SLOWDOWN HITS BPOS

 

Nasscom Sees Only 21-24% Growth, New Deals Drop

 

Sujata Dutta Sachdeva | TNN

 

New Delhi: The Indian IT-BPO industry is coping with a lot these days. Nasscom’s prediction of a lower growth rate — around 21-24% — is just one of the problems. Analysts say, the number of new deals being signed have come down compared to last year. And companies are resorting to wage freeze, lower increments, slower hiring and now even pink slips. The irony is, its happening at a time when the industry is already facing the challenge of finding quality people and coping with a 20%-30% attrition rate.
   The bad news has been trickling in for sometime. Reports suggest nearly 400 employees at Convergys Corp’s Malad centre in Mumbai have been asked to resign because the centre is closing down. Lehman Brothers captive in Mumbai too is set to hand out pink slips to over onefourth of its employees. Patni, 24/7, Keane India, Fidelity Management and Research Company, lay offs have been reported everywhere.
   Is it time for a reality check then? Experts are divided on the issue. As Arun Jethmalani, CEO ValueNotes says, “It’s indeed a wake up call, for its clear the current business model cannot work with such high inflation rates. It will be tough to maintain growth and margins will be squeezed in the shortterm.’’ What’s also worrying him is that the number of new deals coming into India is one-sixth of last year.
   Indeed, a lull in business acquisition and the downturn in the US economy is affecting us. But Sudhin Apte, senior analyst and country head-India, Forrester Research, feels job cuts is not only because of these two reasons. “The industry is at a different level today compared to five years ago. Earlier recruitment was happening only from a few good colleges, now benches are being filled by candidates from various institutions. Some of them don’t match up inspite of training. It’s the under performers who are getting the pink slip,’’ Apte explains. Most lay offs are among the bottom 5% of the appraisal list. Companies have realised they need to manage their bench better and cannot go on pampering their employees if they don’t perform. “In fact, earlier too non-performers were asked to go, but its only now that the issue has come into the limelight,’’ says Ashutosh Vaidya, head, Wipro BPO.
   For companies like Fidelity, 24/7, Patni and other third party providers, they have 10% to 15% people on bench who are under training primarily to fill up for attrition and growth. “With sequential quarter over quarter growth slowing down to near zero, the unutilised bench hits productivity and margins significantly. So these firms are taking out low performers and will continue to reduce or stop fresh hiring,’’ says Avinash Vashistha, chairman and CEO, Tholons. He expects the slowdown to continue for the next six months.
   But its important to see the slowdown in the right context. As Som Mittal, president, Nasscom points out, “Two trends have emerged. One, as companies evaluate their existing business models and adapt to the marketplace, workforce will emerge as a critical element. Second, indicators suggest a revival in tech spending during the secondhalf of 2008.’’ As CIOs review their budget, tech spending is expected to grow. This spells good news for the Indian industry.
   Experts predict, 2009 will bring in better results but there is a caveat. Deals will have to be more aggressively priced and companies have to focus on costs. “We have had it very easy for a decade. This jolt will help us clean our act,’’ sums up Jethmalani.