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U.S. Economic Slowdown Affecting Hiring in India

The number of information technology and business process outsourcing deals dropped to 78 in the first quarter of 2008 from 109 in the first quarter of 2007; by the second quarter of 2008, the number of deals slid to 58, down from 101 a year earlier.

September 26, 2008
Related Topics: Global Business Issues, Retention, Workforce Planning, Latest News
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Rising inflation and the downturn in the U.S. economy are forcing Indian employers to slow hiring, freeze wages and fire underperformers to maintain profit margins.

“Efficiency and output delivery will be the core mantras at play,” said brand consultant Harish Bijoor.

The slowdown is tangible, as the number of information technology and business process outsourcing deals dropped to 78 in the first quarter of 2008 from 109 in the first quarter of 2007, according to India-based research firm Value Notes. By the second quarter of 2008, according to Value Notes CEO Arun Jethmalani, the number of deals slid to 58, down from 101 a year earlier.

With inflation that climbed to a 16-year high of 12.63 percent in August, employers are trimming their workforces amid rising costs. Human resource outsourcing company Convergys laid off nearly 400 people after it closed one of its Mumbai centers in August.

Companies like Patni, Fidelity and 24/7 are shedding low performers and will continue to cut staff and freeze hiring, said Avinash Vashistha, chairman and CEO of Bangalore-based investment advisory firm Tholons.

“As companies expand their operations, they will have less and less people,” Bijoor said. “Added to this, companies will recruit fewer people until there is stability on the inflation front.”

With Nasscom predicting that revenue growth for the nation’s IT and BPO industries will slow to rate of 21 to 24 percent this year, companies have realized that they need to better manage their bench—a surplus of workers that employers can call on if they need to boost a project’s manpower, said Sudhin Apte, senior analyst and country head for Forrester Research in India.

Genpact, the country’s largest BPO firm, is experimenting with a work-from-home initiative for employees in its finance, legal and HR divisions to cut overhead and maximize productivity. The company is also outsourcing employee education to Indian training institute NIIT, which it says can train as many as 10,000 people next year.

“It will bring down the cost of training for us, and NIIT is more efficient at training people than we are,” said Genpact president and CEO Pramod Bhasin.

In a recent study of high attrition rates in the BPO industry, the Hay Group said employers should consider combining short- and long-term incentives, such as performance and retention bonuses and employee stock option plans.

Bangalore-based Tata Consultancy Services, India’s largest software services provider, believes it can survive by focusing on hiring strategies. Last year, 60 percent of TCS’ new hires were experienced professionals.

Now, however, to reduce salary, including bonuses and promotions for those with more than two years’ experience, the company has flipped its hiring practices, says Ajoyendra Mukherjee, vice president and head of global HR at TCS. This year, 60 percent of TCS’ new hires are trainees, while 40 percent are experienced professionals.

Indian retailers, meanwhile, are looking at how their HR management practices can become more efficient. Pantaloon India Ltd., the country’s largest publicly traded retailer, has merged the human resources and information technology systems of various business units into a common platform. With one HR and IT team, the company says it has reduced overhead by $37 million a year.

But not everyone is scrambling for ways to trim costs. Infosys Technologies believes that in an economic downturn, IT outsourcing companies that provide cost savings will need to maintain a readiness of highly qualified employees. While other companies are trimming employees, Infosys is bulking up.

The Bangalore-based company says it has not changed its recruiting and training strategy. In fact, it expects to hire 25,000 employees in 2009 and maintain current levels of employees on its bench.
 
“The employees on the bench are maintained to ensure we do not miss out on growth opportunities,” said Somnath Baishya, head of global entry-level hiring and campus relations at Infosys. “Our aim has been to build a flexible business model that helps us focus on growth at all times.”

—Zahid H. Javali, reporting from Bangalore, India

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