Sometime in September, India’s largest information technology (IT) services company by revenue, Tata Consultancy Services Ltd, or TCS, put up a message on its internal website (or intranet) saying that the company was preparing to lay off people.
There were, at that point, around 15,000 employees on the bench, said an employee at the company’s Gurgaon office who told the Hindustan Times about the announcement on the intranet.
And the company didn’t want to have anyone on the bench for more than a month, this person added.
Mint couldn’t independently ascertain whether TCS had such a message on its intranet or validate the size of its bench. The company refused to participate in this article because it is in the so-called silent period in the run-up to the declaration of financial results for the quarter ended 30 September.
Similar stories—most dealing with the size of an organization’s bench or the number of employees declared “reserves” as they do not have projects to work on—abound about other IT firms.
Some newspapers carried a report last month that said Satyam Computer Services Ltd was looking to lay off 4,000 of its 51,643 employees. The report was based on an email purportedly written by an employee that was forwarded to several reporters. The company has not effected any large-scale layoff and has always denied the contents of the mail.
Still, stories such as these, many apocryphal, have become common over the past few months, ever since it became clear that the financial crisis in the US would have an impact on Indian IT firms.
Crucial point: Infosys CFO V. Balakrishnan says finance and telecom companies need to grow together. Hemant Mishra / Mint
The top five Indian IT firms—TCS, Infosys Technologies Ltd, Wipro Ltd, Satyam, and HCL Technologies Ltd—derive between 51% and 63% of their revenue from the US.
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In recent weeks, as several US and European financial institutions have collapsed, been bailed out by governments or merged with others to stave off a credit crunch, the feeling that the Indian IT services business is in for a rough ride has intensified. “The largest two verticals for the company are finance and telecom. If they don’t grow, the company won’t grow,” Infosys technologies Ltd chief financial officer V. Balakrishnan said on 11 July during an earnings call with analysts from the US after the announcement of the company’s results for the three months ended June.
That was before Lehman Brothers Holdings Inc. went bankrupt, Bank of America acquired Merrill Lynch, the US nationalized insurer American International Group Inc., JPMorgan Chase and Co. acquired assets of Washington Mutual, Citigroup Inc. bought Wachovia Corp., Lloyds TSB bought HBOS Plc. in the UK, and several European governments bailed out Fortis.
Finance is the key
Over the next few weeks, as Indian IT firms declare their results for the quarter ended September and speak on their prospects ahead, the exact impact on their business of the financial crisis in the US and Europe will become evident. It won’t be insignificant: the top 5 Indian IT services firms get between 23% and 43% of their revenue from banks, finance firms, and insurers.
Events in the US have come at a bad time for these firms. Last year (2007-08), they suffered the fallout of a strong local currency—they earn in dollars but spend largely in rupees, so a strong local currency and a weak dollar hurts them. This year, while the rupee has depreciated against the dollar, revenue has become hard to come by because of the financial crisis in the US.
India’s software lobby group, the National Association of Software and Service Companies (Nasscom), and audit and consulting firms KPMG and PricewaterhouseCoopers have independently said that Indian IT services firms will have to defer hiring plans, cut workforce and bench strength, increase productivity and moderate wage increases.
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“Going forward, volume of new work is very likely to be limited and companies have already projected a flat if not declining pricing trends for the rest of the financial year,” says Viral Thakker, executive director of IT advisory services at KPMG. The first area where the impact of this will be felt is the bench.
Benching the bench
In good times, a bench, a complement of employees kept in reserve and who could be deployed quickly, was a good thing. Most companies maintained a bench.
Now, through an exercise called “bench trimming” companies are looking to or will reduce the number of reserve employees.
Satyam chief financial officer Srinivas Vadlamani says that the company’s bench strength would be lower in the current year (2008-09) compared with the last fiscal, as a percentage of the total workforce (he declined comment on the exact numbers).
That isn’t necessarily a bad thing, said a consultant.
“The slowdown is for real. But it would last for another nine months at best. Organizations should use this time to take stock of the flab, bench strength, (and) remove surpluses (and) non performers,” says Ganesh Shermon, partner at KPMG.
“Reacting to margin pressures, companies are enhancing productivity, efficiency and resource utilization,” Som Mittal, Nasscom president said last week. Nasscom has already revised its growth projections for 2008-09 from 29% to 25% and said it could revise it further. In 2007-08, India’s IT services business grew 28% to Rs237,848 crore.
“There will be an increased emphasis on better deployment of existing workforce for more efficient and cost effective delivery. This could mean bringing as much work offshore as possible as it offers cost benefit,” said PricewaterhouseCoopers executive director R. Sankar. KPMG’s Shermon added that the slowdown would definitely have an impact on half-yearly bonus payouts and mid-year salary hikes. “It would be foolish to attempt employee retention using the compensation route,” he said.
The IT services firms aren’t complaining. For the past three years, salary increases in the sector have averaged 15% a year, and attrition has ranged between 11% and 18%.
The TCS employee in Gurgaon claimed that the company had deferred promotions that were due in the July-September quarter. Satyam has deferred pay hikes and has brought down the average increase in salary from around 18% last year to 11% this year. Some employees, however, say that while the average is 11%, most of them ended up with a single-digit increase in salaries. At HCL, salaries for employees in India increased by 12% this year compared with 17% last year, according to K. Srivastava, senior vice-president, human resources (HR), HCL. At NIIT Technologies Ltd, the corresponding numbers were 10-13% and 17-18%.
“There is going to be no change of salaries for the top 15% of our employees but for the junior level hires, it is definitely lower,” said Rosita Rabindra, executive vice-president, HR, NIIT Technologies.
“People are expecting wage hikes to be muted going forward for some time,” said an Infosys spokesperson. “Hopefully, aspirations will be more in tune with reality. So there is going to be some moderation on the compensation front.”
Companies also expect to see lower attrition.
Nandita Gurjar, vice-president and group head, HR, at Infosys, said the company’s attrition levels had reduced since last year because of lower hiring and employees adopting a “wait and watch” strategy.
Ruchi Hajela is with the Hindustan Times