The current slowdown is one of the worst for the Indian IT industry since the dot-com bust in 1999-2000. With nearly 80 per cent of the business coming from the US and UK markets combined, both of which have been hit hard, the current slowdown has impacted the Indian IT industry in a big way.
To start with, the currency volatility impacted the bottom lines of Indian IT firms for most of 2007 and early part of 2008. To add to this the US financial debacle and the resultant slowdown in the global economy has taken its toll on the sector. The current economic environment has meant drops in IT spends in the US and the growing uncertainty in the US market has just worsened the deal pipelines for Indian software services vendors.
Moreover, clients are asking for price cuts, project ramp-downs and cancellations are increasing by the day. Along with this the US government’s tough stand on not giving tax benefits for those who take away jobs from the US and reports that H1-B visa threshold may get further tightened are the new concerns for the industry. Not that the industry is scrambling for H1-B visas; this year’s quota of 65,000 is still not finished.
The worsening condition promoted the software industry body Nasscom to reduce its revenue growth rate for the Indian IT industry to 16-17 per cent from an earlier estimate of 25-30 per cent. The only silver lining in the cloud was the depreciating rupee against the US dollar since IT firms earn in dollars and spend in rupees, but that too is reversing after the stable UPA government.
But this has not deterred the industry players. There is a clear acceptance that while the earlier growth rate of 25-30 per cent is not feasible any more, many have already chalked out a road-map to tackle the recession. Most IT firms - including the top three firms - have already put in a cost containment measures and a strategy that allows them to go up the value-chain.
Lay-offs have been one of the most sought after tool by the IT industry to cut costs. The industry that would generally hire in thousands in anticipation of business has decided to freeze hiring, increase the bar of performance or simply not visit the campuses.
Large players like TCS, Infosys and Wipro all have deferred the joining dates of new recruits by a couple of months. Take for instance, India’s largest IT firm TCS with a headcount of 130,000, but put a freeze on lateral hiring and said that it would look at just-in-time hiring and would visit campuses only in the eighth semester rather than the four or fifth as was the norm.
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This is not all S Ramadorai, CEO and MD of TCS, admitted on the company’s cost-cutting initiatives. “Our largest expenditure - around 55 per cent of our gross revenues - is manpower cost and employee salaries. We are not contemplating a pay reduction, but we are reviewing the employee variable pay." Other than a cut in variable pay, the company also increased the working hours to 45 hours a week from 40 hours.
Some of the mid-cap firms have actually come up with innovative way of tackling the human resources issue without hurting the employee sentiments. Mastek and Hexaware Technologies for instance, created a virtual bench. Both the firms have kept a few hundred of its employees on a virtual bench. While these employees will get a lower salary, they will be on company rolls and will be absorbed back as soon as new business starts coming in.
With pricing cuts in the range of 4-5 per cent IT firms have started focusing on increasing the share of revenues from offshoring work and moving towards fixed price contracts.
The trend that started in the first quarter of FY10 has become a focal point for Indian service providers. The offshore-onsite has changed from the 70:30 ratio to 85:15. Among the top three firms of India that is TCS, Infosys and Wipro, the offshoring component has increased by 100-150 basis points, say analysts. Indian IT firms have also focused more on fixed price contracts.