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Watch | Business Matters: Will global layoffs jolt India’s IT industry?

Business Matters: Will global layoffs jolt India’s IT industry?

A video explaining why are mature-stage start-ups too laying off staff and what lies ahead.

January 25, 2023 08:39 pm | Updated January 26, 2023 01:02 pm IST

There has been a slew of layoff announcements in the Western corporate world these past months, gathering pace over recent weeks. The latest was Google’s announcement that would impact 18,000 of its employees.

Crunchbase estimates that just in the first 20 days of this month, US saw 46,000 jobs impacted by the announcements. It also said that last year, public and private tech firms laid off 107,000 people.

The Indian sector too has seen some media news around this but not as much. The Hindu’s Business page in Saturday’s edition alone had 3 news articles to do with layoffs, for different reasons – Google, Wipro and Swiggy. Let’s see what exactly is happening the world over and in India. 

Generally, while announcements of tech layoffs when an economic slowdown hits them may be common in the West, we are unlikely to see similar, aggressive layoff action in India. Here are a few reasons why: Indian IT firms are agile with their hiring plans rather than with layoffs, says Ciel HR CEO and MD Aditya Mishra. “Because IT services companies here maintain a bench, they get some lead time in which to react to developments. As bench expands, hiring goes down.” 

There are two reasons why Indian firms take it more slowly. E. Balaji, currently Global chief HR officer at TVS Supply Chain Solutions, who has also been a senior leader in the manpower placement industry for more than a decade prior to this position, says fear of reputation loss and labour laws that aren’t easy to navigate are key. 

Culturally, US companies seem more open to layoffs. Balaji says that that country has a liquid labour market and labour laws too are not that stringent. US companies are quick to ramp up and also ramp down. And when decide to go for it, they have one deep cut instead of doing it in phases. 

Mishra of Ciel highlights the fact that in the US, flexi-staffing penetration is the highest in the world. 

Of course, 2008-09 was an exception for India if we look at the past two decades – Balaji points out that even the government had said in Parliament that the global financial crisis precipitated 5 lakh job losses in the country across industries.

Pandemic effect

Mishra points out the pandemic was deceptive. It gave the impression that the digital spike would be permanent. Things were good in all of 2021 and in first 6 months of 2022. In Sept, when firms started to see things were not going their way; they started tightening their belt starting Oct going into Dec. As it is this quarter is a slow quarter, with holidays, and furloughs for services firms.

He says that IT services customers in banking, pharma, retail and hospitality have all been tightening their belts. And that this has started impacting the bench strength of Indian IT services companies.

It certainly has. Infosys’s utilisation (inluding trainees) declined from 89.2% in Sept. 2021 to 81.7% in Dec 2022. If you look at an approximate manpower base of 3 lakh people, a 7.5% change means that roughly 22,500 people have come onto the bench, from active projects.

In a call with analysts, CFO Nilanjan Roy said the Dec metric was one of the lowest utilisation rates Infosys had seen. In other words, a company pays salaries to more people who are not earning revenue on billable projects, now than 5 quarters ago.

Wipro’s utilisation rates slid from 78.1% in Sept 2021 to 72.3%. With an employee base that is currently close to 2.6 lakh, you do the math.

Since manpower cost is the highest for IT services firms, a rising bench strength in not welcome. So companies have reduced hiring. TCS has actually had a net DECLINE in headcount, which is a first in quite a while for the largest Indian IT services firm. Compare this with about 25,000 heads added in the 6 months ended September.

Wipro too saw a decline in headcount in the quarter ended December. Compare this with an addition of more than 15,000 people in the April-June quarter of 2022!

Infosys has also tempered addition from more than 20,000 at end-June to about 1,000 in December.

What else can companies do to rein in staff cost?

Balaji says apart from slower hiring, increments would slow down, companies may delay on-boarding of candidates, they would have tighter appraisal processes... But these wouldn’t be highly overt or headline-causing changes, because they realise that once the tide turns, they still need to be a sought-after company, he says.

Wipro, for instance, found via assessment tests skills were lower than what it expected. So, it laid off 452 last week.

What trends are placement agencies seeing?

Mishra says that the number of resumes voluntarily seeking change has gone down by 25% between September and December. For the industry overall, movement of talent among companies has dropped 30%-35% compared to same period last year, says Karanth.

On the other hand, with global tech majors announcing layoffs that would impact their Indian arms too, Ciel HR sees an increase of 10-20% of resumes from such employees coming into the market.

Mishra says that Ciel still finds it difficult to find good resumes in “full stack, data science, cloud, tech Infrastructure”.

IT services companies have been feeding each other’s attrition and replacement hiring action, says Karanth. “Exchange of talent within the top 4 bellwethers has clocked a total of 4.14 lakh gross movements in 3 quarters.”

He says attrition may dip a bit but will continue to be higher than historical low levels as new global capability centres of global tech firms continue to set the shop up in India. He says in 2022, 54 greenfield tech companies were set up, and their first preference to shop for manpower is IT Services companies.”

Professionals esp in the 6-12 years’ experience range with certain niche skills are still in demand. So much so that such techies are declining 30% of active offers.

Why are mature-stage start-ups too laying off staff?

Swiggy announced last week it would lay off 380 people, even as the CEO admitted to the error of ‘overhiring’. GoMechanic had ‘overstated’ financials and hence has to cut costs; it will let go of ‘70% of its 1,000-strong workforce.’ Late last year, Byju’s, the Edtech firm, laid off about 2,500 people in a restructuring exercise.

Mishra of Ciel says that start-ups – be they fintechs, edtechs, or quick-commerce firms – had all hired based on projections. Because those projections have not been met, investors are urging cost-cutting. So there is people impact across functions – sales, customer service and tech.

“Investors aren’t backing their portfolio firms now as they used to. Venture capitalists normally wait till an idea succeeds or till the business closes. Now, even midway if certain projections have not been met, they ask entrepreneurs to stop funding those initiatives.”

If war, inflation and recession had not happened, investors would have continued to back these projects. Now, patience is running low.

Script and presentation: K Bharat Kumar

Production: Shibu Narayan

Videography: Johan Sathyadas

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