3 key reasons why IT cos in India are cutting jobs

Sector experts say rising pressure on margins owing to price discounts on the core business, increased hiring in the US and emergence of new technology areas are key reasons for such cost cutting.

Illustration: Dominic Xavier/Rediff.com

Information technology (IT) services companies, with large Indian presence, are looking at reducing their employee count by 5 to 8 per cent in the coming quarters, mostly at the middle to senior levels.

Sector experts say rising pressure on margins owing to price discounts on the core business, increased hiring in the US and emergence of new technology areas are key reasons for such cost cutting.

“It (reduction of personnel) is happening across all tier-I IT services companies. Employees in the senior project manager or delivery manager kind of roles, where the annual salary range is Rs 20-40 lakh, are facing the maximum risk,” said Kris Lakshmikanth, founder-head at executive search firm Head Hunters India.

“Typically, a large company is likely to reduce 10,000-20,000 people or 5 to 8 per cent of total employee count in phases.”

This has already begun - Cognizant has said it plans to cut by around 12,000 staffers in the next few quarters.

“What we are trying to do is to get back to the employee pyramid which has been eroded in the recent past.

"We will hire more fresh graduates and are increasing our freshers’ intake by 30 per cent over last year.

"So, we are getting the pyramid right, with less middle and senior management,” said Brian Humphires, global chief executive, in an interaction.

The US-headquartered entity has a little more than 70 per cent of its employees in India; it is eyeing a net cost saving of $350-400 million from various cost optimisations.

Infosys, this country’s second-largest in IT services, is targeting $100-150 million in cost savings this financial year.

“There are 21 tracks we are looking at for cost optimisation.

"We are focused on improving the bottom-end of the pyramid, which had become more barrel-shaped, by hiring freshers,” Nilanjan Roy, chief financial officer, said recently in an analyst meet.

Apart from adding more of new graduates, all big IT firms are aggressively localising their workforce in the US, from where they drawing at least 65 per cent of total revenue.

For instance, Infosys has hired 10,000 locals in the US over the past three years and plans to add another 1,000 Americans by 2023.

Wipro's current localisation level in the US is over 65 per cent.

While IT firms are reducing headcount in India, they are hiring in the US.

The cost of hiring an American worker is close to three times as compared to an Indian engineer.

"That is the reason all top-tier IT companies are cutting costs," said another executive at a personnel consultancy.

“All these companies, including TCS, Wipro and HCL, are facing such cost pressure.”

Emergence of new technology areas - digital technology in sector parlance - is another  factor.

“Senior managers on the delivery side of the business and (doing) less interface with clients are the vulnerable lot in the current situation.

"Top management is seeing them as redundant, due to their less familiarity with new-age technologies,” said Lakshmikanth of Head Hunters India.