A billion dollar hope! The Information Technology industry, for long, has certainly stirred up the imagination of millions of young hearts across the country. The Information Technology or Software boom has scripted an awe-inspiring story in the middle class society. Particularly in states like Andhra Pradesh, the IT boom led to a Silent Revolution with youngsters lacing up plum jobs after their graduation, it was like never before. The race to find a software job and the competition fervour that has created turned your boy-next-door into a techie pro in no time.
But, the recent shock was a rude awakening for many who were pursuing the software profession. The meltdown impact was a lot more than what was expected in many quarters. IT has already been showing with many multinational companies announcing job cuts and lay-off has led to uncertainty. Now, people are a worried lot. For many, the unbelievable is happening before their eyes. A realty that is so hard to comprehend - the crash landing of a billion-dollar hope.
No doubt, now techies are in a state of shock over the large-scale of job cuts in big multinational or blue-chip companies like IBM, TCS, Satyam and the list goes on. With gloomy scenario predicted by the experts and with rumours flying thick and fast, IT employees are a lot worried about their future.
The updates on the websites and blogs in recent times tell the true story. They reflect a state of uncertainty and insecurity. With the rising rupee and slowdown in the U.S. economy taking their toll, employees of IT companies do not know when the situation will change for the better.According to reports, a big multinational software company like IBM has shown the door to about 1,500 employees in just one month. Pampered with fancy salaries and comfortable working conditions, these employees find the situation deeply disturbing. Pay cuts, as being done by several top companies, are virtually unheard of. “Though the company has the right to deduct the ‘variable pay,’ we are worried about the downsizing of the work force,” a worried employee revealed.
In an attempt to assuage fears, the IT majors, however, say such sackings are routine and part of their “quality control exercise.” While IBM confirmed the axe has fallen on employees, it does not reveal how many have been given the sack. TCS, which is reported to have sacked 500 employees at different management levels, maintains that it was a routine exercise and that the pay cut was temporary.
Is the software profession losing its charm?
It all started with the sub-prime crisis that has hit the US economy following which many prestigious banks and financial institutions collapsed resulting in world-wide financial crisis. The Indian software companies, which largely depend on the US market for its projects are facing the pinch. Various companies are trying to tide over the crisis by reducing the salary of its employees while some are going to the extreme of mass layoff.
It seems that everything is going against the Indian software industry. On one side, due to slowdown in US economy and effect of sub-prime crisis in US as well as in Europe, search of new clients and increasing the contracted rates are becoming tough for software companies and on the other side, whatever income realisation these companies are getting, the strong rupee has eaten it by more than 10 per cent.
Indian software companies are taking tough decisions in tough business environment to sail through in difficult times. The decisions are ranging from mild wage cuts to as stiff as axing from job.
Recently, India’s largest software company Tata Consultancy Company (TCS) has announced its decision to cut the variable component of its employee and on an average, the cut will affect the employee’s salary by anywhere between 1.5 – two per cent less this month and onwards. Though 1.5 – two per cent cut does not look very huge in the industry, which is suffering, but getting less salary is certainly pinching the employee. But it appears that the company may not have any other choice keeping in view that they have maintained the same level of salary despite appreciation of rupee since last one year. It is also correct that if a company’s stake holders and shareholders are facing lower returns (in the form of depreciated value of the company share), then some brunt should also be borne by the employee.
It is not that only employees of Indian software companies that are facing the tough situation, recently the big American multinational software giant the International Business Machines (IBM) has also announced trimming its payroll list. An estimated 700 fresh employees were given the ‘pink slip’ (an American practice of retrenching people when notice of termination is given on a pink paper and wrapped in an envelope).
Most of such employees are entry-Level Trainee Programmers (ELTPs). IBM is claiming that the layoff is based on the performance of the employee but sudden retrenchment, it seems, is an after effect of the poor performance of its India operations.
The less number of recruitment advertisements appearing in the newspapers is an indication of things are moving at this stage. Already so many software companies are suffering due to increasing number of attrition.
Though big companies are managing their profit during the year by hedging their overseas income through forward contract, the real acid test is for small and medium-sized companies who do not have a big established full-fledged treasury department. The small companies are really facing the worst time, as going for search of new customers and new currency (Euro) in Europe would be a tough task owing to wide spread sub prime crisis effect.
The share prices of all Indian software companies are at the lowest level in the near past. This shows that even Dalal Street is also not coming to rescue with software companies in tough times. Once a blue-eyed boy of Dalal Street, Infosys is showing lowered strength in each session of trading at the bourses. Most of the software companies are trading at year-low prices.
Cautious approach
Many employees in the software industry are now following a cautious approach. The days of big spending, holidaying, partying, joy riding are a thing of past. A Hyderabad couple, who are both employed as software professionals with leading multinational companies, were eager to buy an independent house recently. Now, with the recent meltdown blues they shelved their plans of an own house. “Right now, our first priority is to make sure that we don’t get laid off,” admitted Sunil, a system analyst with a multinational major software firm in Hyderabad. His wife Rekha was more out coming about the current situation. “We planned to buy a duplex house in the city outskirts, but there seems to be utter confusion prevailing now. Sudden lay-offs, spiraling land rates coupled with fluctuation in interest rates, literally we are a lot undecided about our future plans. So, we have decided to follow a wait and watch policy for now,” she said.
“The meltdown effect has literally put the plans out of gear for many. From freshed to an experienced pro, all are worried about their future. There is general insecurity situation everywhere. “The meltdown has suddenly made everyone insecure, from a fresher to managerial level employee, there is no difference now,” said A N Naidu, a project leader in an IT firm. Major investment decisions are being withheld as the first priority right now is to make sure you don’t lose your job, he added.
Others like Rajesh Kumar and M. Vikram felt that the inflated land prices had made the real estate out of reach for the middle-class people. “ It’s a fact that a large number of IT employees invest in real estate, but then, a major chunk of the same sector also belongs to the middle class. With the high rates and prevailing conditions are not conducive for big-time investments now,” says Rajesh, who has been working for a top US based IT company since eight years.
There is a gloomy environment prevailing in the IT sector now. “Every day you hear that someone so close to you losing his/her job. The downward trend seems to give nightmares to everyone in the industry. So, what I am looking at now is financial security and stability,” said T Srikanth, a programmer said.
Currently the country’s IT job market has come to a standstill with a freeze on hiring. According to the head of a multinational corporation’s development centre in Hyderabad, instructions have been received from headquarters in the US to freeze all kinds of intake of employees. “We have to get the maximum work done by the people on board for the time being,” he says.
Partial Impact
However, Som Mittal, president of the National Association of Software and Service Companies (Nasscom) sounded confident about software industry overcoming the current crisis. “The global financial meltdown following the collapse of US investment banks will have partial impact on the IT sector in the short and medium terms, but poses a challenge in the long term,” Mittal said.
“It is a cause for concern, not panic”, he said, adding. “The Indian IT sector is resilient to bear the impact of the turmoil. We need to wait and watch to find out how deep is the crisis. There will be some downside in the short and medium terms,” he said in an interview recently.
Looking at the long term objectives, the export-driven software sector has to become more risk-protected, retain its competitive edge and sustain the growth momentum. When you look at the big picture, these type of economic slowdown do happen across the world time and again, we need to learn to overcome these type of crisis,” he added. Discounting apprehensions about meeting the revenue forecast for the current fiscal year, Mittal said though the growth rate would be lower than in the previous fiscal, there was no cause for alarm, as the base would be wider and in line with the long-term projections.
Though the US takes a lion share of the software export business by contributing about 60 percent of the export revenue of the IT industry, Mittal sounds confident about the growth prospects of the industry. “This is the right time for the software Industry to redefine its marketing strategy from being US-centric and should now focus on exploring other markets aggressively like EMEA (Europe, Middle East and Africa) APAC (Asia-Pacific) and Latin America,” he said.
Nasscom is still analyzing the meltdown impact and the possible fallout if the sub-prime crisis shifts from the US to other geographies, especially Europe and Asia.
There were several ups and downs like Y2K, September 11 attack on World Trade Centre etc., the Indian IT industry has shown tremendous growth rate. But the current crisis is of different kind with its sheer size and gigantic proportions. However, the IT industry has shown great resilience and has posted tremendous growth record in recent times. It is difficult to sustain same growth rate over a period of time. True, there will be ups and downs. The industry is mature enough to overcome the current crisis since its fundamentals remain strong and the value proposition continues to be high.