Why Indian IT companies are going slow on hiring

The software services industry whose frenetic hiring helped create a large slice of India's middle class in less than two decades may be nearing the end of a phase as the most prolific employer of college graduates, industry professionals and analysts said.

Hiring by India's top software exporters has been trending downwards in the past few quarters, a development which has been attributed to unfavourable market conditions. But alongside the crimped demand, experts believe there is a structural shift in the offshore outsourcing business which will mean that companies such as Infosys and HCL Technologies will no longer add software engineers in the numbers we are used to witnessing.
"What you saw in terms of productivity gains in manufacturing is finding its way to services," said TK Kurien, the chief executive officer of Wipro, India's third-largest software company which employs 1.4 lakh professionals.

Some of the sluggishness in hiring may be explained by the slowdown in the $100 billion (Rs5.4 lakh crore) IT services sector, to about 11% anticipated in the year to March 2013 from 17% in the last financial year. The main reason that moderation in hiring is a sign of things to come is that more will be done by fewer people as the grunt work is left to machines.

Kurien compared it to the efficiency improvements that defined the manufacturing industry in the United States. From supporting about 85 million manufacturing jobs in the 1970s, the sector has just about 17 million employees now. While part of it was because of work being outsourced to lower-cost destinations such as China, a lot of it was jobs eliminated because of productivity gains.

In India, the information technology sector supports nearly three million people directly and another nine million indirectly. While software services companies like TCS and Infosys may slow the pace of hiring, other technology companies, many of them startups, are likely to pick up the slack and provide employment opportunities for the more than one million engineers who graduate each year.

IT services firms have started automating routine and repeatable processes that does not necessarily need human effort. Initially, this is happening in areas such as software testing, where software code is tested for accuracy and error.

"Software testing, which was traditionally done manually, has moved to automated processes," said Vijay Sivaram, director for recruitment and staffing at Ikya Human Capital Solutions, which helps IT firms with hiring services. "Even in coding some firms are using software that takes care of the basic work."

Sanchit Vir Gogia, principal analyst at IDC, said that IT services firms are increasingly creating what he called solution accelerators.

"This is nothing but templatising and packaging the basic functions that go into a larger project implementation," Vir Gogia said. "Automation usually impacts the bottom of the pyramid in the service delivery, making it leaner." Companies such as TCS, Infosys, Wipro and Cognizant are going one step further to create intellectual property around such reusable components to give themselves a competitive edge.

The need for greater efficiency is driven by the changes in outsourcing market and intense competition for basic technology contracts for managing applications and IT infrastructure.

There have been instances in the recent past where companies have offered more than 10% discounts on existing contracts to win the deal - that means committing to deliver for $900 million a set of services on which the client used to spend $1 billion earlier.

"As more and more technology contracts are given out on outcome-based and fixed price models, service providers would be forced to adopt greater degree of automation in routine, repetitive tasks," said Sid Pai, president for the Asia-Pacific region at ISG Information Services Group.