Impact of global financial debacle

IT companies ask recruitment agencies to stop hiring. The banking, financial services and insurance (BFSI) segment is the largest outsourcing vertical for Indian technology players. The space contributes up to 40% of the revenues for some top IT firms. The industry employs around 350,000 people in the BFSI space of which the top six players alone account for 180,000 jobs. The domain accounted for $10 billion of the total $32 billion revenues the industry posted during the last fiscal.

Combine these facts with the crisis in Wall Street, and what we have is a somber picture of things to come. If market estimates are anything to go by, what is happening in the global financial markets can result in the loss of as many as 20,000 to 25,000 jobs in India. That means, the likes of Cognizant, TCS, Infosys, HCL, Wipro and Satyam will announce huge lay-offs over the next couple of quarters.

Satyam was already planning a substantial workforce reduction. The mid year appraisal expected in October-November will be extremely crucial. Many companies may announce large scale job cuts according to some HR professionals. Tech providers have been seeing sluggish or no growth in the BFSI vertical in the last 12 months. The impact is big as the space has been the pioneer and largest adopter of technology. Many companies have already asked recruitment firms to stop hiring in the last 24 hours.

There are also fears that if the situation prolongs for six to nine months, other verticals will begin to be hit. Even the manufacturing sector will feel the pinch.

The direct effect of the demise of Lehman Brothers and Merrill Lynch is already being felt in the Indian job market. The nearly 2,500 employees of Lehman Brothers captives in Mumbai have been asked to look out for jobs. A firm that supplied temporary staff to the Mumbai office of Lehman said it had laid off 150 of their people. This is expected to have a ripple effect. For the moment the industry has to take this as a bitter pill. More clarity will emerge only later.

Just compare the above situation about the outsourcing optimism for India just about less than a year. What a change and catastrophe for aspirants. Given below are some figures substantiating the contrast:

IT outsourcing in the US to increase at 5.9 %. The American IT outsourcing market is expected to increase at a compound an annual growth rate of 5.9 per cent, from $13.3 billion in 2006 to $17.7 billion by 2011, a new report has summarized.

There will be continued shift within federal market away from a government-owned, government-operated model towards a contract-operated approach, the report said. This shift, it says, is fueled by the impending federal IT workforce shortage, war in Iraq, and federal contract spending slowdown.

To obtain the IT talent required and to minimize the costs of acquiring new technologies in relatively short time frames, spending in the areas of business process outsourcing and application services will contribute the greatest growth to the federal outsourcing market over the forecast period.

The level of federal IT skill in the out years is not very promising to meet the federal IT demands of the future. As baby boomers choose retirement, federal agencies will outsource more and more mission-critical functions if the talent needed to perform these tasks can be done more efficiently by contract personnel.

By the end of the forecasting period, agencies will have switched to a wholesale preference for smaller outsourcing contracts or multi-sourcing contract arrangements. This could be viewed as a total about-face when considering the recent trend in favor of the outsourcing mega-deal.

The general sentiment in the tech community is that Indo-US business momentum, irrespective of the Americans’ political preferences, will continue.

The outsourcing industry is seen to have evolved and grown since the presidential elections in 2004. Outsourcing today is a sector of higher visibility and acceptance. The emergence of the global delivery model has taken away the focus from an India-only offshore model to a multi-geography model that has further enhanced the acceptance of outsourcing.