IT Slowdown in India Might Just Be a Faux Pas

IT Slowdown in India Might Just Be a Faux Pas

It happened in 2001 and it's happening all over again. Among all the talk of a booming Indian economy and rising employee wages, the slowdown in the Indian IT industry has reared its ugly head for the second time in less than a decade.

Premier institutes in the country like the Indian Institute of Technology are already facing the music, with companies like International Business Machines Corporation (IBM), Computer Sciences Corporation (CSC), Hughes Software Systems (HSS), and Hindustan Computers Limited (HCL) deciding to cop out of placements this year. Even leading Indian IT service providers like Tata Consultancy Services (TCS), Wipro, and Infosys have decided to go slow on their hiring spree. One can only imagine the plight of thousands of IIT graduates passing out this year!

To make matters worse, TCS has shown the door to more than 500 employees with less than five years of experience, citing performance issues. IBM, too, laid off around 700 employees, mostly novices.

That's certainly one part of the equation. Contrary to popular belief, NASSCOM, a leading trade body that represents the chamber of commerce of IT and IT-enabled services (ITeS) industries in India, predicts that the number of jobs in this sector will continue to rise in 2008. According to NASSCOM, both IT and ITeS will be home to an additional 4 million people this year, contributing towards 7% of the Gross Domestic Product (GDP) and 33% of the foreign exchange inflows in India.

Lomesh, a technical writer working at TCS, Noida, stated,

"I think there are many factors contributing towards the slowdown in the Indian IT industry. Recession in the U.S., drop in the U.S. dollar value against the Indian rupee, and emergence of cost-effective markets elsewhere are some of the factors that may have led to the recent layoffs and less hiring in India. However, companies like TCS and IBM have their operations all over the world, not to forget, they also have a huge workforce."

"As far as the numbers are concerned, both 500 and 700 may seem large. However, this still constitutes a minuscule percentage of such a company's workforce. Software professionals in India just cannot sit on their laurels and enjoy big packages anymore. We, in India, should get ready for the tough competition from our counterparts in Latin America, China, Southeast Asia and other parts of the world," he concluded.

Cost Arbitrage and Quality Pressures
Ironically, the 12th Annual Salary Increase Survey from Hewitt Associates showed that India Inc. enjoyed the highest salary hikes in the world last year, averaging at 15.1%. Analysts at Hewitt predict an increase of 15.2% this year. In the last five years, no other country in the world has come close to India if you compare the salaries inflation in excess of 10%.

In my humble opinion, downturn in the U.S. has little to do with the IT slowdown in India. I think that cost arbitrage, skills shortage, and declining quality of work might be the actual culprits. As employee wages continue to rise in India, the cost advantage for offshoring is slowly diminishing. Barring costs, other recurring issues like shortage of skills and quality pressures, keep haunting the Indian IT and ITeS industry.

Echoing the same sentiments, Vijay Tase, Owner, Peer Technical Services Pvt. Ltd., Mumbai, said,

"I'd agree that almost every decision related to offshoring or outsourcing has a financial motive behind it. However, another equally important issue is that of quality, which in the end bear financial consequences. To maintain the quality of products or services under any kind of outsourcing model is difficult. It's hard for any company headquartered in the U.S. to maintain quality when outsourcing work to smaller (or any size for that matter) U.S.-based outfits, let alone outsourcing outside the U.S. This is a result of the cultural differences (professional and social) between the two parties."

Tase makes an interesting observation about the quality of work in an outsourcing model and the amount of resources needed in order to maintain that quality.

"In harsh economic conditions, such things usually come to the fore and form a decisive element when looking at options for change. Not only does one need to carefully analyze the quality of work coming out of the outsourcing model, but also the amount of resources that need to be expended to keep that quality. The amount of management time that goes in maintaining high quality can be excruciatingly large. A company might spend the same resources managing quality in outsourced work in good as well as bad times, but in bad times it simply becomes a particularly thorny aspect."

Reaching an Equilibrium between High-tech Jobs in India and Elsewhere
WRAL Local Tech Wire Publisher and Editor, Rick Smith, argues that layoffs in India point towards an equilibrium reached between high-tech jobs in the country and high-tech jobs in North America (or the higher-cost countries.)

I'd certainly beg to differ!

Just imagine, a highly-skilled professional like a Software Architect can command up to U.S. $200/hour or more in the U.S. Not sure if someone with comparable skills in India can earn that much.

While companies like IBM, Accenture, and Hewlett-Packard (HP) have outsourced more than 10% of their workforce to India, most of these jobs do not go beyond simple execution or maintenance tasks.

Chaitra Venkatesh, a techie with Advice America, said,

"To meet the manpower demand, companies cast a wide net for new employees. Now the pressure on margins moves on to break the linear-growth relationship between employee numbers and revenue, and a drive to do high-end work is resulting in companies doing away with the non-performers."

It will not be fair to say that layoffs in India are a direct corollary of this equilibrium. Additionally, those affected by this slowdown must remember that a layoff is not the end of the road. In fact, if you continue to reinvent and innovate, it might just be the beginning.

Differences in Work Culture
In one of her blog posts on this subject, Sarah O'Keefe, Founder and President, Scriptorium Publishing Services,

"I think it's fair to say that many Indians are shocked by this development. At least one person says that the interviewers should be let go because they did a bad job of evaluating people. Others are wringing their hands over ruined careers because the layoff means a black mark on your resume. And with much sympathy, I say to them, "Welcome to our world." Layoffs are a fact of life in the U.S."

Sarah, by the way, started her company following a layoff. According to her, most people in high-tech have had a layoff (or two or three) in their job history.

"The "I've been laid off and my life is ruined" perspective is no longer valid in North America. Layoffs happen, and everyone knows it. For those Westerners who are concerned about losing their jobs to low-cost competition, layoffs in India might be a sign that the outsourcing trend is slowing down. Which, if you're in the U.S. job market, means less competition for you. Maybe."

While I completely understand where Sarah is coming from, I do not think the work conditions in India can be compared in the same vein with the U.S. or elsewhere. It's like comparing apples to oranges.

To put the work culture differences into perspective, Samartha Vashishtha, Senior Technical Writer at HCL Technologies, offers some useful insights,

"Yes, layoffs are a part of the U.S. work culture, but there are several things one can find solace in. Social security and unemployment benefits come to my mind immediately. Compare that to India, where unemployment benefits exist only in name. Even if you are able to bypass the government machinery to collect the pittance, that would not pay for anything! In a country of a billion people, where a sizeable number spend their lives working for their next meal, the danger of being reduced to nothing is real. There is no subsidized healthcare for the elderly; the cost of living is mounting by the day. Just some of the reasons why people feel about their jobs here the way they do. I am not saying that the clash of the working cultures does not exist; I only want to emphasize that the problems of these two democracies are fundamentally different."

Blame it on the culture, but many companies in India still cannot differentiate between a person who was "laid off" and a person who was "fired." Being laid off does not show a person's incompetence by any means; it just implies a cutback. If you are unemployed as a result of a layoff, use this time to study more, to enhance your existing skill set, and to network using professional societies or local groups. Maintaining a positive frame of mind is the key to survive here.

Embracing Change in a Transient, Volatile Global Business Environment
According to John Rosberg, Director, Tech Pubs and Localization at Interwoven,

"All business (and, indeed, much of everything) is cyclic—where you can really make trouble for yourself is when you make rock-solid plans on things continuing as they have indefinitely."

I could not agree more! In the coming times, India Inc. would face a stiff competition from Eastern Europe, Israel, Ireland, and other nations—all of whom have programs to counter India's cost structures. The only way to avert competition is by constantly adding value, rather than focusing on cost. Obviously, the software industry is here to stay—just as certainly, it'll continue to undergo a rapid and a continuous change.

Financial Motivations
Many experts believe that the IT slowdown in India might just be a faux pas. Outsourced work will continue to create jobs in developing nations, until the industry misers run out of all their financial motivations.

In words of Rick Stone, an Adobe Certified RoboHelp HTML Instructor and an Adobe Community Expert for the RoboHelp and Captivate products,

"Developers worldwide are financially motivated because they often have families depending on their income. The companies providing new avenue for outsourced work are financially motivated for the same reasons."

The government of India has ensured in a statement that the Indian IT-ITes and BPO (including hardware) sector will continue to garner high revenues in 2007-2008, growing at over 33 per cent. The Minister of State for Communications and IT, Shakeel Ahmad, told in a written reply in Rajya Sabha that there would not be any recession in the IT industry in 2008.

"There was no immediate challenge to the Indian IT industry from China or other competing countries as per Electronics and Computer Software Export Promotion Council," Ahmad said.

Finally, brush aside all your fears of an IT slowdown and remember that your "value" to the company must increase with the cost.


  1. hi rahul, very nicely conveyed.. liked it a lot.

  2. Hi Rahul,

    Faux pas...definately yes...but this downtime is yet 2 years (predicted) away...I always thought that not much of thinking or creativity is anyways given to the Indian outsource. It has always been this way, not just in my organization, but every MNC. In case this kind of a recession does take place, I think we need to rejoice..I say so cause this will give Indian minds some space to start looking out for a larger ppiece of the cake...which until now we were just nibbling on :)

  3. Such significant info, but I can't digest then all because I'm not an IT expert. But based on what I've read so far, IT is advance in India than in other countries. I hope the whatever problems they have there would be solved. Good post.

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  5. You did a great job of dispelling some common American notions about IT outsourcing to India. As an American, I am glad I read your post!

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