INDIAN IT FIRMS BRACE FOR US SLOWDOWN

Rajesh Menon
The Financial Express

As fiscal 2007-08 comes to a close, there is a feeling of uncertainty in the IT sector. The reason: a slowdown in the world’s largest economy, the US—the Indian IT industry’s biggest revenue generator. Tier I offshore firms—Tata Consultancy Services (TCS), Infosys Technologies, Wipro Ltd and Satyam Computers—are all keeping a close watch on where the US economy is heading, with a strange mix of cautious optimism and bullishness. Recently, the country’s largest software exporter TCS came out in the open and said two of its top 10 clients might show subdued demand in the fourth quarter of the current financial year. Similarly, IT bellwether Infosys has projected a muted quarter. On the other hand, Wipro and Satyam have been bullish and have expressed comfort with the near-term demand.

“The near-term impact of the slowdown in the US market is going to be for both big and small players. There is still uncertainty over clients’ budgets and visibility is expected only by the month-end or early April. It is not just the BFSI that is taking a hit, it is even affecting other verticals like retail and manufacturing,” says an official of a Tier-I company. “There have been price increases and also renegotiations have been successful. But volumes may be muted. Also large projects may get delayed,” says a top official of an IT company.

At the end of the third quarter, the top IT companies had all admitted that IT budget decisions by the US corporate houses were getting delayed, especially in the banking, financial services and insurance (BFSI) segment. They had expected a clearer picture by January-end or early February. The worry lines have begun to emerge as the decision-making process has gotten prolonged and their potential clients continue to be on a wait-and-watch mode.

With the BFSI segment contributing nearly 40 percent revenue to the top IT firms, any adverse impact on discretionary spending by the large financial institutions and global banks will be a drag on their fortunes. But what is reassuring is that, in spite of the near-term demand being less visible than earlier, and an increased competition to Indian players from global peers, offshoring as a trend continues to be attractive.

Recently, a top team of global investment bank JP Morgan met 15 IT and BPO firms and interacted with various players in the offshoring industry. It found that secular trends towards offshoring remained resilient. “While the overall IT demand may be tighter than previous years and could create a rough patch for stocks near-term, we share the consensus view that the offshore demand will increase in response to a slower environment and drive-acceleration in the second half,” the report said.

In 2001-03, during the post-tech boom and the dotcom crash, the Indian IT industry had gone into a sluggish phase following lower demand from the US corporates and had to cut rates leading to impact on margins and lower profitability. But, this time around, the players are better prepared for the slowdown. “Most companies have employed more variable compensation, while there is still flexibility in general and administration (expenses), utilisation, headcount and increasing productivity. Helping matters is the more rational pricing versus the last slowdown,” the report said.

There are four main inter-linked factors that have had a direct impact on the Indian IT industry’s competitiveness— the rupee appreciation, the tight labour supply and wage inflation, and macro issues. Compounding these is the vanishing tax holidays for IT firms in March 2009. The rupee appreciation against the greenback—nearly 10 percent in 2007—has adversely affected the margins of the Indian IT players that have taken a hit of 0.4 percent to 0.5 percent and have been unable to pass on the impact to their clients because of the deteriorating macro-economic situation. Although most companies have hedged the rupee against the weakening dollar, in the long-run, unfavourable currency appreciation may put pressure on earnings.

The supply of labour and wage inflation are directly co-related. With demand surpassing supply, wages have been rising 15 percent annually. Apex software companies’ body Nasscom estimates an annual supply of 200,000 engineers, 24,000 MCAs, 30,000 post-graduates and 350,000 graduates. Currently, there are 1.6 million technical professionals employed in the IT industry and Nasscom estimates that the number will grow 25 percent this year to touch two million. But the lack of quality talent is quite alarming. Only 15 percent of the non-engineering graduates and 50 percent of the engineering graduates are employable. This has forced Companies to open their purse strings to get the best of the lot.

As costs have piled up, India’s edge as a low-cost offshore provider has started diminishing, with other countries trying to close the gap. Indian IT companies have to go in for cost-beneficial strategies that would help them maintain profitability. The slowdown would also catalyse the emergence of winners and losers, with companies going in for a hybrid model— onsite or near-shore delivery with offshore presence—likely to emerge the winners.

So, what has made the industry observers and analysts to be optimistic about offshoring in difficult times? It is the adaptability of the Indian IT firms to the hybrid model and also to embrace different service lines and go in for geographic diversification that has a big positive impact on the industry. For instance, Indian firms looking to offer remote infrastructure and management to compete with its global peers and also looking beyond the Indian labour market to eastern Europe, Latin America and China would help them to sustain their revenue graph. Also, with uncertain global macro-economic environment, wage inflation may ease during 2008 as Indian firms reduce hiring and increase utilisation rates, while global IT majors show a reduced sense of urgency in ramping up their India operations.

So, even as there are concerns and fears of a slowing economy and a potential negative impact for Indian firms due to a cut in IT spending, the impact is expected to last for a short-term and may actually result in an increased offshoring in the long-run.

 

BIG BUCKS CAN'T KEEP EXECS BACK

Soubhik Mitra, Mumbai
Hindustan Times (Delhi edition)

In her resignation letter, IT professional, Shaheen Ansari (name changed on request) wrote that she quit because her abusive boss interfered with her work.

An online survey by referral recruitment portal www.yellojobs.com says 42.18 percent Indian employees quit their jobs because of bad bosses. "The company gave me 40 percent increments for five consecutive years. Still, I quit to get rid of her," said Ansari.

The survey polled around 9,000 white-collar professionals working in various spheres from banking to IT. Office politics forced 16 percent respondents to quit.

Vikramjit Singh Sahaye of yellojobs.com says, "Employee retention is gaining focus. Retaining talent makes commercial sense and helps improve project efficiency"

Pandia Ranjan, MD of Ma Foi Management Consultants, one of the biggest human resource service providers in India, concurs: "We expect a slump in attrition. In the BPO sector: which recorded 35 percent attrition the highest across all sectors it will reduce to 25 percent. The overall attrition rate would hover between 10-12 percent."

The study says 35 percent respondents switched to a new workplace, as the earlier job did not offer them growth opportunities and remuneration while 6 percent did not like their work profile. Also, 10 percent of respondents had switched jobs more than four times.

 

US CRISIS: IT COS PRESS THE COST-CONTROL KEY

Mini Joseph Tejaswi, Bangalore
The Times of India

Indian IT's cost-cutting spree is intensifying. Apprehensive of a recession in the US, technology firms have embarked on a conscious budget-shrinking exercise, under which even travel bills are going under the scanner.

We're not just talking about those frequent global jaunts techies go for. The spend on upcountry client visits are also being tightened. Senior executives, including in vice-president and GM levels, are being asked to travel by cabs, that too with one or two other colleagues.

A week ago, Vipin Mohan, vice-president with an MNC here, was asked to make a client visit in Hyderabad. ‘‘We normally fly on such visits. This time, a couple of other colleagues and I were asked to take a cab to Hyderabad. It was cumbersome, exhaustive and time-consuming. But our company made it clear that it was on a cost-cutting drive, so we had no choice.''

A return AC cab with infotainment on board costs Rs 7,500 to Hyderabad, Rs 5,000 to Chennai and Rs 7,500 to Kochi from Bangalore, against the return air fare (for a single person) of Rs 4,500 to 6,500, Rs 3,000 to 4,000 and Rs 3,500 to 4,500 respectively.

‘‘The logic is that at least three employees can get to a client's location and return at a minimal cost. The same cab can be used for local logistics support at the client's place, which again is economical,'' said a logistics in-charge of a tier 1 tech major.

Says Rohan Murthy, product head of a leading software R&D firm: ‘‘I can't understand why companies are getting so paranoid of the recession. My friends and family used to always see me flying on work. Now they are amused to hear about my taxi trips.''

A large number of techies are experiencing this plight-taking taxis instead of ‘taxiing' on airport runways.

Several large tech firms and BPO companies have already started floating e-mails and departmental circulars on cost cutting on travel, say industry sources.

Companies that used to foot return air tickets for their fresh/junior recruits also are shying away, by replacing the trips with III AC and Volvo fares.

Some enterprises have also started using hired buses to ferry their large-volume recruits to cut costs.

 

BLACKBERRY SECURITY ISSUE MAKES E-COMMERCE INSECURE

Surajeet Das Gupta & Leslie D`Monte, New Delhi/Mumbai
Business Standard

Indian operators offering BlackBerry services, top executives of Canadian telco Research in Motion (RIM), the company that owns the brand, security agencies and officials of the Department of Telecommunications (DoT) are expected to meet on March 14 to answer the concerns of security agencies in a bid to prevent having BlackBerry services terminated after the March-end deadline.

BlackBerry has an estimated 400,000 subscribers in India. RIM has been asked to give access to its algorithims (needed to decrypt messages), according to a source.

“The security agencies are saying that we should have access to data that are being encrypted by services like BlackBerry on mobile phones and then decrypted when the phone reaches its nominated destination," the source added. RIM does not, or has not been asked, to do this in any other country but is considering the matter.

The case, meanwhile, has opened a Pandora's box in India. Operators note that if BlackBerry services are banned, security agencies could even target various e-commerce applications – especially money transfers – that use encryption.

Encryption is the process of converting information into a form that is unintelligible to anyone except holders of a specific cryptographic key (the intended recipient). This will make e-commerce virtually impossible.

"The argument can logically be extended to all encrypted transactions on wireless devices including banking, e-commerce, email and chat. It will also have a significant impact on privacy concerns for consumers. Much thought needs to be applied before deciding on it," said Alok Shende, Practice Head, Datamonitor India.

Indeed, scrutiny has already been stepped up for all Internet Service Providers (ISPs).

Rajesh Chharia, President, Internet Service Providers Association of India (ISPAI), noted: "Routine check-ups are fine with us since the issue is one of national security. All ISPs must, and will, cooperate. What is of concern, though, is the fact that we have been asked to reduce the encryption from 128-bit to 40-bit, which is ridiculous.”

The demand, he said, will put the entire online banking and e-commerce sectors in jeopardy. Having represented our concerns, we have yet to receive a response from DoT on this issue."

Cyberlaw experts, too, are concerned over the developments. While the government's motive is good, the Indian Information Technology (IT) Act, 2000 is very unclear on this subject, noted Pavan Duggal, Supreme Court advocate and cyberlaw expert.

"Only Section 69 (Sub-section 2) gives the Controller of Certifying Authority the power to order the interception of electronic communication on computer systems located in India," he points out. In RIM's case, though, decryption is not possible without RIM's consent, which is why the government is fuming.

"This is, perhaps, the first time that the government is admitting to intercepting electronic communication. Blanket power to intercept emails will probably end up diluting the legal validity of encrypted communication in an age when privacy is of utmost importance to corporate and individuals. The Indian government could be firm, asking RIM (or any other player) to take action on a specific case that arouses suspicion. It may not be wise and practical to ban the services altogether," said Na Vijayashankar, cyberlaw expert.

Some technology experts like Vijay Mukhi note that if the email originates from India, it can be intercepted at the wireless service provider's end, since the nodes are in India.

The problem arises if the email originates from a BlackBerry device (since it goes to a server outside India where it gets encrypted). Even then, monitoring every mail that emanates from a server outside India will lead to a ridiculous state of affairs. All email services with servers in foreign lands will have to be shut down.

Google and Yahoo declined to comment on the issue and Microsoft India said the issue was not of immediate concern to them.

Sumeet Gugnani, Director, Mobile Communication Business, Microsoft India, said: “Windows Mobile-enabled handheld devices and cellphones enable users to configure mails on their respective in-house (read in India) exchange servers if they so wish.”

 

HIRING IN IT INDUSTRY SLOWS DOWN

P P Thimmaya & Thanuja B M, Bangalore
The Economic Times (Bangalore edition)

Call it the sub-prime effect or the looming presence of a recession in the US economy. Recruitment — a key indicator of Indian IT industry’s growth — is slowing down. Hiring across companies, especially the small and midsized, has entered into a lull with momentum certainly being downcast. It is estimated that hiring on an overall basis is down by 40-50% compared to last year.

HR recruiters across the spectrum say that the hiring pattern during the last three months is certainly not what it was in the last three years. Given the high dependence of the Indian IT industry on the US economy, companies are increasingly taking a cautious route towards hiring, with majority of the recruitment being largely need-based.

Amitabh Das, CEO, Vati Consulting, said that the general trend in the marketplace is showing that companies are not being very proactive in their hiring plans.

The Indian IT/ITES industry is expected to employ around two million people by the end of FY08 against 1.6 million in FY07. A significant part of the hiring generally comes from the large companies such as TCS, Infosys, Wipro, IBM and Accenture, among others.

The current slowdown in hiring is expected to hit the small and mid-tier companies hard in their ability to attract quality talent. Nirupama VG, MD, Ad Astra Consultants, said, “Small and midsized companies are not hiring as many people at junior and mid-level as they did earlier.

They are, however, hiring at senior levels with quality becoming very stringent.” At the same time, companies are increasingly utilising their bench strength to shore up their active resources, unlike in the past. This, in a way, could have brought down the hiring momentum a bit.

Sources said that another trend being noticed is that many people on the bench in large companies are opting for midsized companies for the same level of salary or even taking a cut in packages, instead of sitting on the bench for six months or more. The slowdown pattern in the industry has had its impact on the salary levels. Gautam Sinha, CEO, TVA Infotech, said that compensation hikes are likely to decrease this year especially for those with generic skillsets, but it may not be the case for those with niche capabilities.

This has also impacted people who make movement across companies. According to Nirupama, the hikes in many cases in junior and midlevels are nil while the maximum is 15% over earlier packages. The normal norm for such compensation hikes is generally in the 20-30% range with 50% in exceptional cases.

 

MICROSOFT TO ADD MORE WOMEN IN HYDERABAD CENTRE

Sreekala G, Hyderabad
The Economic Times

If you find the next version of software products from Microsoft coming with a ‘feminine’ touch, don’t be surprised because the world’s largest software major is planning to add more women to its development centre in Hyderabad.

Microsoft India Development Centre (MSIDC), the second-largest development centre of the company outside its headquarters in the US, has invited applications from girl students, who are doing final-year computer science engineering across the country.

“We have received applications from over 7,800 students, of which we have shortlisted 7,400. We don’t have any target in mind for recruitment because as per our company policy, if quality talentpool is available, numbers will not be a limiting factor,” staffing director Chitra Sood said.

The recruitment process will be completed in over a month. “It is an effort to encourage diversity in our campuses. A diverse workforce will be able to anticipate the needs of our customers and help build products accordingly,” she said.

Currently, MSIDC has 1,400 employees, of which 10 percent are women, while globally, the company has about 17 percent to 20 percent women in its workforce. The new initiative is a pilot project taken up by the company in India. Depending on the success of the project, it will be replicated at the other centres in the country in the future.

This year, the recruitment is limited to engineering students. However, in the coming years, the company plans to include girl students from other streams including those pursuing graduation.

“Though we wanted to increase diversity in our campus, there wouldn’t be any compromise on the quality criteria for selection. We have also found that though due to social conditions women may opt for engineering colleges near their hometown, leading to lesser representation in IITs, their competency levels are on par with men,” she said.

 

SOFTWARE PIRACY RATE CUT CAN SEE $3.1 BN RISE IN REVENUES BY 2011

Bangalore
Mint

India could see economic benefits worth $3.1 billion or Rs. 12,555 crore through expanded revenues and better productivity, add $208 million in taxes, and create 44,000 fresh jobs, if it reduces use of pirated software by 10 percentage points by 2011, a lobby group for software firms has said.

The claim by Business Software Alliance or BSA is based on a study it commissioned and was conducted by research firm International Data Corp. in January.

A previous study by BSA had estimated that India lost $1.25 billion in 2006 to software piracy, up from $367 million in 2003.

In 2007, India, a country of more than 1.1 billion people, spent $16.1 billion on information technology or IT—mainly on computers, peripherals, network equipment, packaged software and IT services. That spending accounted for 1.6percent of gross domestic product, supported more than 34,000 IT firms with more than 766,000 software service workers, and helped generate $1.1 billion in IT-related taxes, as per BSA.

Lowering PC software piracy delivers economic benefits because other sectors derive revenue from working with, installing, servicing, and reselling software. “Most of the benefits from lowering piracy stay within the country. The drop in PC software piracy will have ripple effects on the IT services and distribution sectors, besides impacting the Indian software industry,” said Robert W. Holleyman, president and chief executive officer of BSA.

India’s software piracy rate is more than double the global average of 35percent, standing at 71percent at the end of 2006. Holleyman estimates that the piracy rate would have lowered only marginally for 2007. “Going by the trend seen so far, India’s software piracy rate could be 69-70percent in India by the end of 2007,” he said, adding final estimates for 2007 are awaited.

In an earlier study by BSA, India ahead of competing economies in the Asia-Pacific region Vietnam (88percent), Indonesia (85percent), China (82percent), and Thailand (80percent) based on piracy rates of 2006.

But India has been sluggish in lowering its piracy rate from 74percent in 2004 to 71percent in 2006 when compared with China that reduced its piracy rate 90percent in 2004 to 82percent in 2006. This has been a concern for the BSA officials in India who are targeting a 10 percentage point reduction in piracy.

“Given India has world-class software development skill, if the piracy rates were lower, India could have a much more robust local packaged software market,” said Holleyman, adding that it is key for the government and industry to take it up as a national priority.

A recent Union Budget announcement increasing excise duty on packaged software from 8percent to 12percent is seen as a blow to efforts in reducing PC software piracy, according to industry insiders.

Ravi Venkatesan, chairman of Microsoft India Pvt. Ltd said the increase in the levy would raise software prices. “The hike in the excise duty makes it difficult for software manufacturers to maintain a competitive price-point. The increase in price means that illegal software gets an unfair advantage,” he said.

Microsoft, the top PC software vendor in the world by revenues has already taken up cudgels to fight software piracy, by launching several programmes to create awareness about the ill effects of piracy across the country.

“Access to original software is one of the most critical elements to reducing piracy in India and we have undertaken the initiative to provide original software online and telephonically, which helps ensure easy availability of software to consumers and educate discerning consumers about the value of original software,” said Brian Campbell, director of the so-called Original Software Initiative at Microsoft India.