Source: Times of India
Date: Feb 11th, 2008
Mohit SoapBox:
Yes.. I have been saying this all along that despite of the brave front the vendors have been putting, the global slowdown
is going to have a potential negative impact on growth in 2008. Then we had Gartner come up with a news release where they believe the IT spending will go up 3.3% this year. I respect Gartner as an analyst firm but am not sure where they are getting their #’s from. All the US based firms I have spoken with continue to see a slowdown in IT budget and steady budget if not a cut. A # of recent presentations I listened into from the vendors – the question of the day seems to be – what are the levers the Indian firms have to deal with the slowdown. The answers are again consistent
- Increase Utilization
- Get more work offshore
- Reduce SG&A expenses
- Go deeper within existing clients
- Ask for price increases from customers
- Slow down hiring ( Or do right hiring)
- Right Skilling – Hire people with graduate degree for work which does not require enginering degrees
- Explore customers outside US
This year will be an unusual year for the Indian technology industry. A slew of external and internal challenges – an impending US slowdown, subprime issues, rupee appreciation, soaring costs, pains of managing bulky-benches, billing pressures and shrinking margins/profitability – will place tech-dom on a market trajectory very different from what it has seen for the past five years.The industry is expected to come on par with its global counterparts in terms of salary increments and annual growth. The belt-tightening trend kicked off by TCS and IBM could soon find its way into other companies. And that could include staff rationalisation.
Libi Baskaran, a strategic advisor with a leading MNC firm said, “Not many fresh contracts are there in the pipeline. Billing pressures are at an all-time high. Per employee utilisation rates are much lower than the global levels. Overall costs are soaring. All these factors will force domestic enterprises into a major cost-cutting drive. Based on the available visibility, this calendar promises no significant momentum for the tech sector.”
Tech firms are increasingly contemplating downsizing their growth plans, physical and people-front expansions.
“TCS hired 6,000 people during the quarter ended December 31, 2006, while at the end of the corresponding quarter the next year, it hired only 4,000 people. A company that’s growing at 35% should have ideally hired 8,000 people, but recruited only 50% of that. This trend will gain visibility across the industry during the comingquarters,” said Avinash Vashistha, MD, Tholons, a global offshoring investment advisory.
Tech firms are also busy strategising ways and means to mitigate any possible revenue declines on account of the US slowdown. “One way of minimising the damage is by optimising the productivity and reducing the bench thereby keeping overheads down,” said Sabyasachi Satpathi, director, neoIT, an offshoring advisory firm.
“Most IT firms work with a 70-75% utilisation of workforce, which means the other 25% is cost to the company. However, this scenario cannot continue as margin pressures are soaring quarter on quarter. The only solution is to enhance utilisation,” said Harish Shah, IT research analyst with an angel broking firm in Mumbai.
“Traditionally we have seen IT companies such as Wipro constantly trimming 5-10% of their poorest performing workforce annually. Now with the margin pressure coming into play most companies will have to follow this course.
Filed under: Uncategorized
