India upbeat about grappling with labour crunch

As business booms for Indian IT outsourcing service providers, hiring and retaining software engineers at salaries considered reasonable in the country has become difficult. Despite the staff crunch, however, multinational companies are still setting up or expanding software development facilities in the country, or outsourcing to Indian software service providers.

In the face of a looming labour crunch, multinational and Indian companies have used a variety of tactics to help ensure delivery of high-quality services that are still well below U.S. and Western European costs.

If a company is looking at a combination of relatively low cost, high quality staff and a large pool of talented people, then India is still the best location, said Chinnikrishna Kommi, managing director of Trilogy E-Business Software India Pvt. Ltd., the Bangalore, India-based software development subsidiary of Trilogy Software Inc. in Austin, Texas.

However, large multinational technology services company like Accenture Ltd., Electronic Data Systems Corp and IBM Global Services are hiring staff by the thousands in India, and are blamed by Indian service providers for pushing up salaries .

These big companies “are willing to give 30 to 40 per cent hikes in salaries,” said Laxman Badiga, chief executive for staffing at Wipro Ltd., one of India’s largest IT services companies.

Salaries of junior management and software professionals in the IT services industry in India will grow by 16.3 per cent this year, compared to an increase of 15.3 per cent last year, according to Aditya Kohli, associate at Gurgaon, India-based Hewitt Associates (India) Pvt Ltd, the Indian subsidiary of U.S.-based Hewitt Associates LLC, a human resources outsourcing and consulting firm. Salaries of senior management will grow by around 11.8 per cent over last year, he added.

Staff turnover rates are also going up across the industry, reaching 12 per cent to 15 per cent per year at Wipro, according to Badiga.

While large Indian outsourcing companies and multinationals with strong brand names will not face much difficulty in hiring and retaining staff, the smaller Indian companies are likely to be hit, according to Ravindra Datar, principal analyst for IT services and business process outsourcing (BPO) at Mumbai, India-based Gartner India Research and Advisory Services Pvt. Ltd.

However, the overall climate for hiring IT professionals could get even more difficult. India’s IT services exports are forecast to grow to US$28 billion by 2009 up from $7.5 billion in 2003, according to a joint study by KPMG Advisory Services Private Limited and the Delhi, India-based National Association of Software and Service Companies (NASSCOM). But by 2009, India’s IT manpower resources could fall short by 235,000 of the 1.12 million staff required both for IT services exports and domestic IT services, according to the KPMG-NASSCOM study, which suggests remedial measures, such as higher private sector support for IT education.

Nevertheless, India is not going to get undercut by cheaper prices from service providers elsewhere, say industry sources. Software development staff in India still costs about one-fourth what it is in the U.S., according to Trilogy’s Kommi.

Also, high-quality professionals may not require top dollar salaries if projects are interesting enough. Other factors such as the opportunity to learn and grow, the type of work and work condition quality can have greater weight than salary, Hewitt’s Kohli said.

Startup companies working in embedded software or other high technology areas also find it easier than other types of companies to hire and retain staff.

“We had no difficulty in hiring and retaining staff, as we are seen to be doing high technology work, and also there are not many companies in India that do embedded software,” said Anant Koppar, chief executive officer of Kshema Technologies Limited in Bangalore, which has 400 employees, and is being acquired by the Mphasis BFL Group, a Bangalore-based IT services provider.

As the supply of experienced software engineers gets tighter, large companies also are increasing recruitments from the campus. “The campus hires come in at lower salaries but their productivity is also lower,” said Badiga. “The real advantage in campus hires is that they are better able to fit culturally with a company and identify with its values.”

Wipro currently hires about 35 per cent of its new staff from the campus with the balance about 65 per cent hired from the market. “We intend to reverse this ratio going forward,” said Badiga.

A company’s ability to hire quality IT staff also depends on its location, with Bangalore regarded as one of the tougher locations. Cognizant Technology Solutions Corporation, a New Jersey-based IT services firm, has its main Indian operation in Chennai in Tamil Nadu state in South India, where there are a large number of top-notch engineering colleges.

“By end of 2006 we will probably have over 10,000 staff in Chennai,” said Ramakrishnan Chandrasekaran, managing director and executive vice president of Cognizant. The hires in Chennai also have strong domain expertise in enterprise business applications in the financial services, manufacturing, and retail markets, all areas on which Cognizant is focused, Chandrasekaran added.

Having established a base in Chennai, Cognizant is well-enough established now to expand its development centre in Bangalore from 700 to 2,000 staff over the next 12 to 18 months. “If you don’t have a brand name, it is tough to hire in Bangalore,” said Chandrasekaran. “We consciously avoided Bangalore until about two years ago. We have now established a brand as a tier-1 company specializing in offshore, and we are able to hire very freely.”

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