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Future
of IT jobs
Time
for a re-evaluation of the job opportunities in the IT industry both
at home and abroad. News from US, the preferred destination for all
job seekers. The expats are having a tough time in US. For a couple
of years now they have been living with lay-offs, salaries cuts and
drastic reduction in perks. Now they have to contend with nil leave
of absence. Termination order follows a day off.
In US, entry however, is no problem – for the skilled at least.
Though the contract terms have changed. But not so in Europe where
vacancies exist and loss of liberalised of late. In Germany,
especially, no outsider is welcome. Recently an Indian was beaten up
in a crowded road and a ferocious dog was set up on him in full view
of the commuters. Even otherwise the expats in Europe feel unable to
pole-vault the cultural and linguistic divide. Mastery of the local
language is of no use.
In the circumstances three things need to be looked into closely.
One is the size of the job market. The others being the scope and
range of IT enable services and work outsourcing. There is a lot of
hype about them at present.
To begin with the unemployment in the Silicon Valley the cradle of
the computer revolution spiked 8 per cent in late 2002. It a record
for the US as a whole. Back in December 2000 the jobless rate was as
low as 1.3 per cent. Worse, the employment level in the valley even
when they get slightly better elsewhere. In an exhaustive study
assureconsulting has x-rayed the IT job market for finer details. If
the Indian industry is looking up to US for inspiration, growth and
profit it should take on board the telltale figures.
Constituting 70 per cent of India’s IT exports, US economic
parameters are extremely crucial to Indian industry’s growth
projections and guidance. Latest reports from the US suggest that
the economy is snapping back from last year’s recession. Recording
its strongest performance since 2000, the latest reading on the
first-quarter gross domestic product — which measures the total
output of goods and services produced within the United States —
shows the economy grew at a rate of 5.6 per cent. Although lower
than the expected growth rate of 5.8 per cent, the first-quarter
performance signals the beginning of a turnaround given the economy
actually shrank at 1.3 percent rate in the third quarter of 2001 and
GDP grew at a below-par 1.7 per cent rate in the fourth quarter.
Before Indian IT celebrates, one needs to read between the lines.
The key drivers of the turnaround were President Bush’s $1.35
trillion tax cut package and a whopping 18.3 per cent growth rate in
federal government spending on national defence, the biggest
increase since the first quarter of 1967. Capital spending vital to
sustained economic growth registered a steep drop for five straight
quarters. Businesses cut spending by 8.2 per cent rate, 2.5 points
deeper than the 5.7 per cent decline previously estimated. US
unemployment rates continue to be at an eight year high of 6 per
cent. Not surprisingly despite first signs of an economic rebound,
US economists have mixed thoughts on how the recovery will shape up
with predictions ranging from sluggish to solid. John Forelli,
senior vice president at Independence Investment LLC, which oversees
$20 billion rightly, described the mood. The mood is cautious,
it’s sort of directionless.” “People realise the economy is
slowly improving, but not enough to make people raise estimates and
so forth. It sort of feels like you have to wait until the third
quarter to see directional changes in expectations.”
That the economy is not sizzling was reflected in a series of recent
announcements by IT majors. In the last two weeks IBM, whose profits
fell by 30 per cent in April, and Ericcson, whose orders fell 16 per
cent last year, with a 39 per cent drop in the fourth quarter,
announced 9,500 and 17,000 job cuts respectively. IBM CEO Sam
Palmisano, in a recent address to employees warned: “It’s clear
that the industry is not bouncing back this year” and that
“it’s not going back to (growth rates of) high single digits or
teens.” Looking out further, Palmisano said, “It’s not going
to be growing at 10 or 11 per cent next year either.” HP Chief
Executive Carly Fiorina echoed Palmasino’s weak outlook. In a
statement, soon after company’s results Fiorina said: “While a
muted recovery in the second half is still possible, we are not
counting on meaningful improvement in IT spending until 2003.
‘Muted’ meant a 2 per cent rise in IT spending.” Fiorina
however saw 2003 recovery at 8-10 per cent. Computer maker Sun
Microsystems has also warned that that corporate technology spending
was still constrained and that order flow was not as smooth as in
the March quarter.
Weak corporate spending on technology has also hurt most hardware
companies for the past year. Semiconductor sales for instance were
hit 32 per cent in 2001. Network gear makers are in store for more
hard times as the much-needed sales boost in the June quarter is
unlikely, as corporations remain cash-strapped, according to a
report by Pacific Growth Equities.
Unless capital spends improve and economic recovery is assured and
back on a firm-footing, hiring will remain slow. For now, it can be
safely predicted that’s at least two quarters away.
Indian IT services companies like Infosys, Wipro and Satyam claim to
have added 100 plus clients in the last one year. Aggressive
marketing efforts by these companies have ensured a steady flow of
orders. Yet these companies while aggressively chasing volumes have
either ordered a freeze on hiring or are recruiting at a painfully
slow pace. An important indicator that will fuel hiring rates is the
number of benched employees. For instance India’s largest software
major added 75 employees in the fourth quarter ending 31 March 2002
as compared to 109 employees in the last quarter. During the boom
period, Indian IT companies confident of bagging onsite US projects
fought bitter talent wars and lured techies with astronomical pay
packages, at times without adequate assessment of technical skills
or domain expertise. That 35 per cent of Infosys employees were on
bench is a pointer to the industry’s hiring policy. Trapped in a
full-blown global recession, the flawed hiring model that favored
numbers over real need and skills became a liability. Most companies
resorted to layoffs, euphemistically disguised as performance
related downsizing, but 30 per cent of their workforce is still on
bench. Saddled with excessive manpower capacity in a recessionary
market, and a need to keep costs low, the focus of Indian service
majors is on scaling manpower utilisation rates without incurring
additional staffing costs rather than hiring professionals on a
large scale.
Recruitment is inversely proportionate to number of benched
employees. The greater the number of benched employees, the bleaker
the hiring outlook and vice versa. High bench is a primary reason
for the depressed job market and withdrawal of offers to freshers.
In the last one year, companies have focused on generating revenue
through bettering workforce utilisation and deployment. BFL Memphis
for adopted stringent bench reduction strategies. Manpower
utilisation grew to 78 per cent in 2001 from a 57 per cent low in
2000. Other majors such as Infosys and Wipro recorded marginal
success. Wipro, for instance, marginally improved utilisation rates
to 71 per cent in the fourth quarter from 67 per cent in the third
quarter. Now, the company has 2,800 employees on bench as compared
to 3,502 in the previous quarter. Similarly, Infosys has improved
utilisation rates to 72.4 per cent from 69.6 per cent in the
previous quarter.
The bottomline is that 25 and 30 per cent of employees are on bench.
The marginal improvement recorded by IT majors will result in
selective hiring and companies are unlikely to open the floodgates
to employment. Adding this the industry has recorded an historically
all time low attrition rate. On account of the volatility in the job
market skip-jump-hop played to perfection has ceased to be the
techies favorite exercise. According to Nasscom, on an average,
attrition rates in the domestic IT industry have settled at four per
cent during the first nine months of the current financial year, as
against 14 per cent in the corresponding nine months last year. TCS
has already declared that it would be inducting fewer employees this
year.
Companies have learnt their lessons from anticipatory hiring that
led to high bench rates, Once considered to be an aberration,
circumspect hiring will now constitute a normative practice. Firing
will be skills rather than need based. This transalates unto demand
for IT pros three plus years possessing domain expertise in niche
technology verticals. For example, Wipro is on the lookout for
project managers, functional experts in the area of package
implementation and process consultants. Freshers hold on, just for a
little longer.
The slowdown in the US has underscored India’s advantage as a
quality code churner. Stung by high costs of labour that consitutes
75 per cent of costs of developing software and a desperate need to
cut costs and speed time to market in a harsh competitive
environment, US companies are shifting base to India to leverage its
high quality low cost advantage. A 100-man facility can save IT
companies $7-15 million in a year, according to a recent McKinsey
report. In 2000-2002 Indian MNCs contributed 15 per cent to
India’s software exports. A clear evidence of the increase
interest in India is that 60 per cent per cent of the 110 units
registered with STPI Bangalore in 2001-02 were foreign equity
companies. In April-May 19 new units were registered, compared to
110 last year. In its February edition of Tattler,
AssureConsulting,com had listed twenty companies who shifted
operations to India in January. In the last one month alone, marquee
names such as Fiat Software, Snecma Moteours and ADC announced their
decision to set up development centres in India.
India’s large graduate pool- over 120,000 trained IT professionals
are added to the Indian talent pool yearly compared to 25,000 in the
US; 62 per cent of the workforce has more than four years of
experience and over 70 per cent has an engineering degree, have
contributed to the bullishness over India. Top US companies such as
GE, Cypress, Cadence, 3Comm SAP, Computer Associates, Microsoft and
Intel are now aggressively scaling existing operations in India.
Interestingly, despite announcements from most large MNCs of
significant layoffs in their international development centres,
Indian work force has doubled in its capacity.
Two years ago, SAP’s Bangalore center, for instance, accounted for
a mere one per cent of total development spend. Today, this center
accounts for over eight per cent of development spend and is
projected to grow to 15 per cent in the next two years. The company
has now announced plans to invest 23 million Euros in India,
Microsoft plans to hire 300 people on board by next year from
current headcount of 125 and plans to invest $500 million in a
couple of years. To boost its talent hunting efforts Microsoft
recently launched a .Net pet shop to woo developers.
The net Pet shop is a prototypical web site that’s 28 times faster
and supports 7.6 times the User load as the Java Pet store yet needs
one fourth of the total code and one-sixth of the CPU resources.
Oracle similarly plans to triple its staff strength in about 12
months and is opening a new centre in Hyderabad. GE Intel, Cadence
and Texas Instruments are hiring at an accelerated pace.
The revival in the job market is thus being driven by global IT
majors who are either setting up independent ODCs or expanding
existing facilities. Over a period of time, established MNCs have
ceased to view India as low cost support destination and are
development work outsourced to its Indian facilities.
For example, Motorola has moved its entire product development to
India, and even part of product management and specifications
development has been shifted. Baan used its Indian ODC to manage
over 40 per cent of Baan 5 development. Fourteen per cent of
Novell’s worldwide R&D is carried out in India and there are
plans to increase this figure to 20 percent in the next 2-3 years.
Adobe has located 8 per cent of its worldwide development resources
in India with plans to increase this to 20 per cent over the next
two years. Over the next two years, US-based Cypress Semiconductor,
which makes logic and memory, chips, with primary focus on telecoms
and network gear makers will shore its Indian investment to $15m.
After upping the investment, the India facility will be Cypress’
biggest development centre worldwide and will staff 300 engineers.
Finally, companies like GE are looking at India for fundamental
research and new concept/product development.
Companies are hence scouting for professional working in high-end
domains possessing the experience label. This means big titans will
welcome professionals with minimum three plus year’s experience in
a particular domain. Yes, the job market is beginning to tick but
for professionals possessing three-five years experience.
Courtesy: Assureconsulting.com |
