Support companies hit as IT firms tighten belts

Support companies hit as IT firms tighten belts

Bangalore: When technology firms hurt, their ecosystems feel the pain.

As tech firms try to weather the economic downturn by cutting costs and slashing budgets for support infrastructure, companies that maintain their facilities and provide catering and transport services are seeing their revenues dip and margins slide.

Employees, meanwhile, are missing the cabs that ferried them to work and back home and wondering where the hand tissue in the washroom and the pickle at lunch went.

Typically, cleaning, housekeeping, pest control, landscaping, catering, security, logistics and transport, and office support such as maintenance of ACs, generators and electrical equipment, account for 15-20% of costs at information technology companies.

“When clients cut costs, the first thing to target is outsourced services... These are non-core, support activities," says Pradip Sahadevan, vice-president, sales and marketing, ISS Integrated Facility Services Pvt. Ltd, a support services provider in Mumbai.

The company says it has been hit since October. The facilities provider with a turnover of Rs230 crore in India, counts a number of IT firms as clients including Hewlett-Packard Co.’s India arm, Cognizant Technology Solutions Corp. and Accenture Ltd.

IT firms are paring costs through measures ranging from reducing power bills to cutting travel and postponing capital expenditure such as buying new computers.

As companies aim to cut overall budgets by 15-25%, the frequency of cleaning premises and the workforce for the task is being reduced. Cutbacks in food subsidy are forcing employees to bring packed food from home, says Sahadevan, who did not want to reveal how much his revenue had fallen in recent months.

Smaller companies such as Bangalore-based Sri Rajashree Caterers are more distressed, hit by increased prices and clients delaying payments. “(For the) last two months we have not made any profits," says S.P. Shankar, owner of the catering company. Although prices of cooking gas, rice and vegetables have surged in the past few months, Shankar’s customers have not allowed him to charge more for the meals his company serves.

Sri Rajashree, with a turnover of Rs3.5 crore, employs 95 people to prepare 1,000 meals daily. It caters to 18 IT/BPO (business process outsourcing) companies including International Business Machines Corp. (IBM), AT&T India and Fortune Infotech Ltd, charging Rs30-45 for a thali meal, a plate with a selection of courses. Shankar takes comfort in the easing inflation rate, which fell to a seven-month low of 8.4% for the week ended 22 November, but his worries don’t end there because some US-based multinational IT clients are delaying payments. “Earlier we were giving 30 days’ credit, but now it has been extended to 45-60 days... We have been forced to take a bank loan in order to pay our vendors," Shankar says.

IBM declined to comment. Most other companies, including Hewlett-Packard India, Accenture, Infosys Technologies Ltd, Wipro Ltd and Tata Consultancy Services Ltd (TCS), did not respond to emailed questions. Cognizant and SAP India Pvt. Ltd denied cutbacks in support infrastructure.

Cab use cut

Bangalore-based transport services provider SRS Travels, which runs a fleet of some 5,000 vehicles catering to close to 100 clients including Infosys, TCS and Wipro, says it has seen its revenue drop since last month.

“Revenues are down 25-30% since last month (compared with a year ago)," says K.T. Rajashekhara, chief executive of SRS. “Earlier a cab would ply just to drop one employee to his home in say RT Nagar (a residential area in north Bangalore), but nowadays the cab waits for 1-2 hours by which time three-four more people join in for the same trip."

Tech companies have reduced the number of cabs and the trips they make to transport employees to work and back. Many companies have done away with home pick-up and drop services, instead specifying stops where employees are supposed to board the vehicles and get off.

Some large companies have also switched from engaging a fleet of cabs to a small number of buses so that they can transport a larger number of people in one trip.

Says a 24-year-old software engineer with TCS, “There are no cabs between 8am and 5pm. The transport desk has told us to fend for ourselves." The engineer, who did not want to be named, works in production support on the morning shift from 6am to 2pm. She takes the office cab in the morning and uses multiple public transport buses to return home.