Recruiting firms are being told by uninterested clients to freeze hiring. Layoffs are no longer taboo. It's time to re-work HR strategies.
Till just a few months back, department store chain Shopper’s Stop was busy chasing headhunters to find candidates who were “willing” to join. The tables have been turned; it’s the headhunters’ turn to do the chasing while companies play hard to get. B S Nagesh, the managing director of Shopper’s Stop, says his office gets so many unsolicited résumés these days that his company has enough data to open its own headhunting company.
Job seekers may not find the joke funny, but in a way it sums up the impact of the global financial crisis on the Indian employment scenario. Shopper’s Stop, for example, has decided to be very selective in filling up new vacancies and will recruit only when new stores come up.
The reasons are obvious: Nagesh says the slowdown’s impact has not been felt as yet as consumer demand is still rising 10 per cent year-on-year. But things could get a lot worse in the next 12 months if companies become tight-fisted on increments next year. “If the salaried individual feels the pinch, that’s the time when retailers will face the real squeeze,” he says.
His competitor, Future Group chairman Kishore Biyani, agrees. The company, which owns large retail chains like Pantaloon and Big Bazaar, has cut people cost by 1 per cent by linking salaries with performance, and is going “really slow” on recruitments. “Human capability is infinite and multi-tasking is the order of the day,” says Biyani.
The slowdown heat is not scalding retail companies alone. At least three top recruiting firms say they have received frantic calls from clients asking them to stop hiring at least for the next couple of quarters.
Enterprise software company SAP, according to sources, has sent an email to its staffers saying “all engagement with external recruiters must cease immediately”. There is a freeze on headcount and hiring, and all existing job vacancies will be cancelled. This includes temporary workers, interns, and students. Others are not far behind in freezing recruitments — especially at the entry level.
The worst fallout of this was seen recently at India’s premier engineering colleges. Several multinational companies withdrew job offers they had given to students of Indian Institutes of Technology at Bombay, Kharagpur and Delhi — a far cry from the days when students at IITs and Indian Institutes of Management interviewed companies to figure out if they were in a position to do justice to the students’ ability.
From plenty to paltry
Just a couple of years back, McKinsey, the consultancy firm, estimated that India’s factories would need 73 million workers by 2015, which is 50 per cent more than today’s. And — believe it or not — India’s airlines were projected to add 440 new planes by 2010 to their fleets, which meant 3,200 additional jobs for pilots alone, and many times that for cabin crew, ground staff and airport handling personnel. About 40,000 vacancies were expected in the next three to four years just for cabin crew jobs.
Today, Jet Airways is still reeling under its experiment with layoffs. It first sacked 800 employees and announced that 1,100 more will be fired, but retracted the pink slips within 24 hours after a public and political outcry. Soon after the dust subsided came the reports that Kingfisher Airlines had slashed the salaries of its trainee co-pilots by 90 per cent.
In a sense, Jet’s decision was unavoidable. Its chief executive officer Wolfgang Prock Schauer says Indian aviation, a $6 billion industry, is expected to lose $2 billion in 2008-09 due to record fuel prices. The losses arising out of the global financial crisis, and the traffic downturn caused by the crisis, make matters worse. Jet has been watching the situation for some time in the hope of a reversal of fortunes. That hope has come to nought, says the expat CEO.
Schauer is only echoing what his counterparts in other industries have been feeling for a while. India’s fourth largest information technology company, Satyam Computer Services, has already put some of its employees under what it calls a performance improvement plan. S V Krishnan, global head (human resources) at Satyam, says, “As part of our appraisal process, we identify around 5 per cent of our associates under the performance improvement category and put them through a structured programme.” Others such as Tata Consultancy Services (TCS), Dell, Yahoo! and EDS (now a part of Hewlett Packard) have done similar exercises.
Wipro Technologies has put 4-5 per cent of its workforce under the scanner for “non-performance”. Wipro’s corporate vice-president (human resources) Pratik Kumar, however, says this is a regular annual exercise. “As the appraisal cycle gets over, a multi-layer review happens. Following that, people who have fallen in the lower quadrants of performance are put on watch. Some are asked to pull up and others are asked to move on.”
Many feel that quite a few Indian IT companies may not give their hiring guidance due to the uncertainty in IT spends from US companies, which are facing the brunt of the financial crisis. Consequently, many smaller Indian IT firms are expected to hire in reduced numbers. Further, they are cutting their bench strength to improve employee utilisation and productivity.
For instance, Bangalore-based IT outsourcing services provider MphasiS, an EDS company, is reducing hiring plans by almost 50 per cent. At the beginning of this financial year, the company had announced that it would recruit 8,000 people. That figure is down to 4,000. Jeya Kumar, the company’s chief executive, attributes the slash to higher employee utilisation. “Overall, hiring has slowed down in the industry. We tend to drive more towards productivity and operational improvements rather than hire more numbers. Over the last eight months, we have driven up our utilisation rate 10 percentage points. That’s why we need fewer people.”
Campus recruitment by IT companies is expected to fall below 40 per cent from around 60 per cent. In the current financial year, Wipro has so far issued 6,000 offer letters to freshers under its campus recruitment programme. Last year, the number was 12,000. Puneet Jetli, head-global people function at MindTree, agrees: “People are becoming much more conservative in terms of hiring from campuses next year. We won’t be surprised if companies don’t make any commitments upfront from next year.”
Experts say this was bound to happen after a period of excesses. “Companies were earlier recruiting anybody with a pair of hands just to stock up in case the growth story continued. Suddenly, they are feeling the heat,” says Manish Sabharwal, the chairman of Teamlease, India’s largest staffing solutions company.
Caution: Bumps ahead
Many recruitment consultants say that one out of every 20 employees in the sectors of IT and banking and financial services risks losing her job because of the meltdown. Layoffs are still a sensitive issue in India and no company is willing to put any number to the people being asked to ship out, but most companies say in private that the churn is on. “No one wants to be as foolish as Jet, but people are being shipped out quietly — of course with adequate out-placement safeguards,” says a top HR consultant.
Others say the impact of what is happening in London will complicate matters further and Indian employees are bound to feel the ripples. For example, the layoff figure in the UK’s financial district is expected to touch 60,000 by the end of next year, reducing employment in the industry to the lowest in more than a decade as the credit crisis worsens, according to estimates made by the Centre for Economics and Business Research (CEBR).
The legal, professional services, insurance, fund management, securities and equities industries are likely to follow by cutting headcount by up to 20 per cent. Banks worldwide are shelving deals and cutting employees as the turmoil in credit markets spreads. About half of London’s 15,000 corporate finance jobs will disappear by the end of next year as mergers and acquisitions slow down, the CEBR report said. Companies have announced $1.2 trillion worth of takeovers in Europe this year, a 25 per cent drop on the same period in 2007, according to data by Bloomberg. Almost 46 per cent of derivatives-related jobs in London may also go as demand for more complex products wanes.
Banks and investment firms have eliminated more than 134,000 jobs globally since the beginning of the credit crisis last year. That’s horrible news for Indian companies that depend on Europe’s BFSI segment, which has added more jobs than all the other service sectors combined since 2004.
Though there is relative stability at the top, Indian companies admit in private that large-scale layoffs are taking place at the middle level, too, but quietly. Says, Anjali Bansal, the India head of leadership consulting and executive search firm Spencer Stuart, “There is a sense of quiet anxiety that we see in industry as no one knows how long the uncertainty will last. But progressive companies are planning to use the slowdown to take a hard look at their business strategy and tailor their human resource plans accordingly.”
Bansal, whose firm is involved in board and senior level appointments only, says many companies are looking for candidates who will not only drive growth in the long term but also be able to manage the slowdown as it unfolds. The earlier focus was on growth, growth and more growth. “It’s a subtle shift in thinking when it comes to leadership hiring,” she says.
Time to regroup
There are, however, many who say that some of the pessimism is no more than a knee-jerk emotion. Yes, there is uncertainty and there is possibly some pain still left for Indian companies, but things are not so bad. Yasho Verma, a director at LG India, says the consumer durables company is doing quite well and has kept its hiring plans on schedule. It has recruited 90-95 candidates from the country’s B-schools this year, which is the same as in the past few years.
The salary increments (which LG gives in January) will also be maintained at last year’s average level of 15 to 16 per cent. “It’s nothing but panic reaction to a problem that doesn’t exist that much in India. LG grew 60 per cent last month year-on-year, and expects to grow 40 per cent this month. So where is the slowdown? For our employees, nothing has changed... If you have been stable with your policies and not indulged in irrational exuberance, things are fine with you,” he says.
He remembers the time in 1997 when LG India’s Korean parent was in deep trouble following the East Asian economic crisis. “Many thought the company would put off its India entry plans, but it stuck to its original plans, and look where we are today,” he says. Verma quotes a recent Harvard Business Review study that says companies usually tend to stop recruitments, and slash promotion budgets and expansion plans during a slowdown. But that’s a horrible strategy: great companies should use the opportunity to ramp up presence at a time when real estate costs are low and decent manpower available at a reasonable cost.
Ajay Srinivasan, the CEO of Aditya Birla Group’s Financial Services, says this is a good time to build businesses to tap the huge long-term potential. “When we are building businesses with a long-term view, we are less concerned about the short-term impacts. The basic growth rate in India, the high savings rate and low penetration of financial products suggest there is a huge yet-to-be-tapped opportunity,” he says. The company has been expanding and beefing up its manpower. To that end, it has just acquired a brokerage firm.
There are many others who have read the tea leaves and taken early steps to meet the challenge. Take ICICI Bank. After years of heady growth, India’s largest private sector bank had decided to go slow in extending retail loans. As a result, operating expenses were flat at Rs 532 crore in the first quarter of this financial year.
The bank was the first to announce in April that it would skip annual rituals like promotions and large-scale bonus payouts this year. The consensus at that time was that ICICI Bank was being foolish as the talent shortage and emergence of new job opportunities would trigger an exodus from the bank. The bank’s move also went against the projections of all leading global consultancies that Indian employees would bag the biggest global salary increases this year — an average of 15 per cent. ICICI Bank however went ahead and gave a moderate 8 per cent increase in salaries (11 per cent last year), skipped promotions, and slashed bonus payouts.
Ram Kumar, ICICI’s group head of human resources, says sound economic logic was behind the decision. For a bank with a large retail portfolio, the thumb rule is that operating expenses can’t exceed 45 per cent of total revenues if the bank has to deliver profitability. And a third of that — 15 per cent — should be the wage cost.
