nations like India, the combination of exchange rate differences and Purchasing Power Parity (PPP) makes a migration to a western country especially attractive. PPP theory states that exchange rates between currencies are in equilibrium when their purchasing power is the same in each of the two countries. Take for example the Big Mac sold by Mc Donald’s in 116 countries around the world making it a truly global consumer product. Since 1986, the Economist magazine has tracked the price of the Big Mac around the world, calling it the “Big Mac Index”. To the Indian reader, contemplating a move to a foreign country, a study of PPP and the Big Mac Index will give an indication of the amount one would have to spend in order to maintain a similar “standard of living” in the new environment. What this also means is that a reader will get a more accurate idea on the earning and saving potential in different countries. The percentage of salary saved, say ten percent of one’s salary will have a greater bang for the buck when saved in the US than in India since a US dollar is stronger than a rupee. 

In this section of the book, we will look at various aspects of a person’s financial life in the US including savings, taxes, entrepreneurship and credit reporting. While working and earning money in the US, Indian professionals also need to be considering the various savings options available to them. They need to be aware of the credit-tracking and scoring mechanism in the US that will enable them not only to get loans and credit but will also help them operate bank accounts and manage other financial transactions. India follows the British financial model and many Indians with bank accounts are comfortable in the basics of financial management, hence the transition to the US financial system is not drastic. Finance, banking and investing in America is highly regulated and oriented towards safeguarding the interests of an investor. Investors are assured of basic financial stability. However, they need to be aware of the ground rules in order to find one’s way around the maze. 



  Snapshot of United States Economy    (Extract from CIA Factbook)

Overview:

The US has the largest and most technologically powerful economy in the world, with a per capita GDP of $36,200. In this market-oriented economy, private individuals and business firms make most of the decisions, and government buys needed goods and services predominantly in the private marketplace. US business firms enjoy considerably greater flexibility than their counterparts in Western Europe and Japan in decisions to expand capital plant, lay off surplus workers, and develop new products. At the same time, they face higher barriers to entry in their rivals' home markets than the barriers to entry of foreign firms in US markets. US firms are at or near the forefront in technological advances, especially in computers and in medical, aerospace, and military equipment, although their advantage has narrowed since the end of World War II. The onrush of technology largely explains the gradual development of a "two-tier labor market" in which those at the bottom lack the education and the professional/technical skills of those at the top and, more and more, fail to get comparable pay raises, health insurance coverage, and other benefits. Since 1975, practically all the gains in household income have gone to the top 20% of households. The years 1994-2000 witnessed solid increases in real output, low inflation rates, and a drop in unemployment to below 5%. Long-term problems include inadequate investment in economic infrastructure, rapidly rising medical costs of an aging population, sizable trade deficits, and stagnation of family income in the lower economic groups. Growth weakened in the fourth quarter of 2000; growth for the year 2001 almost certainly will be substantially lower than the strong 5% of 2000. The outlook for 2001 is further clouded by the continued economic problems of Japan, Russia, Indonesia, Brazil, and many other countries.

 

GDP:

Purchasing power parity - $9.963 trillion (2000 est.)

GDP - real growth rate:

5% (2000 est.)

GDP - per capita:

Purchasing power parity - $36,200 (2000 est.)

Inflation rate (consumer prices):

3.4% (2000)

Labor force:

140.9 million (includes unemployed) (2000)

Labor force

Managerial and professional 30.2%, technical, sales and administrative Support 29.2%, services 13.5%, manufacturing, mining, transportation, and crafts 24.6%, farming, forestry, and fishing 2.5% (2000)
note:  figures exclude the unemployed

Budget:

Revenues:  $1.828 trillion
expenditures:  $1.703 trillion, including capital expenditures of $NA (1999)

Industries:

Leading industrial power in the world, highly diversified and technologically advanced; petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, mining

Agriculture - products:

Wheat, other grains, corn, fruits, vegetables, cotton; beef, pork, poultry, dairy products; forest products; fish

Exports:

$776 billion (f.o.b., 2000 est.)

Imports:

$1.223 trillion (f.o.b., 2000 est.)

Debt - external:

$862 billion (1995 est.)

Currency:

US dollar (USD)

Currency code:

USD

Exchange rates:

US dollar – Rupees 47.83 (December 2001)

 



Earning potential in the US

One of the most common questions I am asked in India, when people realize that I happen to be an NRI living and working in the US, is about my earnings. How much do I make? I don’t know about anyone else, but I am extremely squeamish about my earnings and rarely like to discuss it with most people. Jaws drop when people in India find that even relatively inexperienced software professional in the US make a few thousand dollars a month (after taxes). A quick mental arithmetic ensues, converting the figure into Rupees. At that point, it is futile to even explain the concept of cost of living, or even the fact that an apartment rent alone runs hundreds of dollars a month, for that matter even a burger or coke costs a few dollars (Big Mac Index). It is hard to point out the fact that the key is not what one earns but what one is able to comfortably save, maintaining a standard of living that commensurates with local norms.

The salary one receives in the US could depend on a number of factors like one’s marketability, demand and supply (of the skillset) at the time of hiring, the region, city state of work, the specialization of one’s job, skills and knowledgebase. The kind of employer one works for, nature of industry, length of one’s tenure and experience also play a role. The American free market system extends to jobs and wages; hence, no two people with similar backgrounds, experiences and qualifications can expect the same salary or wages. For instance, working for a large corporation may not be highly paying but the job stability and the number of perks that comes with the job may make it worthwhile. By the same token, risks and rewards go hand in hand. Working for a small startup with limited funding and stock options may be highly risky, but if the company takes off, so do the employees fortunes. Sometimes, as thousands of dot.comers found to their dismay, the risks of working for small companies may be too real to ignore. The bottomline: At an early stage in one’s career, people can afford to take on bigger risks without worrying about the consequences but as years go by, tolerance to risk may be mitigated by the need for security and stability, reflecting on the pay package.

At the risk of sounding a bit pessimistic, I want to point out the fact that cultural background and communication skills of individuals also play an important role in determining one’s marketability and earning potential. There are certain jobs and careers where communications play a greater role. For example in the field of marketing or account management, one needs to be able to market one’s vision and the services to people from different strata of the society. A stellar marketing guru from India who is transplanted to the US will probably require some time in understanding the cultural and social nuances before being fully productive. Other aspects of culture include the accent of one’s spoken communication and usage of English, which also play a role in landing and keeping a job. It can sometimes be difficult, if not impossible, for foreigners who have spent a good part of their life in India to prove to prospective employers that they are on par with their peers in the American job market.

To be fair to the American system, excellence, regardless of race or ethnic background is well rewarded and Indians do succeed in myriad vocations in the US. It also helps that the legal system and affirmative action by the government ensures that employers cannot discriminate against employees on the basis of race, color, religion, sex or national origin, and requires affirmative action to ensure equal employment opportunity without regard to those factors. 

There are also nuances involving professional certifications and licensing that people in different professions need to be aware of. For example, CA (Chartered Accountants) from India might need to clear the certification exams before they are granted a CPA (Certified Public Accountants) status. Similarly, doctors, lawyers, bankers and even teachers from India need to clear American certifications before they are allowed to pursue a career. Information Technology is perhaps the most liberal field when it comes to accepting foreigners without requiring additional certifications.

U.S. Bureau of Labor Statistics studies and tabulates data and statistics on the labor market across the country. They also publish periodic reports on unemployment, job markets, cost of living and studies on professional and career trends.  A sampling of hourly rates for different occupations extracted from the official US Bureau of Labor data is appended below. This data pertains to the national averages and regional variations may be quite drastic. For example the software engineer working for a Californian startup will draw a much higher salary (adjusted for cost of living) than his peer working for a small company in Kentucky. The data in the table is intended to act as a reference and will help the reader get a ballpark estimate of salary and wage trends in the US. Most fulltime employees in the US work an average of five days a week, eight hours a day. This translates to an average of 2080 hours a year, a figure generally used to compute annual salaries. By this estimate, a Bank Teller who earns about $9.22/hour will have an approximate annual salary of $ 19,177.


Table 1: U.S. Bureau of Labor Statistics (1999)

Occupation

Hourly Rate

White collar occupations

$18.78

Engineers, architects, and surveyors

$29.36

Aerospace engineers

$32.75

Electrical and electronic engineers

$32.10

Mechanical engineers

$24.89

Computer systems analysts and scientists

$28.49

Physicists and astronomers

$37.84

Chemists, exc. Biochemists

$29.16

Geologists and geodesists

$28.27

Biological and life scientists

$23.03

Physicians

$63.07

Dentists

$40.34

Physical therapists

$23.84

Professors, college and university

$35.61

Pre-kindergarten and kindergarten teachers, exc. postsecondary

$16.33

Secondary school teachers, exc. Postsecondary

$28.70

Economists

$28.14

Lawyers

$38.30

Photographers

$18.26

Editors and reporters

$24.30

Licensed practical nurses

$13.40

Administrators and officials, public administration

$26.87

Managers, marketing, advertising, and public relations

$38.03

Accountants and auditors

$21.14

Management analysts

$25.03

Sales engineers

$30.60

Sales occupations, other business services

$19.31

Cashiers

$7.96

Supervisors, general office

$16.35

Secretaries

$13.55

Stenographers

$13.73

Receptionists

$9.74

Order clerks

$12.37

Messengers

$8.70

Bank tellers

$9.22

Data-entry keyers

$10.55

Automobile mechanics

$15.26

Aircraft engine mechanics

$21.19

Electronic repairers, communications and industrial equipment

$18.61

Telephone installers and repairers

$18.21

Carpenters

$17.25

Electricians

$19.12

Machine operators, assemblers, and inspectors

$11.41

Truck drivers

$12.72

Bus drivers

$12.38

Marine engineers

$15.56

Cooks

$8.24

Guards and police, exc. Public service

$8.89

Police and detectives, public service

$20.25

Firefighting occupations

$16.13



Saving for a rainy day

One of the main reasons why people migrate to foreign lands is to increase the earnings, savings and consequently increase one’s net wealth. For Indians moving abroad, the initial few years are spent chasing the “American Dream” acquiring a car, furniture, paraphernalia, and in traveling around the country. Of course, the first few years are also spent in saving and helping family and folks back home. Most of us from middle class backgrounds in India take great pride in the sense of belonging and attachment we have towards our families. Helping parents move into a nice flat or getting a sister married is almost de rigueur. Regardless of one’s financial situation, it takes a few years to lay a sound foundation and to build a base for a secure future.

After a spending few years abroad, many of us start realizing the duality of the lives we are trying to lead. It is at such a point that we decide if we are going to be here “for a while”, we might start planning for a secure financial future. Although saving for a rainy day is second nature to most Indians, we get sucked into the credit card and car-loan culture, initially because of the need to acquire white goods, and subsequently to keep up with the Jains. Some of the best technical minds may not be really good when it comes to financial management. Many of us feel that working towards a secure financial future means stashing away a sum of money in the bank every month. Some work on investing in the stock market or other investments that may be the flavor of the day.  An article of mine on “lessons in stock market economics is attached)

Financial planning and working towards a secure future involves a taking a long-term holistic view of one’s goals and financial targets. Working professionals in India are involuntarily included their company’s retirement fund and PPF (Public Provided Fund) that they and their employers contribute to. Most of the “career track” professionals are also assured of a gratuity or pension when they retire. This concept is absent in the US.  Most companies do not even have a formal ‘retirement plan’ other than the common 401-Ks, now made infamous by the crash of Enron. Employees working for the recently bankrupt Enron Corporation (more about it later in the book) lost their life’s savings including retirement funds because they were highly vested in the company’s stock and when the stock plummeted, so did their fortunes. For Indian professionals in the US, it is especially important to think about their financial future because unlike their peers back home, they might have a bright earning potential but no security net or retirement funds to speak of. 

The US government, realizing the need to provide for its ageing population, encourages long-term savings in many ways. After the Enron crash, the government is going to become more involved in regulating the retirement funds and savings to ensure that people are not closely tied to their company’s fortunes (more than they should really be). The government does not discriminate against foreigners when it comes to tax breaks, incentives and retirement savings. However, the onus is still on individuals to plan for their financial futures. Individuals need to do a tremendous amount of research and due diligence in order to seek the best options available. They must also endeavour to educate themselves about all the incentives, tax brakes and tools of investments available to them. I have been trying to research some of the American investment avenues available to Non Resident Indians like myself. Some of them include:

Social Security: Almost everyone working in the US pays a part of his/her salary towards a social security fund set up and managed by the Social Security Administration (a wing of the Federal government). The percentage of salary deduction varies, but is generally between six to eight percent. Employers are also required to contribute an equal amount towards social security. The federal government pools this amount collected from individuals (and companies) and holds it in a large fund. People generally become eligible to receive social security benefits when they turn 59, or in some cases, if they lose the ability to earn a living or become disabled. Even foreigners are required to contribute to the social security fund and are eligible to get the benefits. The only catch is that a person becomes eligible to get social security benefits only if they contribute into the system for at least ten years. Many Indians working in the US on H1 visa’s are only eligible to live and work for six years after which they must return back and will not be eligible to receive the social security benefits. 

There is also a lot of debate going on over the future of social security system in the US. People are starting to doubt if the fund, that is dwindling, will be available to them when they are ready to retire in fifteen or twenty years. This is because the baby boomers, a large percent of current population, are starting to age and are becoming eligible for social security benefits. The current contribution into the social security fund is less than the outflow. Hence, young workers and taxpayers are doubtful if they will receive any benefits from the fund when they are ready to retire decades from now.

Retirement Savings: Working professional in America contribute a part of their salary towards retirement saving plans like 401-K, IRAs (Individual Retirement Accounts) etc. Companies also encourage employees to save by opening an account for them and allow employees to ‘rollover’ their accounts in case they switch jobs. Some employers also match a small percent of contributions that their employees make. 401-K accounts are easy to set-up and manage. They can be set up with almost any financial institution like a bank, broker or savings fund. One can contribute any amount (up to about 10 percent) of one’s pre-tax salary into the account and one need not pay any tax on contributions made. The catch is that one cannot withdraw from the account until one retires, generally after turning 58. Withdrawals from a 401-K account are penalized heavily and there is little incentive to withdraw prematurely. However, people are allowed to take a loan against their 401-K savings, but even this is highly regulated. A loan is generally allowed only for specific reasons like child’s education, down payment on a house etc.

The Enron saga has lead to a lot of concern over the stability of individual 401 K accounts. Despite this, individual retirement savings and tax deferred investments are a really powerful investment vehicle.

Educational savings: People are allowed to save a part of the pre-tax dollars they earn by contributing into special saving accounts, also called Roth IRAs. This is a special tax incentive given to individuals who want to save for their children’s education. The amount can be withdrawn (without any penalty) to pay for any educational expense. The government, realizing the importance of education also offers a number of tax incentives and breaks to those spending on education.

Buying a House: Another popular form of tax benefiting investment in the US is to buy a house. There are two strong reasons that motivate people to buy houses. One reason is the appreciation in property and savings experienced by property owners who live in a house for a while (and save on rent). Another motivation is the tax break, given to homeowners. People take mortgages (loans) to buy houses and subsequently make monthly payments. There are two components of the monthly payment the principal and the interest. The interest paid towards mortgage is ‘tax deductible’, i.e. one can reduce the amount from one’s gross earnings and pay a lesser tax.

Foreigners, even those on H1 visas are not precluded from buying property in the US. A number of Indians here on a H1 visas have invested in houses. The only caveat is that buying a house restricts one’s mobility since it is not easy to sell a house and move out overnight. There are a number of costs involved in buying a house and it is generally assumed that the costs will be amortised over a period of time. One loses all the benefits (of buying a house) if one were to sell it within a year or two, unless the property appreciates substantially.

Stocks, bonds and mutual funds: Historically, returns on stocks have been greater than returns on most other forms of investments. Investing in stocks can be complex: there are thousands of companies in hundreds of sectors to choose from. Of course, one can also opt to invest in a “basket of stocks” by investing in mutual funds. Stocks are not for the faint-hearted or anyone who might need an element of liquidity. Attached to this section is an earlier article of mine on the stock market crash. Financial advisors generally suggest investing in stocks as a means to generate aggressive returns, especially for those with a long-term perspective. With the advent of Internet and online trading, it is extremely convenient to trade US stocks from anywhere. Opening a stock/brokerage account in the US is as simple as opening a bank account.

The focus of most people emigrating from India is to magnify the earning potential. Saving a percentage of one’s earnings is the real key to building net worth. NRIs in the US are realizing that prudent investment of one’s savings can help magnify it in the long run. Saving for the long term requires a lot of thought, planning and research, and a dollar saved and prudently invested could go a long way. With the varied avenues for investment available, saving and investing for the future can also be an interesting leisure pursuit.

An important aspect of savings is tax planning. Like most countries in the world, America levies Income taxes on all residents (including foreigners) who earn a living. The government also encourages people to save for the future by giving tax breaks and incentives, therefore it is imperative for people to be aware of the tax code and the different incentives in the tax code. Individuals are also made aware of the tax code and details regarding income taxes because it is their responsibility to file a tax return every year. In the next section, we will look at the intricacies involved in individual income taxes.



Income Tax

Living and working in the US, the inevitability of Benjamin Franklin’s oft repeated quote "in life, nothing is certain but death and taxes" does not elude me. The significance of taxes really hits home during March and April when a tax mania sweeps across the country. As the April 15th deadline for filing taxes approaches people scramble to find the required forms, software and/or tax practitioners. Uncle Sam’s reach extends to everyone living and making money in the US, including NRIs, and those on H1 Visas.

The US Government, like most governments around the world, levies a tax on income earned by people living and earning there. The tax collection process has been tuned into a well-oiled machinery. In the five years that I have spent in the US, I have not ceased to be amazed at the efficiency with which the Internal Revenue System (IRS) goes about enforcing the tax code. People are acutely aware of their fiscal obligation towards the Government, if only for the lure of ‘refunds’ that may be due to them. Every year IRS embarks on a major PR campaign to educate and inform the public of their fiscal responsibility.

Income taxes in the US are of different kinds. Almost everyone has to pay the federal (central) income taxes. Depending on where one lives, state, county and city taxes will also apply. Along with the taxes, other surcharges like Social Security, Medicare etc are added to one’s federal tax and an average person will end up seeing almost 30 percent of the earnings going to Uncle Sam. Most of the income tax is deducted at source. Employers deduct a percentage of the salary that is due to the various government bodies before disbursing the net amount to the employee. At the end of every year, it is the responsibility of the taxpayer to compute the actual tax that was due. If an excess amount was withheld, the taxpayer will be eligible for a refund, otherwise, he will have to pay the residual taxes.

Apart from their regular income, most people will have other incomes in the form bank interest and dividends, profits and losses from trading stocks etc. These incomes are generally added to the gross income on which taxes are due. The government gives tax breaks for medical expenses, donations to charities, savings for retirement, interest on home-loan mortgages. Most of the income and deductions are tracked by the banks and financial institutions, which report them to IRS. People generally work on their tax filing forms during weekends preceding the April deadline. There are a number of tax software packages available that speed up the process of computation, filling forms and can even be used to electronically file the tax returns to the IRS.

With huge databases and computer systems developed decades ago, IRS is able to track and process income tax filings with amazing efficiency. In spite of what the media says, the system works. Their systems are constantly being updated and most individual tax filers are able (and encouraged) to file their taxes electronically. State governments have also jumped on to the electronic bandwagon and allow for income tax filings over the Web. I generally prefer to electronically file my state and federal taxes towards the end of February and receive my tax refund in my bank account in about ten days.

What happens if you do not file taxes? Most people do not even want to imagine the consequences. Fear of IRS has reached mythical proportions and is a butt of Talk Show jokes. One thing is certain, big brother is watching. Case in point, along with a few friends, I ‘founded’ a Limited Liability Company in Colorado sometime last year. We went ahead and got a tax ID because it was required for us to open a corporate bank account. During January, along with all my other tax documents, I received a letter from IRS reminding me to file the tax returns for the company by April 16th! The ‘archaic’ IRS system was smart enough to realize that a new company was operating in Colorado and that it had to file its tax returns along with every one else.

Indians coming to the US for the first time are initially bewildered by Income Taxes – Federal, State, County, Social Security and Medicare taxes – that are withdrawn from their paychecks. They soon realize that there is a method in the madness and find that employers unobtrusively withdraw the taxes from their paychecks. It is the responsibility of every employer in the US to automatically deduct the taxes and send them to the government.

The flip side of all this is that the government is able to generate a lot of money. Almost 30 to 35 percent of earnings - from millions of its citizens and foreign workers add up to trillions of dollars. That money is used to build roads, for education, public services, libraries and to provide good clean water and basic amenities to everyone.



Credit Tracking and History

Banking and financial systems in the US are quite different from that in India. People in India, even those with respectable jobs, working for reputable organizations find the prospect of going to a banker quite daunting. It is hard to imagine walking into a bank and asking for a credit card or car loan. Most people would probably have to use some ‘contacts’ i.e. call up an uncle or cousin who knows someone remotely associated with a bank or financial institution. Of course, there is a method in the madness. Banks, like all prudent financial institutions like to safeguard their investments. The bank manager or loan officer relies on the referral you provide her. One can argue that computerization of branches and the advent of a streamlined accounting system, will lead to transparency within the Indian banking industry.

The system is quite different in the US where all financial transactions between individuals and banks are tracked, monitored and recorded. This record is known as a “credit history”, and helps financial institutions take decisions on the creditworthiness of prospective customers. It also helps that there is a common key in the form of Social Security Number (SSN) that is used in credit tracking.

Every person in the US, including legal aliens on H1 work visas is given an SSN or Tax ID, which is a nine-digit number. The SSN is thus a unique identifier and used by a number of institutions including Internal Revenue Service (IRS), the Federal Income Tax tracking body, to track the tax compliance of every resident. The SSN is used by the three major credit rating agencies in the US - Equifax, Experian and Trans Union to uniquely identify, record and report every individual’s financial transaction including debts, credits, bankruptcies, loans, mortgages, court decisions etc. Complex IT systems, networks and powerful mainframes are constantly at work churning through millions of transactions in order to provide a meaningful analysis and decision making tool that almost every banker and financial decision maker in the US uses. All the three credit rating agencies in the US constantly share data between their systems to get them to be in sync.

The process of gathering the data is quite straightforward. When a person, say Mr. Shetty moves to the US and acquires a SSN, among the first things he does is to open a bank account. If he applies for a credit card, the banker checks for his credit report, which obviously doesn’t exist. At this point, the banker might reject the application citing a lack of credit history. However, the story does not end there. Since the reporting agency’s system does not find an entry for the SSN being keyed on, it creates a new record for that person with the SSN as the unique identifier. The enquiry is thus “recorded” in the agency’s system. As Mr. Shetty goes on with his life, applying for a car loan or another credit card or store charge card, every new interaction that he has with a financial institution gets recorded. A history of all such transactions, recorded by the systems managed by these credit bureaus can be summarized and is given to anyone authorised to look it up. Even individuals have a right to acquire a copy of their credit report and are encouraged to do so periodically.

Most Americans start their financial affairs early in life and their transactions get recorded over a period of time. They are quite paranoid about maintaining a good “credit history” since a clean report is a harbinger to getting favorable rates of interest when applying for credit cards, loans and mortgages. Of course, most Americans live on credit and people sometimes default on credit card payments or other loans, which immediately reflects in a negative credit score. 

Indian professionals, landing in the US initially find it extremely difficult to establish a financial history. The first time a foreigner walk into a US bank or financial institution, she has to try extra hard to convince the banker that the lack of credit history does not mean that she is not willing to be financially prudent. Lots of traditional banks are wary of opening accounts for a people without any credit history. Hence, people new to the country find it easier to join a “credit unions”. A credit union is a "non-profit financial cooperative." When you join a credit union, you become a member and part owner of the credit union. The credit union’s only goal is to satisfy its members—with lower loan rates, higher deposit rates and better service than most any bank you’re likely to find. Members of any given credit union generally share a common bond. For example, many large employers have their own credit unions where only employees can join.  Some employers also provide referral to banks, brokerage and financial institutions.

Until this point, we have looked at the various aspects pertaining to financial affairs of individuals. We looked at the savings, financial planning, taxes, banking and earning potential of individuals working in the US. The “American Dream”, being rich and successful is extremely contagious, and even Indians who move to the US dream of making it big, either in their chosen careers or by venturing into entrepreneurship.  During the dot.com and Internet boom, even Indians succeeded in generating a few killer applications and were lucky enough to walk away with astronomical sums of money. In the next section, we will look at Indians as entrepreneurs in the US.



Entrepreneurship in America

The list of successful Indians who have made it big in corporate America reads like a who’s who of the business world. Indians have climbed to the top of Fortune five hundred corporations like Citicorp and US Air, founded multi-billion dollar companies like I2 and have been extremely successful in most endeavors. The word entrepreneur, to most of us, conjures visions of a person who runs his own enterprise, bringing together resources like land, labour, capital and his entrepreneurial skills, in the process amassing wealth. Being an entrepreneur does not contradict the idea of professionalism, but is increasingly being seen as an extension of it.

Most Indians, especially those from middle-class backgrounds are quite risk-averse, especially when it comes to business and ventures. We are led to believe that the only way to achieve steady success in life is by studying hard, focusing on education and later excelling in our chosen vocations or careers. The American Dream contradicts this notion. It is every American’s dream to strike gold by thinking of an ‘All American’ product, idea or service, selling out and making millions.

There are thousands of people of Indian origin in the US who are entrepreneurs in the conventional sense. They run gas stations (petrol bunks), motels, restaurants, Indian bazaars and other small businesses. Many of them are from the highly industrious Gujarati community who came to the US during the seventies and early eighties after they were uprooted from their homes by African dictators. They were granted asylum in the US, UK and other countries and decided to settle here. As per one research report, over 70 percent of motels in the US are owned by Patels.

Interestingly, even the government realizing the need for entrepreneurship and job creation, has a special provision in the immigration rules to provide green cards to foreigners who invest a specified sum of money (currently about a million dollars) and help create at least ten jobs in America.

Many Indians, who came to the US as H1-techies during the boom of the nineties, also caught the entrepreneurial bug. Of course, the runaway success of an Indian Stanford graduate, Sabeer Bhatia, who sold his company to Microsoft for a whooping 450 million dollars, really captured the imagination of a whole generation. He not only became in instant celebrity but also gave inspiration to thousands who tried to emulate his accomplishment, many of them successfully. The dot.com world may be littered with the debris of could-have-been’s but there are scores of Indians who cashed out in time – either through foresight or by sheer luck – and will tell their stories for years to come.

Indians from technical backgrounds were instrumental in spawning a whole array of business ideas ranging from mundane body shops to hi-tech fibre-optic, wireless and supply-chain systems. The list of successful Indians who have made it big in corporate America reads like a who’s who of the business world. On one hand we have the likes of Vinod Khosla (founder Sun Microsystems), Sanjiv Sidhu (I2) and Pradeep Sindhu (Juniper), on the other hand, we have the troves of friendly-neighbourhood body-shoppers. And of course a whole range of entrepreneurs in between.

During the early years of the tech boom, one of the most popular ‘business ideas’ was to start a technical consulting company. All one had to do was to place an advert in the local newspapers in Bangalore or Hyderabad, sift through the hundreds of resumes that would pour in and pick up the most promising candidates, and sponsor their H1 visa. Once the candidates landed in the US, hi-tech companies, hungry for bodies would grab them like hot cakes. The middleman would keep his cut of billing rate and go scouting for more bodies to “import”. There were little or no barriers to entry in this business and hundreds of thousands of body-shops mushroomed in the US. Of course, all this changed once the economy started going south. Companies that were once hungry for programmers started becoming weary of body shoppers and middlemen. They started questioning the need to employ a teaming workforce just to keep their IT systems running. The tribe of body-shoppers has all but vanished.

Incorporating a private company in the US is an extremely straightforward process. Given the risks involved in operating a business, it is better to “incorporate” the business into a corporate entity rather than operate as a sole proprietorship or partnership. However, unlike India, where one has to move mountains before one can incorporate a company, the process in the US (in most states) is quite straightforward. All one needs to do is to fill the necessary forms, which can be obtained from the secretary of the state where one resides. After filling the forms, one submits them along with the prescribed fees and one is given a certificate to operate as a business entity. The other paperwork like getting a tax id, opening a bank account etc is equally simple and does not involve a lot of paperwork. There are very few bureaucratic hurdles one faces and the whole process of starting and operating a small corporation is extremely streamlined. Incidentally, US also allows foreign residents and temporary workers to open operate corporate entities in the US. Any good corporate attorney should be able to walk you through the innocuous restrictions and bottlenecks. The result of all this is that the process of forming a business entity is extremely streamlined, leaving the entrepreneur to focus on the nitty-gritty of running a business.

During the dot.com boom, it was a universal dream to think of “killer web-portals”. With very few barriers to entry, even half-baked ideas were getting attention and capital. If there is any good that has come out of the current dot.com crash (and the economic downturn), it is that people are taking a hard look at their business plans. They are looking at how their business is making money, and are trying to become leaner and meaner. Real good ideas and business models are only going to survive and grow.

Thousands of professionals who have built a rapport with their clients operate as independent consultants (a.k.a. free agents). Lawyers and financial analysts have long known that their real allegiance is to the profession rather than individual organizations. Being a corporate attorney or a corporate financial analyst is less glamorous and paying than working for a high profile partnership, or better still, for one’s own firm. Doctors around the world have also relied on private practice to provide the gravy, even if the bread and butter come from working for a hospital. Academicians and professors have refined moonlighting into an art, consulting for large corporations by helping them understand and incorporate the latest academic and research ideas, in the process raking huge fees.  Indians in the US are realizing that regardless of the company they work for, they are not immune to the vagaries of business, layoffs etc. Hence they strive to get rewarded for the risks they take.

The US economy may currently be going through a slow phase, but the entrepreneurial spirit is still alive and kicking. There are hundreds, if not thousands of Sanjiv Sidhu’s waiting to exploit their killer ideas, announce IPO’s and strike gold. 

Search

Google

Mohan Babu: All Rights Reserved 2002- 2013

All rights are reserved. Mohan Babu ("Author") hereby grants permission to use, copy and distribute this document for any NON-PROFIT purpose, provided that the article is used in its complete, UNMODIFIED form including both the above Copyright notice and this permission notice. Reproducing this article by any means, including (but not limited to) printing, copying existing prints, or publishing by electronic or other means, implies full agreement to the above non-profit-use clause. Exceptions to the above, such as including the article in a compendium to be sold for profit, are permitted only by EXPLICIT PRIOR WRITTEN CONSENT of Mohan Babu. 

Disclaimer: This document represents the personal opinions of the Author, and does not necessarily represent the opinion of the Author's employer, nor anyone other than the Author. Any mentions of commercial products, company names, or universities are solely for information purposes and do not imply any endorsement by the Author or any other entity. The Author provides this article "as is." The Author disclaims any express or implied warranties including, but not limited to, any implied warranties of commercial value, accuracy, or fitness for any particular purpose. If you use the information in this document in any way, you do so entirely at your own risk.

Click here to send feedback to the author: Mohan _at_ GaramChai.com

Book Index

  • Intro
  • Section 1: Visas and Immigration
  • Section 2 Finances
  • Section 3 Law and legal system
  • Section 4 Consumerism
  • Section 5 Life and weekends in the US
  • Section 6 Health and lifestyle
  • Section 7 Demographics
  • Section 8 Indians in America: Looking to the future after Sep 11th
  • Section 9 Preparing for the next wave
  • Appendix
  •  

    GaramChai © 1999-2013 || Terms of Use