Why Indian IT players not hit like big tech firms

Subir Roy

Senior Economic Analyst

THERE has been a sharp difference between the hiring and firing policies of global big tech companies and Indian IT services majors though they belong to the same software space. This is because life for the Indian players has been much more bearable than that for the big tech firms.

Global big tech companies like Alphabet (Google), Amazon, Meta (Facebook), Microsoft, Twitter and Apple created a sensation in the last few months by the massive firings that they went in for. Indian IT majors, on the other hand, mostly slowed down hirings and propose to return to the old momentum in the current year.

When big tech — global tech firms headquartered in the US — was hit by the prospects of slowdown and resorted to large-scale layoffs, Indian IT firms saw only a decline in their attrition rates. These had reached almost crisis proportions when with the onset of the pandemic businesses across the world sought to go digital to cope with people seeking to work, consume and play from home.

Here a distinction needs to be made between two groups of Indian IT companies. Biggies like TCS, Infosys, Wipro and Tech Mahindra are all IT services firms though they do a bit of product work on their own account. Then there are the pure play product companies located in India which are mostly of recent vintage and can be termed startups.

The startups’ plight, like that of big tech players, became severe when the pandemic waned and businesses across the world went back to their earlier ways of doing things. This, plus the threat of a recession looming over the global economy with the US Federal Reserve starting to jack up interest rates to fight inflation, caused global tech majors and startups like product companies across the world and in India too to cut back on cash outflow by mainly firing staff. This was in order to protect margins.

During the boom years, tech companies recorded handsome growth and planned multi-billion dollar investments in cloud services and artificial intelligence. Now, there is an attempt to get back to the basics. Delivery drones and Internet-broadcasting balloons which were earlier considered fascinating innovations are now set aside as gizmos. In terms of hard numbers, in the San Francisco Bay Area, considered the heart of Silicon Valley, as many as 80,000 jobs were cut last year.

Among the big tech companies, Apple and Amazon are still growing, but at a much slower rate than in the immediate past. The current key concern of these companies is to cut costs. Google owner Alphabet is dwelling on the same theme of reengineering costs so that businesses remain viable and sustainable. Facebook owner Meta is calling 2023 the year of efficiency during which it will remove layers of middle management so as to speed up decision-making.

Now let us look at the scene in India’s equivalent of Silicon Valley — the Silicon plateau centred round Bengaluru but stretching across the country to Pune-Mumbai and Gurugram and Noida in the National Capital Region. In the last three months, the top seven IT services companies also booked a fall in headcount but in much smaller numbers, totalling around 5,000.

Even within that, the picture was a mixed one. Three companies — Infosys, HCLTech and L&T Technology Services — actually ended the year with a higher net headcount (recruitment minus layoff). As against this, TCS, Wipro, Tech Mahindra and LTIMindtree recorded a fall in total numbers.

All these companies are booking new deals and their order books are stable. But the overall effort is to rein in talent cost and optimise margins. This is in stark contrast to the scene earlier after the pandemic struck. Then, there was a hiring frenzy in part to address new business and in part to take care of the attrition that griped the industry as firms with an avalanche of orders sought to wean away talent from the competition to be able to meet delivery schedules.

As for the future, the talent demand-supply gap will continue, with the shortfall in the current year being put at around 10 per cent. A speeding up of recruitment, signalling a return to business as usual, will happen in the second half of the current year.

The key question that needs addressing is why there should be such a big difference in both mood and numbers between the tech giants and the Indian software biggies when they are in the same space and also faced the same business environment. The pandemic made businesses across the world urgently try to go digital and shift to the cloud. This was in order to face the challenge and reap the benefits of a new opportunity.

It came in the form of a sharp rise in grassroots demand for technology services as people were forced to stay at home because of the pandemic. This caused businesses to up their technology budgets, creating huge additional demand for technology services. Suppliers or vendors madly went about recruiting, snatching staff away from each other, resulting in huge industry-wide attrition that upped salary costs.

Then the pandemic ended and, simultaneously, the developed countries faced high inflation. Central banks stepped in to raise interest rates, creating the fear of a recession and causing businesses to sharply cut their technology budgets. That is when the bottom fell out of the demand for tech services, causing vendors to lay off staff.

Within this overall scenario, the worlds of the big tech companies and Indian software majors are different. Big tech, as the name suggests, is at the cutting edge of innovation. During the period we are looking at it tried to grab as big a slice of the new world created by social media as possible. Indian software majors, on the other hand, largely execute jobs given to them whose architecture and processes are largely predetermined. They also innovate but in processes and not products.

The difference between the two is like one between the innovator and executioner. Tumultuous and rapid change in the business environment is naturally less in the case of the latter than the former. Hence, the difference between the two in terms of layoffs. If a youngster wants to begin at a fancy salary and designation then he needs to seek out big tech and startups. But if he prefers stability and reasonable compensation, he needs to seek out the latter. This difference explains the difference between big tech and Indian IT services and their different approaches to hiring and firing.

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