Friday, 12 May 2017

IT in trouble, in India?

  • The Indian IT industry’s worst fears seem to be coming true.
  • H1B restrictions and automation resulted in uncertainty in Indian software industry apart from slow growth of global economy.
  • Annual turn over IT in India is $150 billion (Rs. 975,000 crores). 78% clients from USA.
  • The IT sector in India is generating 39 lakhs direct employments.
    (for every one direct IT job, there would be about three indirect employments)
  • At least 1.8% of employees are likely to lose their jobs. It could go up to 5%.
  • Hyderabad has 4 lakhs IT employees with supporting employees of 12 lakhs.
  • 116 Big software companies exist in Hyderabad.
  • The seven companies—Infosys, Wipro, Tech Mahindra, HCL Tech, Cognizant, DXC, and Cap Gemini —and which together employ 1.24 million people, plan to let go of 4.5% of their workforce, i.e. at least 56,000 employees, in 2017. 
  • TCS, the largest IT employer with close to 390,000 employees, does not have any plans to ask anyone to leave this year.
  • All seven companies are still in denial mode and attribute the planned exits to a “marginal” increase in the number of poor performers on account of a “more rigorous” performance evaluation process. 
  • India's IT sector has about 1.4 million mid-rung employees, who typically have 8-12 years of experience and earn Rs 12 lakh to Rs 18 lakh a year. 
  • Salaries at higher levels are in the range of Rs.24-36 lakhs per annum, in Hyderabad. Seniors with experience of 10-20 years are being targeted. 
  • Roles that were typically assigned to employees with over 10 years of experience are now going to machines. 
  • Hiring process for 2017 is likely to be slow with IT majors expected to cut down intake of engineers by 40%.
  • In Hyderabad at least 1,000 seniors with designation of Group Project Manager, Project Manager & Senior Architect are being pressurized to opt for VRS.
  • Infosys announced that they would add 10,000 jobs in USA. For every US job, they would have to lay off 4 employees in India. Its growth was 13.3% in 2015-16 has slid down to 8.3% in 2016-17.
  • In Wipro 10% of 1.81 lakh employees may get laid off as soon as performance review gets completed. They may be replaced with freshers.  
  • DXC is in the midst of a three-year plan to reduce the number of offices in the country from 50 to 26. The company plans to ask 5.9%, or 10,000, of its 170,000 employees to leave this year.
  • Tech Mahindra is planning to lay off an estimated 1,500 employees across all levels. Spokesperson said the company “has a process of weeding out bottom performers every year and this year is no different”. 
  • Tech Mahindra has suspended salary revision process for employees who have been with the company for more than six years, until there is a management review. 
  • Cap Gemini is likely to terminate 5% of its 1.13 lakh workforce. They have issued notices to 200 in Mumbai office.
  • IT solutions company Cognizant is expected to retrench over 10,000 employees in the country. Out of which 1,000 or more are likely from Hyderabad. 
  • Cognizant has been under pressure from investors to shore up margins, boost profitability, deliver growth and return cash to shareholders. Last month, Cognizant reached an agreement with activist investor Elliott Management, which holds 4 per cent stake, to boost its operating margins from 19.5 per cent in 2016 to 22 per cent by 2019 by streamlining costs, improving operational efficiency and aggressively employing automation to optimize traditional services.
  • Cognizant recently announced a voluntary separation package for its employees. 
  • Cognizant is asking employees (which includes Associate Director, Director, Vice President and even board members as well) to retire voluntarily, those who are grossing more than 40 lakhs with 9 months salary.
  • Cap Gemini India CEO says 65% of IT employees are just not re-trainable. Probably, India will witness the largest unemployment in the middle level to senior level. Most IT employees come from low-grade engineering colleges.
  • Nasscom says there is a need to re-train up to 1.5 million, or nearly half of its sectoral workforce. 
  • Poor growth and pressure on profitability has prompted most companies to save on costs.
  • The layoffs reflects their under-preparedness in adapting to newer technologies and dealing with the fallout from Trump’s protectionist policies.
      The rise of protectionist politics in advanced economies has increased the pressure on companies there to outsource contracts to local companies, instead of firms in India. This is making growth prospect more difficult for Indian IT companies. But with a president as unpredictable as Trump at the helm of affairs, the fear is that things can get more serious over time. 

      In the past, companies never facilitated nor encouraged employees to upgrade their skills, nor adapted modern technologies but continued with obsolete ones as a strategy to maintain attrition at minimum. Ridiculous as it seems, that the whining Indian IT jobs, once the most coveted in the country, are no longer secure and that morale in the sector is at a low.  The leaders are meeting clients, so they know about the change in (their) thinking. The bottom most guys adopt easier and learn. It is therefore, this middle management that is most difficult to change. The reality is that mid level managers never touches the outside world. Imagine someone with eight years of experience in something like manual testing with job going away due to automation and having a home loan or a child at a private school. There is huge human cost to this change and it will hit us hard. 

      The bad news is that the worst is yet to come. 

      My View:
      Brexit marks globalization's biggest reversal since the end of WWII. Such a secular shift impacted growth, corporate profits and asset prices. It adds to the conditions for slowdown in global growth and increased the chances of further shocks. Three legs of globalization: immigration, trade and capital mobility are under varying degrees of duress. Global exports of goods & services are falling, global inter-bank lending retreating with growing political risks. Globalization has enabled rich becoming much richer, upper middle class becoming richer leaving majority lower middle class and poor remain unchanged. Societies have been vertically divided between have's and have not's. The vulgar and disproportionate utilization and display of resources by upper classes has become point of heart burn for majority lower classes giving rise to protectionism and nationalism exemplified by Trump's winning. Reversing these trends is no easy task. Indian IT sector growing on 100% export model carries unknown and uncontrollable overseas risks with no means of mitigation. Instead of 15-20% annualized growth if it contracts by just 5%, its existence comes under threat. Its devastating effects impacts one and all. Now the decision of exempting IT sector from stringent labour laws by granting them hire & fire powers at will, will come under scrutiny. Instead of feeling helpless we must change our economic growth model reducing global risk exposure to minimum, exploit our strengths and keep going carrying all sections of society together. Avoid comparison with China etc and endeavor should be to improve ourselves over previous year by at least 5%, if not more.

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