IT industry hopes to make the most of US slowdown

Tags: Jobs
The slow pace of economic recovery in the US market coupled with fears of a double dip recession is positively impacting salary negotiations, according to industry executives. This can help Indian IT majors gain the edge in the battle against rising salary costs, which also negatively impact the cost arbitrage equation.

“In a situation where unemployment levels are just over 10 per cent, we are getting to see US workers becoming more willing to compromise on salary demands. Many new hires are even willing to go in for deferred payment of salaries or accept stock options in lieu of salary hikes,” according to Avinash Vasistha, founder CEO of outsourcing advisory Tholons.

Lower salaries are already driving cost down by 10 per cent and moving more work to low-cost locations (within the US) can cut costs by another 10-15 per cent, he said. “Onshore capabilities are required as everything can’t go offshore. Cost arbitrage continues to be an important factor, where besides bringing down salary costs, companies have to service multiple clients from cheaper nearshore locations.”

Tech salaries in the US, which slipped during the recession, have remained stable. Nandita Gurjar, senior vice-president and global head of human resources at Infosys Technologies, said that stable salaries induced by the economic slowdown helped the company make more offers in the US market. “We have been looking for talent where it exists, so it’s not just about low-cost locations. We have seen 50-60 per cent acceptance rates for offers we made in the US market,” she said.

Despite the outsourcing environment being muddied by negative political considerations and alleged protectionist sentiments, it has become important for the Indian IT sector to look at local hiring even more closely. “Finding high-end skills is still a problem, but the steady salary costs for systems integration personnel, processing and BPO workers in the US is something which Indian IT companies will now be able to exploit better,” said Amneet Singh, V-P for global sourcing, Everest Group.

The 5-10 per cent traction in salary negotiations, which companies can gain in the US, may not necessarily be accompanied by high turn-up rates. “Less bargaining by US workers may work out well for Indian company bottom lines, but the fact remains that many companies still find it difficult to find people with high-end skills,” said Sudin Apte, principal analyst with research firm Forrester.

Gaurav Dua of Sharekhan said that only unskilled people have a problem finding jobs in the US. Most hires in the US come with six to seven years of experience with a major part of the hiring happening in application development and maintenance and systems integration segments. Those with higher expertise are strong negotiators and retaining them solely through salary increases is still a tough prospect, according to analysts.

A large Indian IT major, recently, interviewed 260 people for a key project, but issued offer letters to 140 of them. Only 95 people who were issued offer letters turned up for the job.

“Cost arbitrage is not just about salary costs. There are other components to be taken into account like domain expertise, consultancy and resolving problems at optimum cost and time. All this, while maintaining productivity,” Apte said.

According to Amneet, salary costs can’t fall below 10 per cent. “Even if it is easier to get workers via deferred payments or stock options, that will not impact cost arbitrage significantly. I believe that the main advantage for the Indian IT sector is an easier hiring situation in the US, which can help counter the protectionist threat,” Amneet said.

Partha Iyengar, regional research director with research firm Gartner, said that while there has been no wage inflation in the US since the recession started, the hiring environment for Indian companies in the US has been positive.

“They have had a higher profile/hype around being ‘growth companies’ in the US. So, I don’t think recent developments have dramatically changed that environment. However, in the face of increased unemployment, there is an opportunity for Indian firms hiring in the US to make themselves more visible and project the firm from a ‘marketing perspective’, to demonstrate that offshore is not ‘just’ about job loss, but can also result in increased hiring locally,” he said.

Even as onsite salaries did not see any dramatic increases in calendar year 2010, attracting the right people will still be a challenge, analysts said. “The onsite impact of salaries has been minimal. However, hiring has gone up in the US and onsite salaries are expected to start inching higher in the fourth quarter of 2011,” Vashistha said.

During the June quarter, TCS got 52 per cent of its business from North America, while Wipro and Infosys derived 57 and 67.3 per cent respectively from the region.

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