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Outsourcing: Indian Techies Never Had It So Good!
Posted by B2B on: 2006-05-10 09:30:55
Outsourcing: Indian Techies Never Had It So Good!
Author: manjot kamal
Article:
As the Indian tech sector grows at a fast clip, Indian techies are in great demand and have never had it so good. What is more, there are enough global vendors eager to grow their own Indian outfits. IBM and Accenture, the most aggressive amongst them are forcefully striking out, causing attrition rate for Indian IT firms to inch up, despite salary hikes of between 12-16% over the past two years.
End March FY-2006 saw the attrition rate for Satyam Computers touch 19.2%, while even a complacent TCS, who normally boasts about low attrition is a trifle subdued, as its numbers nudge the 10% mark, up from 8.7% in the third quarter of FY-2006. As for Infosys, the March quarter saw the attrition rate climb to 11.2%, far higher than 9.7% of March 2005. Tier II players, such as, Patni Computers have been hardest hit as their attrition has reached the 20% mark.
As the off-shoring / outsourcing story only gets better and better, retaining people has become more difficult. In a bid to lure the best, MNCs and home-grown Indian IT firms are offering lucrative carrots to entice employees of rival firms into joining their companies, causing attrition to become an issue on two fronts i.e. higher costs for training and loss of business momentum, even spelling financial loss for fixed price contracts.
The Off-shoring / Outsourcing Story Reads 'Moolah, Moolah, and More Moolah'!
And, no company is willing to hinder its growth, just when, there are orders are aplenty and large ones at that, such as, ABN Amro, General Motors and Pearl BPO, to name only a few. Recent data from TPI, a consulting firm, confirms Indian companies have increased their share of large deals from 2004's 1% to 3% in 2005. Moreover, their share in deals of over $50-million increased to 6% in 2005 from 2% in 2004 (based on the number of deals). It seems, very large deals are being broken down and re-structured to enable Indian firms to have a better chance of snagging off-shored / outsourced orders.
Good news, indeed, as it should put to rest any fears companies may harbour about a fall in growth volumes. The Indian off-shoring / outsourcing story continues to get better, improving all the time. And, evidence about the veracity of the success story comes in the form of American firm, Cognizant indicating it expects its revenues to grow as much as 42% in the current year to $1.26-billion, while enterprise software companies such as Oracle and SAP remain optimistic on licence revenues. These high financial expectations and growth rates have prompted CIOs in USA to expect a 7.8% growth in their IT budgets over the next twelve months.
Gross, Grossing IT Majors
And, it is not surprising to find IT firms mining their clients faster than ever. Take the case of Wipro for example, who has twenty-nine $20-million clients today, compared with 22 at this year's start, or TCS with nine $50-million clients, against five in first quarter FY-2006, including thirty-one $20-million clients up from 25 of March 2005.
As Indian firms continue to scale up operations from across product domains, such as, package implementation, infrastructure management and BPO, new consulting or testing services businesses are growing fast, as well. And, the best piece of news is Indian firms have reduced their contribution of commoditised segments, such as application development and maintenance for companies, with companies like Infosys and Satyam ADM contributing only half of what they did five years back.
And, as Wipro gets more off-shored R&D projects, its dependence on traditional low-end operations is lessened. Besides, as Indian firms make greater inroads into Europe, the geographical spread also gets better, self-evident when we study Infosys's revenues from Europe for FY-2006, which stand at 24.5%, up from 22.3% of FY-2005. As for TCS, its European revenues constituted 24.3% in the fourth quarter of FY-2006, as compared with 22% in the first quarter of the same financial year, while Wipro's Europe revenues stand at nearly 33%.
With the revenue outlook good and pricing expected to remain stable, Infosys has been led to announce a 28-30% growth for FY-2007. Though, Wipro's first quarter expectations at 4% appear weak, analysts say it has more to do with a couple of big clients ramping down, and are certain volumes will pick up in subsequent quarters.
On a Hiring Spree
As IT firms go on a hiring spree to tap into this opportunity, it is important for them to attract talent in big numbers, which could prove difficult as the number of firms looking to hire increase by the day. Even as, Cognizant indicates its head count will go up by 42% in current year 2006 over 2005, Cap Gemini and CSC have already hired more than 60% of their off-shore employees in India, and are looking to, further, increase their numbers.
Furthermore, it is not only global IT firms that are on a hiring spree, captive centres for big banks, are also on the rise. An estimate for a set of such centres shows employment has risen from 20,000 in March 2002 to 80,000 this year. And, in FY-2006, the Indian IT industry is estimated to have recruited around 30-35% more than in the previous year. For example, Wipro added 11,471 numbers to its staff count, while TCS hired and additional 21,140 people.
According to conservative estimates, if these home-grown and global business players are to grow 25-28% annually, between them they need to hire at least 50,000-60,000 people each year. The annual requirement from the BPO sector alone is estimated at more than 100,000.
Bigger Pay Cheques
The expansion of captive units and ramp-ups by global vendors means wage inflation, especially at the middle management level, which faces a talent shortage. Industry watchers feel salary raises could exceed 13-17% of last year (FY-2006), perhaps settling in the range of 15-17%.
Satyam Computer's Managing Director, Ramalinga Raju has confirmed salaries for off-shore employees will go up 18-19%, while on-site salaries will increase by 5-6% in FY-2007. The last 18 months have seen Satyam give salary rises twice, once in October 2004 and the other in April 2005. Sasken, it is believed will be offering a 15 to20% raise in salary to its off-shore professionals, while TCS is understood to be looking at a hike of between 10 to 15% . Small players like Patni Computers will also need to up salaries in line with industry peers, if they want to retain their staff.
In response to analyst queries, Jaitirth Rao, CEO, Mphasis said the problem was not so acute at the entry level due to more or less adequate supply from campuses. According to him, middle level demand was the highest. And, it is for these professionals that global majors are willing to entice or retain with offers of 30-40% salary hikes. In order to cope with this situation, companies are beginning to hire and train more freshers. In other words, they are increasing the bottom of the pyramid so that those with experience can be pushed up, to be replaced with new freshers joining. Companies are also handling the situation by building up their infrastructure in lower cost of living Tier II and Tier III cities, an important factor that ensures salaries paid out can be lower.
Those who believe that this means profit margins are under pressure because of wage inflation, that may not be the case as Infosys is confident of being able to turn in a 28-30% top line growth and an EPS of Rs. 114-116/-, a rise of 26.4-28.4%. So, while Nascomm targets $60-billion for Indian IT-ITES exports by 2010, up from $23-billion in FY-2006 (estimate) a CAGR of 26-27%, could well be achieved, despite a cut and a little bruising of margins in the process.
The juggernaut of Indian techies and tech firms, both MNCs and home-grown is on a decided roll. The following numbers should more than prove that they never had it so good:
Indian vendors need an estimated gross addition of 25,000 employees every year. IBM's headcount in India stands at 38,500, with an additional 50,000 to be added over the next 12-15 months. Accenture with nearly 20,000 people in India is targeting a staff of 50,000 in south-east Asia by 2009. Financial service back offices have added 20,000 people in the last three years. Wage inflation for the Indian tech industry averaged 12-14% in the 2006 financial year (FY-2006). From 14% at the start of the year, Wipro's attrition had gone up to 16% by the end of the FY-2006.
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manjot kamal
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