Friday, January 30, 2009

Coping with job losses in IT sector

Pundits say joblessness of our IT professionals has to do with the knock-on effect of the economic down-turn in the west, notably the US. It is evident that our software companies have been way too dependent on foreign companies and clients for their business. The latest
quarterly results of the top two IT majors - TCS and Infosys - make a telling point. That is, TCS revenue from India represents merely 7 percent of their global earnings; and the figure is 1.2 percent in respect of Infosys.

Nandan Nilekini was heard telling the BBC that he considered India's economy basically strong ; and that the global econmic downturn would drive our IT companies to come up with new business models. Which, I reckon, means that our IT majors would do well developing business within our economy, instead of chasing high-paying foreign clients. This inward-looking strategy would help them redeploy, rather than retrench IT professionals. This calls for a mindset change on the part of our IT majors as well as their high-paid employees. Proposition 1) software companies need to scale down their profit margin to the level acceptable to domestic enterprises ; and 2) IT professionals working for Indian clients would need to accept lower pay and perks.

As part of their business development strategy; and as an aspect their corporate socio-economic responsibility our IT companies could educate medium, small-scale, and also trade and service sectors about benefits of IT applications. The uninitiated segment of these sectors can be made to realise a) that the computer can do for them a lot more than they think it can, by way of process re-engineering, data warehousing, and supply chain management; and b) that all this can be done at a price they can afford.

The catch is in the acceptance of a meaningful profits/pay cut by our IT companies and their army of underutilised professionals .

10 comments:

Ashutosh Didwania said...

Being from the IT industry myself, I honestly do not feel that the Indian market is mature enough to convince the IT majors that they need not look beyond national boundaries. The IT service sector, just like other domains is based on the demand-supply chain. In this case demand has to be significant in order to make business sense to an IT company, which as a matter of fact is simply not abundant out here in India. Where in India do we find hordes of investment banks, healthcare giants or for that matter biggies on the global scale. An IT services company, unlike general consumer related companies is bound to depend on selective projects. Its not about selling products to millions, its about providing services to the select few which as a matter of fact are very rare in India.

Yes, IT companies have gradually started looking towards the domestic market as a prospect of growth and consolidation but the Indian market has a long long way to go before it can actually attract the attention of IT biggies in a significant manner.IT companies scaling down profits or employees accepting lower perks is simply not an option as for that to happen there needs to be a strong domestic base, which currently is way off target.

Swarna said...

Without fear of being politically-branded, let me wonder aloud - I am unable to understand what prevents other employees and management from effecting an across the board pay cut (drastic, proportionate, as per need) - so no one is left in the lurch?

aneri_masi said...

Ashutosh, I agree there isn't a solid base for it now, but we need to start building it at some point, right? And what better time to do it than now, when the international prospects are not so good. Sure, the revenue will not be comparable to what they are making now, but there has to be a start somewhere!

Chikki said...

Oh no no! Aneri_masi, you did not stress on the point where Ashutosh said
"The IT service sector, just like other domains is based on the demand-supply chain. In this case demand has to be significant in order to make business sense to an IT company, which as a matter of fact is simply not abundant out here in India. Where in India do we find hordes of investment banks, healthcare giants or for that matter biggies on the global scale. An IT services company, unlike general consumer related companies bound to depend ieson selective projects. Its not about selling products to millions, its about providing services to the select few which as a matter of fact are very rare in India."

He couldnt be more right. It works on demand-supply.Its not the IT-companies who don't want domestic client ( even if the profit margin is not as good as with international clients),,,,the market is simply non-existent.

Wonderfully put Ashu!

aneri_masi said...

Er..chikki, so you are saying that the demand was there in these other countries since the day one? Whatever happened to trying to create demand, and there by create oppourtunities?

Chikki said...

Yes, that is what I am saying. Its all about Demand. You cannot "CREATE" DEMAND, atleast not overnight. Doesn't work like that. Our economy is improving, we are still a developing country, as we develop further, the demand will come.

Multiple factors are responsible for creating demand in IT sector (Yes, I work in IT) in a particular market.You just cannot do it in a year or two.

You cannot say "lets plan to create demand in afganistan and then go about doing it", right?I am not comparing India with Afganistan but I am trying to explain you my point.Also I am not being cynical about the fact that we will never have demand,... we will! and Govt can Catalyse the demand to a certain extent, but beyond that, it depends on how matured your economy is, the size of organisations in your market, organisations willing to shift from legacy systems etc etc.


I appreciate when people ask IT Bosses, "why don't we look for local clients" (Trust me, lots of people do that).Good! But I guess, you need some understanding of economics as well before asking that question.

GVK said...

Just a thought. Isn't this 'stimulus package',of which there is so much talk/action, about 'creating demand' ?

Aneri_masi mentions about 'creating demand' in the our medium/small manufacturing/sectors for IT applications. They could do with 'stimulus' to go IT-enabled.

As for our exports-dependent IT sector,looking-inwards for market, may well become a matter of survival, not just an option they can afford not to consider.

At times such as the current all-round meltdown of a phenomenal proportion, market economics of the unfettered kind, doen't work. What is needed,perhaps, is not so much 'some understanding' of (conventional)economics, but 'unlearning'of it. One way of doing it is by raising questions that generate the kind of discussion Aushutosh and Chikki have done.

Chikki said...

@GVK

Ok, first things first.
'Stimulus package' is a part of scheme where Govt wants to get back some liquidity in the market, so that bank starts lending again and the 'credit crisis' disappears.
Now people in US buy stuff out of the money that these banks lend them, so a lot depends on bank's ability to maintain the money supply.

Why won't a 'stimulus-package' work for 'creating-demand' in IT in India.

I wana say --> ehhhh. We never had a domestic Market, what kind of liquidity you wana bring in?
Indians have not chucked using IT services because of financial crisis, they never started using it!!! Why would someone want a 'stimulus-package' to create something which never existed.

I can understand that Housing sector and automobile sector will profit from a 'stimulus-package', simply because people would be able to take loan once again, and then buy a house/car (as they have been doing).Yes, more than 70% people take loans for 2 wheelers in India, figures are much higher for 4- wheeler and house ofcourse.

Now, what is going wrong is, banks are not lending anymore, because of risk, and because they don't really have much to lend (RBI is continuosly pumping in money ).
So, a 'stimulus-package' to recapitalise them is well understood.

This is what 'stimulus-package' is all about. It is to RECREATE THE DEMAND in other sectors. IT CANNOT CREATE A DEMAND IN A SECTOR WHICH IS NON-EXISTENT TILL NOW.

I don't know if I did justice to my explaination.

"As for our exports-dependent IT sector,looking-inwards for market, may well become a matter of survival, not just an option they can afford not to consider."

I don't know if you read in this blog the percentage of revenues TCS and Infy earns from domestic market, and if you still think "inward looking may well become a matter of survival", then i wana tell you

1)He he , High hopes!!
2)Get real.

"What is needed,perhaps, is not so much 'some understanding' of (conventional)economics, but 'unlearning'of it."

Please do not unlearn the basics.:).

Ashutosh Didwania said...

@ Aneri

A start had already been initiated a couple of years back...All major IT companies do have single digit revenue figures being generated from the Indian domestic market..but as I said the IT Services sector is not about rapid consolidation wherein a single product would have companies vying for it. In fact IT Services is not about products at all. Its all about companies which ar wanting to implement technology in order to streamline their business and this takes time.

aneri_masi said...

Well, I don't know much about economics and stimulus packages and such.

What I do know is that a developing country has a lot more scope for stuff that needs to be done than an already developed country.

What I do know is that work is not going to flood in from the west, so it really is up to India to see what options there are for the survival of what has become a really big industry in the country.

What I do know is nay-saying is not going to help with anything. Nahi ho sakta, demand nahi hai, nothing can be done, if this is what we say, then this is what will happen.

What I do know is that India has some of the most brilliant minds in the world, and these minds will not stay idle, hoping for the recession to cure itself!

Can we not think about why the revenues from the domestic markets are in the single digits? Can one reason be that the IT companies are ignoring that market in favor of the more lucrative US market?

There HAS to be *something* that can be done within our own country, I cannot accept that there is no hope, no scope.