Effect of US recession on India’s IT and ITeS Industries

The chairman of India’s largest temp staffing firm, Teamlease, is a worried man these days. The average number of positions that the company needs to fill up for its clients daily has come down from 9,000 last year to 5,000 at present. It also fell short of the target of 1.10 lakh hirings this quarter by more than 25,000.
EMA Partners International, a global HR firm, is also facing a similar situation. The company has seen a 50-60% decline in IT & ITeS recruiting, one of its major revenue generators. As a result, it had to cut down its revenue growth target from 100% to 50% for 2008.
The US recession is affecting India too. Apart from the recession in the US, there are other reasons also for the slowdown — rapidly increasing inflation and sky rocketing prices of crude oil and other commodities. A slowdown is apparent in a number of sectors. IT-ITeS, banking, finance, insurance as well as the sunrise sector of retail are showing the symptoms.
According to a HR consulting firm hiring intentions of all seven industry sectors showed a decline. Two sectors showing real signs of slowdown are IT and ITeS. The US slowdown has impacted mid-value IT and ITES companies which have cut down on hiring. The slowdown may continue for the next two quarters.
Interestingly, companies are now quoting the slowdown as an excuse for lower salaries and job cuts. Employers are placing more focus on increasing efficiency and productivity of employees in order to remain competitive in the market rather than on increasing headcount.
The year 2008 may focus on reward and punishment differentiation. Salary deferrals are looming large. This situation will lead to weeding out of non-performers. Numbers have no meaning, only quality people will be retained and hired.
IBM laid off 700 employees in India early this year. Majority of the employees sacked by the Big Blue were entry level trainee programmers who had put in around one year at IBM India’s global delivery business. Some days later, India’s largest software company, TCS, too asked about 400 of its employees to quit. TCS said that this was part of its annual performance driven exercise. The company had earlier cut down on its incentives to employees.
Hiring for additional bench strength is being deferred as companies resort to just-in-time approach. Others are delaying joining dates of selected candidates by more than six months to a year thus creating a ‘virtual bench’ for themselves. Companies however, gain by showing that they have stuck to their plan of hiring the targeted numbers. Moreover, they don’t have to a pay a penny like in real benching where you have to feed an employee even if he is not working on a project. Infosys also reaffirms it commitments. Many IT firms are cross training employees to quickly deploy them in new processes as and when the need arises.
Companies don’t admit openly, but many have internally frozen all recruitment. IT & ITeS is said to be seeing a 50-60% reduction in number of assignments and projects compared to the situation six months back, say HR consultants. Though the slowdown started becoming evident since the beginning of January and does present a danger, the real impact would be clear only by the last quarter of calendar 2008.
There is definitely a slowdown in the industry and it has hurt the BPO companies most because of their dependence on the US for work. The hiring is continuing, but its rate has slowed down.
Salary in the IT industry were growing at 14-18% per annum for last many years and this created a disparity in the industry. On one hand, it created a lack of talent in other sectors, on the other it put a pressure on the industry itself. So, a moderation in growth of salaries (which is happening currently) is good for the economy and for the health of the Indian IT industry. It will help India maintain its competitive edge. Infosys, however, planning to go ahead with its hiring plans and have already made campus offers for 18,000 this fiscal (FY2009).