Economy

IT Job Market in India and Industry trends

One of the concerns for everyone in the Indian IT Industry – for both the insiders and the (abroad) customers are the rising cost of manpower. In the last 3 to 4 years (Indian Financial Years Apr-Mar) the industry has grown tremendously. All the 3 Indian IT majors have joined the billion dollar club, continued to double there revenue every year and are now multi-billion corporations. All of them are close to having over 100,000 employees. They have been joined closely by Tier 2 IT companies as well in the multi-billion dollar club and many of them have over 50,000 employees with them. This is formidable human resource capital but they don’t come cheap, this unprecedented growth has been pushing the salary further to unsustainable levels.

Furthermore, for Indian IT services firms, nearly 50% (it ranges from 40%-60% depending on the size and offshore/onshore mix) of their revenue is spent in salary and related expenses. Only in few other industries, a single raw material* costs nearly 50% of the revenue. Certainly, no other industry (maybe Oil and Steel in recent years) has seen its raw materials* cost increase over 30% year on year. So far the Industry has been able to cope with this in several ways – productivity gains, fresh resource augmentations, training, process/tool improvements and more but this certainly gives sleepless nights to CEOs including myself. I strongly believe whether it is stock market, the economy in general or salaries, all of them cannot defy gravity for long and keep growing upwards. Indian Stock market which skyrocketed with its BSE Sensex hitting 21,000+ a few months back is now trading at 15,000 levels. All goes through cycles of ups and downs; bearish days are also good for the economy in the long run. In Australia conservationist welcome forest fires because they burn the outer layers of the trees which fall down and add nutrients to the soil. In the long run, this helps the soil to remain fertile and nurture new life. This is nothing new, it has been happening this way there for millions of years.

Am I forecasting doom days here? – Certainly No. Tough days – Definitely Yes. There are several indicators for this trend. First is the obvious US Slowdown (and a short recession), second is the Indian Rupee to Dollar appreciation, Third is the increasing cost of raw materials and the lower margins – gone are the days of hefty profit margins in IT industry. All these have started to show their impact – news are trickling in of delayed joining dates for campus hires by the IT Majors (at this time this sounds more as rumours to me) and if slowing down in the rate of lateral hires/job market. The best indication I follow for sensing Chennai’s Job market is “The Hindu” newspapers Wednesday Opportunities supplement – this week I hardly saw 1 or 2 IT related openings. Normally you see here several full pages and half-a-page advertisements by all popular IT brands.

What are the consequences of this:

  • First, it will separate boys from men (girls from ladies). The “me too” players will get killed and consolidation will happen in the industry, which is good for any industry to mature
  • For the 3 Indian Majors, this will mean little, it is likely to be business as usual. The senior teams there would have easily seen this coming for several quarters and they certainly had time to fine tune there strategies
  • It will be difficult for Tier 2 companies who are aspiring to get into the elite league as their growth rates will slow down
  • For small and emerging companies tough days are certainly ahead. There will be churn but the bloodbath may be limited and short
  • Niche players depending on their offerings and geographies have better chances of surviving this and also growing a little due to easier talent access and lesser competition.<Shameless plug begin> This includes companies like mine “Vishwak”. We are focused on Media Industry and have been investing heavily in the Indian domestic market for last few years. We are witnessing good growth in both these areas and our investments in the Indian market are starting to paying off. Here first mover advantage give us significant head start along with our better understanding of the market<end>

I know this can start a lively debate here and I welcome it, please start posting your comments, observations and thoughts.

*I prefer calling them as Human Assets but that will give a different financial meaning in this context, so let us have them as raw materials here

5 Comments

  • The crisis that we face here is Very dynamic and would come back to normal very soon.

    Industries that have tasted the benefits of ERP and other IT related supports can’t stop themselves from investing further on the same lines, so as to keep them ahead in the race.

    There are many reasons for the Crisis, like Oil Price fluctuation, US Election , Share Market crash, etc., etc.,

    Hence, they (* Clients of IT Co’s) have temporarily put the new IT Projects on Hold, and in turn, our IT Co’s have put their recruitment plans on hold and Some have even gone to an Extent of Employee Down(Right???)-sizing.

    Once, the Clients start signing off their new IT investments plans, these IT Co’s will run again for employee hunt and the market would boom again.

    But, Hold On!! Before celebrating, please note that we have to wait for a couple of years from now for the Tide to Rise up.

    Better to put your Investment plans and Luxury purchases on Hold for now.

  • Dear Visitors,
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  • I have gone through all the comments and agreed upon this. Its a matter of time, but i think things will not be the same as before. The US Financial meltdown is just a correction to the indian economy.IT industries have to be very causus in recruiting people since salary expenses are their direct expenses and they have to keep some funds for the rainy day. Share market touched 21000 from a level of 15000 though there was no reasons to grow in that level, offcouse india is growing but share market has to follow the growth of indian economy. Real eastate market got double in just 3 yrs time, now it will have a correction.
    sujit

  • Valid Comments Kalpesh. The move to cheaper destinations have already started – TCS have huge centers in South America apart from Brazil in Uruguay & Santiago Chile. It is just a matter of time before they setup more in Vietnam, Cambodia and Eastern Europe (on the being closer to customer theory). TCS is not limited here, other IT Majors will all be at this at various stages. I am not a fan for government controls on Industry, but I believe Governments have a major role in Policy directions/guidance. In this issue, Indian Government doesn’t seem to even have in its radar on how to control spiraling costs in India making India less competitive and threatening Small/Medium players; and to stop losing hundreds of crores of Tax Revenues that biggies and their employees pay – as they move more and more away from India to other cheaper destinations.

  • Time for companies to say "you are fired".

    From my experience, I have yet to see many Indian companies saying "bye" to employees in order to manage.
    Correct me if I am wrong – there are the tricks employed by most Indian companies in IT

    1) Offshoring the work. Have a senior person onshore & push the work offshore to some experienced guys & a lot of junior developers.
    2) Make people work long hours.
    3) Compromising the quality of work & people who are hired.
    4) Lack of attitude to grow & invest into employees by companies. Also, employees don’t invest much in themselves.

    Sadly, every engineering graduate wants to be in IT or high paying job.
    I think Vishwak has done some good work by catering to local market. That is where a lot of opportunity exists.
    Imagine, India/China or Asian countries becoming tech-savvy just like EU/US. Penetration of these things would reduce dependence on EU/US & we really wouldn’t need to worry about US recession as much (makes me laugh when I see CNBC & the BSE/NSE collapses due to fear of recession outside)

    Big Indian IT cos (multi-billion dollar) will move the work to China, Brazil or elsewhere – a place where costs can be kept low & people are happy with limited salary to start with. It is a vicious cycle.

    On a side note – listen to Dan Appleman’s talk on hanselminutes where he says Architecture is something where US has an edge – which can’t be offshored and is not done anyways.