Posts Tagged ‘TCS’

Wipro spending $200 million on building next generation platforms

December 16th, 2014

Wipro is spending more than $200 million annually on building next generation platforms that focus on disruptive technologies including cognitive technologies, automation and machine-to-machine learning as the country’s third-largest software firm seeks to edge out competition in winning large deals. Outsourcing10

Over the past two years, the company has ploughed $400 million in developing about ten intelligent solutions, some of which it has started using internally and a few it is using for customers, said a senior executive. “Wipro has significantly stepped up its funding of the R&D projects in the last couple of years,” said chief technology officer RK Sanjiv.

“This is to not just ensure that we become the next generation services firm of future, but also to be future-ready for our customers,” said Sanjiv, declining to put a number. But he said the company invests more than the industry average in these initiatives.

This focus on building intelligent platforms coincides with the stint of Rishad Premji, son of chairman Azim Premji, as head of strategy, making some believe the younger Premji could be potentially driving this change at the Bengaluru based company.

Incidentally, it was Azim Premji who brought Tata Consultancy Services veteran Satishchandra Doreswamy, now chief business operations officer at Wipro, in 2011 to help transform the company by putting together a team of engineers to focus on these technological platforms. Wipro’s thrust on building internal intellectual property-led platforms comes at a time when cross-town rival Infosys, under new chief executive Vishal Sikka, too is aggressively talking about building platforms.

Homegrown technology companies invest on an average 2-3% of revenue on building platforms. Wipro’s revenue for the fiscal through March 2014 was $6.7 billion, and if it invests more than the industry average, it is putting in $200 million every year in new solutions.

Wipro is now a team of “hundreds of engineers and research scien tists”, according to Sanjiv. His mandate is to focus on three key themes: cognitive technology, machine-to-machine learning and in building smart devices.

According to some experts, information technology companies are investing internally in building these solutions because of the desire to win large outsourcing deals as every customer is looking to its IT vendor to bring in more valuegeneration business rather than merely maintaining the back-end technology infrastructure.

Doreswamy last month told ET that Wipro’s energy and utilities vertical managed to bag its $1.2 billion, 10-year outsourcing deal with Canadian utilities firm ATCO on account of the “transformational benefits” it could help offer.

“(Two other) examples of Wipro’s solutions are Base and Fixomatic suite of tools,” said Tom Reuner of London-based IT research firm Ovum. “The direction of this journey is to protect margins by automating low-level tasks while hiring and retaining talent for value-creating activities.”

Reuner and other experts said the focus of software exporters on intelligent solutions is also driven by their desire to increase revenue without increasing headcount.

In September, ET reported about Wipro’s plans to start with its most ambitious reorganization exercise, under which it aims to become a leaner 1,00,000-strong company from the current levels of 1,52,000 in three years.

The company plans to do this without resorting to mass layoffs but by “selectively filling” in roles of executives who leave.

As Wipro seeks to embrace automation and artificial intelligence, the company can do away with engineers who are currently doing basic-level repetitive work. Already, Wipro has started using, internally, a cognitive platform for its help desk system, thereby simplifying work process for employees. One other intelligent technology platform which the company has started work on for its retail clients is “Wipro Sight.”

Source:http://timesofindia.indiatimes.com/tech/tech-news/Wipro-spending-200-million-on-building-next-generation-platforms/articleshow/45523422.cms

Shares In India’s TCS Fall After Indicating ‘Weakness’ In Financial Services, North American Businesses

December 16th, 2014

Shares of Tata Consultancy Services Ltd., India’s largest software services company by revenue, took a beating Monday after warning of slackening demand among financial services clients, the company’s biggest business segment. Shares fell 90 rupees at close of trading in Mumbai, or nearly 3.7 percent, to 2,365 rupees from 2,455 rupees at Friday’s close.Outsourcing20

Demand in North America and Britain — the Indian IT outsourcing provider’s largest markets — will also be affected by “seasonal weakness” as well as because of cuts in spending by clients in the insurance sector, TCS had said in a statement on Friday, after market hours. The seasonality refers to fewer working days in the holiday season and furloughs that are seen as reducing the number of billable days of work during the October-December quarter.

“Q3 is a seasonal quarter, and our revenue is going to reflect, unfortunately, the negativity of this seasonality, Rajesh Gopinathan, TCS’s chief financial officer, told analysts Friday.

Manik Taneja, an analyst at Mumbai brokerage Emkay Global Financial Services, said in a note, after the briefing: “TCS’s slight cautiousness on demand (indicating that ‘demand momentum has seen some slackening in recent months’) coupled with weak revenue performance in Dec’14 quarter will drive revenue downgrades for TCS as well as the sector as a whole.”

While the underlying macro-level reasons for growth in Indian IT companies’ outsourcing business remain strong, TCS’s commentary suggests that prospects for strong acceleration in demand seem increasingly remote. Heading into its last quarter of the current fiscal year, which ends March 31, the $118 billion outsourcing industry is not likely to grow faster than last year, Taneja said.

Referring to the analyst briefing, Taneja wrote in the note: “TCS’s indication of ‘relative mutedness’ in constant currency revenue growth is a tad disappointing.” While the company didn’t give any detailed outlook for the calendar year 2015 or the fiscal year 2016 that ends Mar. 31, 2016, TCS indicated some “demand slackening in recent months,” the analyst wrote.

“This in our view poses downside risks to growth estimates not only for TCS but for the sector as a whole,” he said in the note.

Sales to financial clients, accounting for over 40 percent of the company’s revenue, “continues to be impacted by weakness in insurance and products,” TCS said, in a statement to the Bombay Stock Exchange. North America accounts for more than half of the company’s revenues. Demand for its services to retail, manufacturing and technology clients could also be affected, the company added in its statement.

TCS will report its December-quarter earnings on Jan. 15, according to its website.

Source:http://www.ibtimes.com/shares-indias-tcs-fall-after-indicating-weakness-financial-services-north-american-1757536

Optimism wanes: TCS warns of seasonal trends impacting revenue in Oct-Dec

December 15th, 2014

The country’s largest software services firm Tata Consultancy Services (TCS) expects its revenue in October-December to be ‘in line with seasonal trends’.Outsourcing18

The third quarter of the fiscal is traditionally weaker for IT companies as business is impacted by low volume growth amid Christmas and New Year holidays and furloughs in the US and Europe.

The US and Europe are the key markets for the over $100 billion Indian outsourcing sector.

“Q3 2015 revenue expected to be in-line with seasonal trends. Retail, Manufacturing and Hi-Tech likely to see impact of holidays and furloughs,” TCS said in an investor presentation today.

It added that banking, financial services and insurance continue to be impacted. According to a report on CNBC-TV18, the company said it was more positive at the start of the year and expressed difficulty in predicting the sentiment at this point.

Meanwhile, the company expects telecom and smaller verticals to grow better than the company average, the report said adding that it has maintained its operating margin guidance of 26-28 percent.

On geographies, TCS said the demand environment in North America is in-line, adjusted for seasonal weakness. It said pricing trends were fairly stable, and that demand environment in the US was in-line with expectations, the CNBC-TV18 report said.

It said growth in Europe revenues would be better than the company’s average, though the UK was expected to be weak.

“Europe to grow better than average while UK remains weak due to seasonality and impact of insurance,” it said.

In India, the demand environment was fragile, and growth from its India and Asia Pacific businesses would be in line with the company’s average growth.

The company is expecting a slight uptick in realisations and a 10-20 basis points positive impact due to dollar strengthening. However, it expected a negative 220 basis point impact due to cross currency headwinds.

Shares of the company closed 1.48 percent down at Rs 2,455.70 apiece on the BSE on Friday.

Source:http://firstbiz.firstpost.com/corporate/optimism-wanes-tcs-warns-of-seasonal-trends-impacting-revenue-in-oct-dec-113125.html

Wipro, Infosys outpacing each other to meet demands in unfavourable global environment

December 9th, 2014

Battling to regain lost glory, Wipro and Infosys are stepping up their age-old rivalry, this time to out-innovate each other as the two Bengaluru-based software exporters invest in disruptive technologies pegged to artificial intelligence and design thinking to bring greater efficiencies for themselves and their customers.Outsourcing11

Infosys Chief Executive Vishal Sikka, at an analyst event in Pune on Thursday, said some of his company’s rivals were imitating it and went as far as labeling their moves proverbially as “imitation is the best form of flattery”. While he did not name any rival, for veteran watchers of Bengaluru’s software scene, the company he was referring to was clear: cross-town rival Wipro, which, on its part, claims to be investing “heavily” since 2012 in building data analytics and other next-generation platforms to help customers in the retail and healthcare space to improve their businesses.

In the past few years, both Infosys and Wipro have lost quite a bit of their sheen as they struggled to adjust with changing customer demand in an uncertain global business environment, leaving Mumbai-based bigger rival Tata Consultancy Services record phenomenal numbers since 2011. The original posterboys of India’s IT sector are trying cover the ground lost – by investing in technologies that can shake up the industry by disrupting the existing order and processes that are customer-focused – and their initiatives pit them against each other more than ever in the past.

The unfazed response of Wipro to Sikka’s comments was a testimony to the increased rivalry between the two. “I can say that we have a competitive edge,” said Satishchandra Doreswamy, chief business operations officer at Wipro. “We have been investing heavily in building the next-generation platforms for over two years with a focus on AAA (automation, artificial intelligence and analytics).

Platforms such as ServiceNXT, CloudCLM have started delivering value for some of key clients,” said Doreswamy, who was hired by Chairman Azim Premji three years ago to help transform Wipro by bringing in some of these advanced technologies. Although Doreswamy declined to quantify the impact of these disruptive technologies in Wipro’s growth, he said the range of productivity improvement differed from client to client. The former TCS veteran also said Wipro had over the last 24 months seen a “20-30% efficiency improvement” in the application development, maintenance and infrastructure management space.

Sikka, ever since he took the role of the first non-founder CEO at Infosys on August 1, has outlined a strategy of “building a new Infosys” by making fresh investments in bringing machineto-machine and automation platforms to the company’s traditional approach of delivering outsourcing services to customers. Sikka, who earlier this week completed four months at the company, said in Thursday’s analyst meet that he would share more details of what it was doing in this area in April next year.

For now, Infosys is training its software engineers on design thinking – a creative and systematic approach to problem-solving by placing the user at the centre of the experience – and is also in the process of launching an online training module on artificial intelligence for its employees. Doreswamy said Wipro has already brought in the customercentric approach and its overall net promoter score – a tool to gauge customer loyalty – has improved 30 percentage points.

Some experts, including Tom Reuner of London-based IT research firm Ovum said some of the next-generation service-delivery methods are still in nascent state and IT outsourcers are coy to talk in public as the full impact is still not fully understood. “(Nonetheless) Indian providers are at the forefront of this development as part of their push on nonlinear models,” said Reuner.

“Providers like TCS or Wipro have invested significantly in proprietary tools. The key to a broader adoption of robotic process is to build out robust cognitive engines (RPA) and artificial intelligence. These will be the conduit to moving RPA to the core of service delivery backbones.” Doreswamy said the immediate target for the company remains to adopt these disruptive technologies for at least 50% of customers. He declined to share further details.

Both companies are also looking to engage with startups to get access to new technologies. Wipro, after making minority investments last year in data analytics firm Opera Solutions and machine-to-machine learning-focused Axeda – although it exited Axeda this year – is setting up a corporate venture arm to be spearheaded by Rishad Premji that will initially invest up to $100 million (Rs 619 crore) in startups. Infosys too has set aside $100 million and is actively scouting the San Francisco Bay Area to find potential startups which could help the company with the missing innovation strand.

The focus of both companies is to win back the lost glory as rivals TCS and Nasdaq-listed Cognizant consistently outpaced them, and the industry, in revenue growth. Infosys, which was once the bellwether of the country’s information technology and commanded a premium in pricing compared with rivals, has been struggling to expand revenue in the last three years – it reported below-industry growth numbers for two years and was even forced to call founder Narayana Murthy back from retirement to steer the company last year.

In the last one year, Infosys even conceded to the fact of bidding for projects at prices which the company would not have done a few years earlier. Wipro has also been reporting disappointing growth numbers. Since the appointed TK Kurien as the CEO in January 2011, Wipro’s sequential quarterly revenue growth rate has not crossed 3% since the September 2012 quarter, making analyst Viju George of JP Morgan call Wipro’s situation as “a Curate’s egg”: good in parts but it must get multiple engines firing in tandem for it to qualify as a secular pick.

Source:http://economictimes.indiatimes.com/tech/ites/wipro-infosys-outpacing-each-other-to-meet-demands-in-unfavourable-global-environment/articleshow/45423814.cms

Tata Consultancy Services sets up offshore development centres in India for Japanese clients

November 25th, 2014

Tata Consultancy ServicesBSE -0.66 %, the country’s largest IT services firm, is setting up offshore development centres in India for Japanese clients in a bid to boost the company’s margins in the market.download (1)

TCS has the largest scale of any Indian IT company in that region, following its acquisition of Mitsubishi’s IT business earlier this year. Since virtually all of Mitsubishi’s IT work was done in Japan, the business has single-digit margins. “Now as we are growing and our hope is that the Japanese market and business will definitely grow -we are setting up a dedicated centre with a Japanese intent. We want to do more and more Japanese projects consolidated in one or two centres,” Ajoyendra Mukherjee, executive vice-president and head of global human resources at TCS, said in an interview. Japan is the second-largest market in terms of IT outsourcing, with total spending of about $109 billion.

Almost 70 per cent is serviced by Japanese players and it has been tough for non-Japanese vendors to gain a foothold. Indian IT share of the business is less than 1 per cent. “They have talked of moving the work offshore and that should help the margins. It is hard to quantify the impact because it depends on the amount of work that they will be able to move. But they have said that they are looking to increase the margin over there, so you should expect more offshoring,” said Harit Shah, analyst with Karvy Stockbroking.

Mukherjee added that while the dedicated centre is being set up in India, the company could look at some other markets as the Japan business scales up. China is often considered a delivery market for Japanese work. The company is also increasing its focus on train ing employees in Japanese. “For people inside India, we have language courses like Japanese, which is being strengthened given our Japanese venture,” Mukherjee said. Japan was a very small part of TCS’ business -with about $100 million in revenue. In April, the company announced it was acquiring Mitsubishi Corp’s IT arm, which has about $500 million in revenue a year, and about 2,400 employees. The deal closed at the end of June.

TCS Chief Executive Officer N Chandrasekaran has said that he expects Japan to become a billion dollar market for the company in the next few years.

Source:http://economictimes.indiatimes.com/tech/ites/tata-consultancy-services-sets-up-offshore-development-centres-in-india-for-japanese-clients/articleshow/45269128.cms

Indo-US trade wars Part 1: The great outsourcing debate

November 14th, 2014

No issue has the ability to spark an online conflagration as much as a debate on outsourcing. So you can well imagine how much of a role it could actually play in either strengthening or destabilising US-India relations. After all, all of India’s tech biggies, from Infosys to Wipro, to TCS, to Cognizant, and many of its smaller players (Mindshare, Happiest Minds, Tech Mahindra) have their futures firmly in Uncle Sam’s backyard. Any attempt to jeopardise that trough of revenue is likely to cause shrill alarm, while the continued trend of using low-cost tech labour — specifically H-1B workers — by shipping them over to the US to work at clients’ sites will continue to get the American techie worked up.Outsourcing33

It is a greatly divisive issue that could have major spill-over effects, with disastrous tit-for-tat outcomes — but Narendra Modi and Barack Obama would fervently hope that it doesn’t come to that, since the business stakes are high for both countries.

It doesn’t help that the recent Immigration Reform Bill (S744), passed last year in the Senate by a comfortable 68 to 32 margin, has simply poured jet fuel over this issue. However, the temperature is going to really shoot up into the stratosphere if the House of Representatives decides in the coming months to go ahead and pass what is essentially a very similar-looking Bill.

Meanwhile, the Indian software industry is on tenterhooks. The Indian American Advisory Council (IAAC) which advises US House of Representatives on India-related issues, estimates that the Indian economy could take a $30 billion hit if the Bill goes through.

On the other side of the debate, US observers say the Bill could be disastrous for US tech workers, who in effect are being let down by American companies as well as their governments. Who to believe depends on what kind of math you end up doing. (Ironically, it’s probably the first time in recent history that both parties in a rancorous debate on protectionism are in agreement.)

Broadly speaking, the proposed Immigration Bill actually boosts the number of H-1Bs from the current 85,000 to 195,000, but that’s just candy coating that hides the bitter medicine underneath, say pro-outsourcing critics of the Bill. This cohort is horrified by the clause that states that a company with more than 15 percent of its workforce on H-1Bs will be barred from placing H-1B workers at client sites. Companies using L-1s (another short-term visa similar to the H-1B) would have to prove that it didn’t replace any American workers in the same field 90 days before or after the L-1 filing. Lastly, no company can use L-1s or H-1Bs to make up more than 50 percent of its workforce after October 2016.

If this weren’t bad enough, say pro-H-1B critics of the Bill, the killer blow is in the fees that would be levied on companies currently exceeding the future caps: $2,250 for L-1 petitions and $2,000 for H-1B petitions for companies that have more than 50 percent of their workforce on these visas. That fee would rise to $5,000 per visa in fiscal 2015 for companies with 30 to 50 percent of employees on these visas, and a whopping $10,000 per employee for a company that has 50 to 75 percent on them. To add to all of this, there is a requirement that employers pay H-1B workers no less than the mean wage for the occupation that could boost a $60,000 per year entry-level job to $92,000.

No Indian company thought that when Barack Obama used the tagline “Say no to Bangalore and yes to Buffalo” in 2009, in an effort to revive the post-meltdown American economy, it would come to this.

“The Senate Bill unfairly targets American companies trying to remain globally competitive by reducing their ability to contract with global IT service providers and restricting their access to the international expertise they need,” said Ron Somers, former president of the US-India Business Council, a year ago. He also cautioned that it could strangulate innovation and job creation, and compel businesses to move jobs outside the country.

Not true, say anti-outsourcing critics of the Bill, who think that in reality, this is just one more nail in the coffin of the American tech worker who has a long history of being replaced by low-cost H-1B workers. That is apparently because of what has been widely dubbed as the Facebook Loophole — a clause in the Bill stating that if companies help their H-1Bs and L-1 workers to apply for Greencards (which can take a few years to materialise), they can reclassify them as “immigrants in waiting”, and duck the new requirements altogether.

“I think it’s a pretty large loophole, and it defeats the purpose of trying to get these firms that are heavily dependent on H-1B visas to hire American workers. Now, they have an additional way to avoid hiring American,” said Ron Hira a year ago, a policy guru who researches outsourcing at the Rochester Institute of Technology. “Really, the tech industry wrote it.”

Even if this loophole wasn’t exercised, whatever these companies fork out in additional fees is a trifle compared to how much they would save because of the cheaper labour that they utilise, say pro-labour critics like Neeraj Gupta, CEO of the IT services company Systems in Motion.

Who to believe? That’s a tough call. The widespread stereotype on the American side of the fence is of Indian engineers of poor calibre replacing boatloads of talented American techies who are denied what is rightfully their jobs. These workers also bring wages down, it is believed, and since they are willing to work for peanuts, they help foster unfair work practices.

For instance, a Zogby International poll conducted many years ago discovered that 71 percent of Americans felt that outsourcing jobs overseas negatively impacted the US economy, while 62 percent said that the US government should tax or legislate to try to stem the tide.

Conversely, the pro-outsourcing side of the fence says that the myth of low-quality Indian engineers is way overblown (“look at all the people who work in Silicon Valley — they come from the same stock”, they say). Many Americans are simply not qualified for these jobs, whose technical requirements change rapidly, and that many Americans are simply not interested in these entry-level, grunt positions that are not capable of paying back debilitating student loans that Americans are often saddled with. Indeed, many American employers complain that retaining an American, who often take flight to jobs that pay a few dollars more, is a monumental pain and an expensive proposition.

So, where does the truth lie? For a real measure of the economic impact of H-1B workers on the American jobs, it is probably only logical to analyse the job market and wage growth for this sector. It turns out that Ian Hathaway, research director at Engine, an American economic research outfit, has conducted an analysis that shows the job market in science, technology, engineering, and mathematics fields (STEM), as well as computer and math sciences (CMS), is actually a whole lot tighter — which means a lot more jobs available per unemployed worker where employers must compete to get employees — than for other fields. Apparently, At the end of 2012, there were 2.4 CMS job openings for each unemployed CMS worker, and 1.4 STEM openings for each unemployed STEM worker versus four unemployed workers in non-STEM and CMS fields per job opening.

What’s more, Hathaway shows that wage growth for STEM and CMS workers with at least a bachelor’s degree was far more “robust” in the last 12 years compared to other fields. “Not only did wages grow at the median for these fields while wages in all other professions fell substantially; that growth also reached workers with a broader set of income levels,” pointed out Hathway. In fact, it is “irresponsible for researchers to claim there is an oversupply of STEM workers,” he added.

Hathaway also pointed to another study, conducted by William R Kerr, a Harvard business professor, who examined 300 American companies and found little empirical evidence that pointed to American engineers being displaced by foreign ones. In fact, Kerr’s study suggested quite the contrary, where the growth of immigrant workers apparently “helps younger American technical workers — more of them are hired and at higher-paying jobs — but has no noticeable consequences, good or bad, on older workers”. Kerr also said that “In the short run, we don’t find really any adverse or super-positive effect on the employment of Americans,” adding that “People take an extremely one-sided view of this stuff and dismiss any evidence to the contrary.”

This is more or less borne out by another study done by academics at the University of California at Berkeley, which says that foreign-born STEM workers increase employment and wage opportunities for high-skilled native-born American workers (STEM and non-STEM).

The study found that over the span of a decade in an urban area, a 1 percentage (of total employment) increase in foreign STEM workers during a decade actually increased the wages of native-born American college graduates by 4 to 6 percent, with small effect on their employment. Moreover, “the technologies introduced in the period 1990-2010 by STEM workers likely increased total production, and even more strongly the productivity of college-educated. We also found that college-educated natives moved in response to foreign STEM workers to more human capital-intensive sectors of the city economy, they increased the ‘creative’ skills used in production, and their house rent increased, eroding part of their wage gain.”

This is all startling stuff and an overwhelming refutation of the widespread scaremongering regarding outsourcing and H-1Bs. The inevitable conclusion, then, is that the American tech worker has no reason to fear H-1Bs, regardless of what they hear through the grapevine or their own occasional bitter experiences. What these studies overwhelmingly point to is that paradoxically, H-1Bs actually help them.

There are other reasons for outsourcing opponents to perhaps revisit their positions. Today, as this New Republic piece points out, many large global American firms in fields from finance to healthcare have gargantuan back-end systems that require careful tending to, something that the lower-end H-1B worker is perfectly suited for, allowing American tech workers to focus on climbing the employment value chain. Not doing so could stymie growth prospects for these companies, thereby making it even harder for American workers to find the kinds of jobs they want.

Several hundred years ago, economist David Ricardo postulated his theory of comparative advantage by saying that the essence of a sound, free-trade system is that which allows countries to focus on their core skills, thereby producing something that they are the most efficient at, instead of a product that someone else is better at churning out. Here, outsourcing is simply a service instead of a good, and by protecting low-end service jobs instead of trying to create higher-end ones, the US is simply being more inefficient.

And while the new areas of tech employment, rife with self-driving cars, bots, and other forms of artificial intelligence may be disruptive and appear to be “anti-people”, they actually require a whole new wave of techies to code, build, and manage them. This is the emerging, new world of employment, along with analytics and big data, that Americans should be focused on conquering, instead of fretting over the inconsequential lower-end ones.

As David Clark, a senior research scientist at MIT’s Computer Science and Artificial Intelligence Laboratory, has observed, “the larger trend to consider is the penetration of automation into service jobs. This trend will require new skills for the service industry, which may challenge some of the lower-tier workers, but in 12 years, I do not think autonomous devices will be truly autonomous. I think they will allow us to deliver a higher level of service with the same level of human involvement.”

Getting replaced by someone else at work is a humiliating experience. If it happened to me, I would probably be angry, bitter, and vengeful. And I would, if I were American, not be able to appreciate the thick irony that the biggest proselytiser and enforcer of opening up markets, especially in developing countries, has been the US.

However, considering all of the evidence that points to outsourcing and H-1Bs having a negligible — indeed, a positive — impact on the US worker, never mind the US economy, maybe it’s time for the American tech worker to deep-six his or her understandable animosities toward H-1Bs and the likes, and focus on ruling the emerging technology landscape, just as their predecessors have been doing for decades.

Which means that any debate on the Immigration Bill going ahead should take this into account, lest a flawed conception of what H-1Bs do to the American economy result in torpedoing what could be a fertile era for Indo-US trade and cooperation.

Source:http://www.zdnet.com/indo-us-trade-wars-part-1-the-great-outsourcing-debate-7000035650/

New IT Jobs Set to Fall by 50% in Four Years: Crisil

November 10th, 2014

New hirings in the IT sector are likely to drop by 50 per cent over the next four years, according to a report by Crisil. The prediction is extremely negative for lakhs of engineering students across the country as the IT sector has traditionally been the biggest employer in the private sector.Outsourcing24

More than 7 lakh engineering students graduate every year. In fiscal 2013-14, Crisil estimates IT hiring at 1.05 lakh and says the number could come down to a mere 55,000 by 2017-18. The IT sector currently employs 31 lakh people or 24 per cent of total private sector jobs in the organised sector. The sharp slowdown will therefore impact the overall hiring sentiment in the economy.

IT jobs growth is slowing down because margins in the $118 billion outsourcing industry are under pressure. Frontline IT companies such as TCS, Infosys and Wipro earn nearly three fourth revenues from North America and Europe, where growth is still anemic. As a result, clients are asking companies to cut costs.

Since employee salaries account for the biggest cost component for IT companies, domestic outsourcers are reducing bench strength, improving employee utilisation rates and reducing other operational costs, Crisil says. In 2013-14, employee cost accounted for over 60 per cent of total cost of IT companies.

“Companies will run very tight ships because of which incremental employment will be curbed,” Crisil says.

The report says Indian companies are increasingly looking to maintain a leaner bench by adopting just-in-time hiring to improve utilisation rates. The current utilisation (or productivity) rate stands at 80 per cent and Crisil expects it to go up by 500 basis points in the medium term. A 100-basis-point improvement in utilisation impacts the employee growth by 105 basis points, the report says.

Companies are gradually migrating towards fixed price contracts, which eliminate the need for maintaining a large workforce for billing purposes. Such contracts weigh on hiring as revenue per employee goes up, Crisil notes.

Finally, Indian companies are planning strategies to move further up the value chain towards services such as consulting and software products, Crisil says. These services are currently dominated by global majors (such as Accenture, IBM), who have higher revenue per employee despite comparable employee bases.

Source:http://profit.ndtv.com/news/industries/article-new-it-jobs-set-to-fall-by-50-in-four-years-crisil-691206

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