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IT companies and US economic crisis

Started by dwarakesh, Sep 26, 2008, 04:04 PM

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Sep 26, 2008, 04:04 PM Last Edit: Dec 02, 2008, 04:58 PM by dwarakesh
TCS, Satyam to put on hold promotions

Upheavals in U.S. financial market cited as reason; companies wait for clarity

CHENNAI: The spate of bad news emanating from the U.S. has begun to have immediate fallout on the employees of the Indian software companies.

TCS, the biggest of them, has decided to put on hold promotions for the time being.

The company, in a circular, has said that in view of the "upheavals in the U.S. financial market, we feel it prudent to wait for clarity in the business environment." As a consequence, it has decided not to effect promotions in the second quarter of this year. Though the company has completed the process of assessing individuals who are eligible for promotions, it has put on hold promotions in view of the extremely challenging business environment.

According to the circular, "the business environment remains challenging and is expected to remain so in the near future." The circular has also sought the employees to "understand and appreciate the compulsion for postponing a decision on promotions."

TCS is not the only one to halt promotions for its employees. Satyam also has put on hold promotions for its staff. "The promotions have been restricted this time. Similarly, the annual appraisals have not yet been completed for the entire company," according to company sources.

The regular practice of Satyam was to give promotions every two years, which will be unlikely this year. It will also delay the issue of confirmation letters to the employees recruited on probation basis. This will not stop here. It is hoped to delay the issue of appointment orders to fresh graduates, who have been already selected through campus interviews during the last quarter.

Source: The Hindu


Satyam Freshers Programme delayed

Since the downfall in US markets,the IT firms in India have announced that,this year's hiring could be reduced compared to the previous year recruitment. Due to the continous tumbling in US markets, many IT firms have laid off their staffs and many more kept under scanner.

The fired staff's are all experienced people and they have removed due to their under performance.Besides all these TCS and Satyam have proclaimed that the promotions of their employees will be put on hold. Eventhough scanning process for promotions have been finished,the next step has been halted.This decision by these two corporates will make their employees leaving in state of despair.

Decision to "put on hold the promotion" will definitely make a strong impact in the company's work progress.

Moreover Satyam has announced that, there may be some delay in the fresher programme and they are seriously considering about their training schedule.

In L&T infotech, the training programme for the freshers has been postponed without mentioning the date. This created chaos among the students who got placed in L&T infotech through Campus Placements.


IT Fresher Salaries To Increase in 2008

There is an increased demand for the young IT professionals.That is because fresher salaries may increase, going forward, given that MNCs are targetting the same talent pool.

Between themselves, MNCs like IBM, Accenture and Capgemini are set to hire some 2 lakh people by 2009. And that is going to lead to wage inflation at the fresher level.

Edelweiss says a look at salaries offered by Indian majors - TCS and Infosys, to graduates set to join in 2008 and 2009, shows an average hike of 40%.

Also, the recruitment patterns of these companies shows an interesting trend. Aided by a gradual increase in fresher wage hikes, TCS has hiked its offers per college to 78 offers per college for fiscal 2009 compared to 53 offers in fiscal 2008.

Infosys, on the other hand, has reduced its offer per college to 26 offers per college for fiscal 2009 from 46 offers per college in fiscal 2008.

Though, the impact of this inflation will be negligible in the first two years, in the third year, the impact might be over 100 basis points, atleast for Infosys. Smaller IT companies may see an impact of as much as 200 basis points on their margins if the same trend continues.

IT companies are caught in a logjam. If they recruit freshers, salary overhead shoots up to an unmanageable proportion and if they don't, they fall short of manpower. The results will reflect only after 2 to 3 years.


Economic slowdown to change campus placement trends

The economic slowdown is going to impact education, especially campus recruitments. Both immediate and long-term effects are being predicted, which include change in pay packages, profiles and hiring strategies. Additionally, students are likely to opt for more qualifications after graduation, instead of entering the job market.

"On one hand, the high-end pay packages will take a backseat with investment banks withdrawing from the placement process. Last year, Lehman Brothers made an offer of Rs 18 lakhs to a Delhi University (DU) graduate and this year they have backed out," said Seema Parihar, chairperson, Central Placement Cell, DU.

"Other companies that were taking up global projects will also reduce recruitment, as they may not get as many projects now. As the economic slowdown will also affect the use of credit cards, the BPO sector --- call centres in particular --- will also reduce recruitment," she added.

Vaibhav Sharma, member, Placement Cell, Delhi School of Economics (DSE), also predicts a change in the profile of recruiters and the jobs that would be offered. "It will be product-centric companies rather than the people-centric ones that would emerge as top recruiters. These include companies dealing with manufacturing, insurance and telecom. Within consultancy firms, the hiring would be directed towards talent management and talent retention profiles instead of strategic planning," he said. Sharma also believes that students would now have to settle for Indian companies, with fewer MNCs coming forward.

Veer Singh, vice-chancellor, NALSAR University of Law, Hyderabad, is waiting for the recruitment process to begin before drawing any conclusions. However, he believes legal services would witness a positive change. "I think the demand for lawyers is going to increase, as the present situation would require a great amount of documentation with drastic changes taking place at the top-level in organisations," he added.

And would the market slowdown affect recruitment at the Indian Institutes of Technology (IITs) as well? Sanjay Dhande, director, IIT-Kanpur, thinks otherwise. "Every year, top companies visit the IITs and this will not change. However, in the long term, the market slowdown may affect postgraduate education with students opting for additional qualifications, instead of settling for just one," he said.

Echoing a similar sentiment, Peter Cappelli, professor of management, Wharton School, University of Pennsylvania, US, said: "This would be a good time to sit out the downturn by going to business school and picking up a qualification while the economy is down. This way, you won't miss anything." Students, too, believe they have little to fear.

While some have drawn their own market estimates and are planning accordingly, others have decided to wait and see how companies' respond. "We don't think there is any reason to panic before the placement process begins. The scenario can only be gauged by the summer placements for first-year students," says Akshay Sinha, second-year student, XLRI-Jamshedpur.


Ramco to cut top management salaries

Ramco Systems plans to cut the salaries of senior managers by 10 to 15 per cent as part of its efforts to control costs.

Nearly 220 of its 1,663 employees will be affected by the decision. Ramco was also in the news in May for layoffs of nearly 200 employees, accounting for nearly 10 per cent of its staff.

According to COO Kamesh Ramamoorthy, since the proposal was put forward by the executives themselves, it was not likely to affect their morale. Employees' salary forms nearly 65 per cent of Ramco's total cost. As part of the strategy, some of the fixed parts of the salary were changed to variable pay.

The company's net profit for Q2 ended September 2008 dropped to Rs 2.48 lakh ($5,193.6) against Rs 23.26 lakh ($48,720) for the same period last year.

Ramco has been investing more of its resources in technology and new solutions for the last two years. Although the US and Europe are big markets, their growth rates are now down. The company will focus on the aviation sector in the US and Europe - a huge market - and also has plans to focus more on emerging markets such as South Africa and Nigeria.


Satyam shows door to 200 employees

After reportedly sending off 30 of its employees for allegedly fudging bills, Satyam Computer Services, the fourth largest IT solutions and service provider, has now given pink slips to 200 employees in various centers. The move comes a few weeks after the company announced its second quarter results.

At a time when economic slowdown is forcing companies to resort to retrenchment measures, Satyam insists that the move is not part of cost cutting. The move follows the annual appraisal, which usually happens in July-September, the company said. However, employees say that it actually is part of cost-cutting measures to reduce high-cost human resources.

"They are saying that they are continuing to recruit people. But the thing is that they are replacing high-cost human resources with low-cost HR as part of the cost-cutting exercise," a Satyam executive, who was given pink slips recently, told Business Line.

But, S.V. Krishnan, Global Head (Human Resources) of Satyam, has a counter point, "We reiterate that this is not unusual. This development follows the appraisal where the 5-10 percent of staff in the bottom of the performance pyramid is identified for Performance Improvement Plan," he says.

"Those who are in that bracket know that they are in that list. While some of them exit themselves, we will sit and talk with others for their possible relocation. If they insist that they be accommodated in the local projects and continue to reject the proposals for relocation, it could be a problem," he said.

However there are reasons for a former Satyam executive not to believe that nonperformance is the cause of the move as he says on the request of anonymity, "I have proved myself in several important projects and got accolades from the higher-ups too. It was a complete surprise for me to hear that non-performance was the reason for my removal."

On this count, Krishnan said, "We have been recruiting in thousands this year too. In that scenario, why would we remove experienced hands? Would that sound logical?"

The company, which had indicated early this fiscal that it would recruit 15,000, had scaled down the intake outlook to about 10,000 due to the slowdown.


Job losers may miss gratuity & leave encashment too

There could be more bad news in store for employees getting the pink slip as companies cut jobs to fight the economic downturn.

They face the grim possibility of not getting their gratuity as many domestic companies do not keep money under a separate trust to meet the obligation. The law requires money to be kept aside only to meet provident fund payments and not for other long-term benefits. Experts in pension and employee benefits say the companies cutting workforce to remain in business at the time of severe cash crisis and scant orders will find it difficult to meet such unfunded promises made to employees.

"In India, 40% companies do not have dedicated funds under a trust to pay gratuity, and 95% companies do not have funds set aside to meet leave encashment liability. People take the long-term benefits into account while planning their retired life. Not having a dedicated trust for the purpose is against the interest of employees in the lower rung of the corporate hierarchy as they rely most on these investments," said Kulin Patel, who heads the Indian operations of actuarial and financial consulting firm Watson Wyatt Worldwide. The firm arrived at the statistics after a recent survey of CFOs in the country. Leave encashment is allowed by some companies although it is not a norm across the industry.

The practice of not keeping funds under a separate trust is hurting not just the employees but companies too. Under a recently-amended accounting norm (AS 15), companies' profit statements have to show every year whether their employee benefit liability has gone up or down. Future liability is calculated based on several assumptions such as expected salary rise and attrition rates, which could easily go wrong. Liabilities change if the assumptions don't prove to be correct.

Besides, the benefit liability is calculated using a formula involving government bond yields. If the company has a separate trust, the expected return on the assets owned by it would balance the volatility in profit statements. "A 1% change in bond yields can translate into 15-20% change in the liability, which would be a substantial amount. If the company concerned has a separate trust, the expected return on the assets it owns balances adverse movement and volatility. An unfunded employee benefit scheme does not offer the cushion," explained a benefits consultant.

The government encourages companies to have a separate trust to manage funds by income-tax sops, but has not made it mandatory.


Satyam to review hiring projections

Satyam Computer Services, India's fourth-largest software exporter, is set to review its hiring projections for this fiscal in mid-December. The company has already scaled down hiring projections for this fiscal to 8,000 to 10,000 people against 15,000 that it had earlier projected, signalling turbulent times ahead.

Satyam could also take a re-look at the guaranteed component of the variable pay given to its 53,000-odd employees to prune costs. Any cut could mean a lower take-home pay for the employees.

Currently, wage bill accounts for over 60% of Satyam's revenues. Belt-tightening measures could help the company cushion the impact of the global economic meltdown on its profitability. "Internally, we review our hiring projections every quarter. In the past, we did not have to cut our hiring forecasts as the tidings were good. Projections were scaled down, for the first time, in the second quarter of this fiscal.

Given the current economic scenario, we plan to take a re-look at the hiring projections before the end of the third quarter," said SV Krishnan, global head (HR), Satyam Computer Services. India's export-driven software service firms, used to a scorching pace of growth, have been singed by the economic downturn in the United States. The US market contributes to around 62% of Satyam's revenues.

The remuneration package for the 53,000-odd employees comprises a variable and a fixed component. The variable component is 10% at the entry-level, 20% at the middle-level and 30% at the senior management level. Half of the variable pay is a guaranteed payment. The other half is linked to three parameters including the performance of the company, the individual and the business unit.

Clearly, the variable pay is the lever the company has to trim costs. It could re-visit the guaranteed portion of the variable pay, when it makes an assessment of the business prospects in the coming quarters. Satyam's rivals, including India's largest software exporter, TCS had cut variable pay of employees to prune costs.


Wipro to go slow with fresh recruitments

As the slowdown impacts hiring as well as attrition rates in the information technology industry, leading recruiters like Wipro Technologies said that while it will honour offer letters already sent out to freshers, the company would defer recruitments by a quarter or so.

A highly placed source in Wipro's Kolkata office said that it was now waiting for more clear signals from its clients to take a call on further recruitment.

"The cloud of uncertainty is likely to lift in some time, and companies would be able to take more concrete decisions thereafter. Of the offer letters sent out, recruitment could be deferred in case of some", the source said while refusing to give out a time-frame.

"It could be a quarter or even more than that", the source added.
Wipro had around 7000 people working in its Kolkata center, almost equally divided between its business process outsourcing and infotech operations.

It had recruited a couple of thousand people in Kolkata last year.
The source did not want to give out this year's figures.

According to Nasscom, the attrition rates had come down by 6-7 per cent in the last few months due to volatile market conditions.
This had, in turn, impacted fresh hiring by companies as well, as they now needed to hire fewer replacement staff.

Industry insiders said that companies were now hiring closer to completion of projects instead of hiring much before and keeping people on benches.

Companies were now looking at operationalising resources and could shed some people waiting in the benches.

Adding to this, former Nasscom chief Kiran Karnik said that organisations now needed to decide who were useful, people with years of experience or the ones with competence.

"Experience has to be cumulative, it cannot be one year's experince repeated over a number of years. In a fast changing and growing technological era, even competence is a perishable commodity", Karnik said.


TCS freezes salaries

Tata Consultancy Services (TCS) is expected to deprive its employees of salary rises next year, thanks to the worsening economy.

According to analyst firm Cowen & Company, TCS could bring down wage increases during the financial year 2010 to almost zero. The analyst firm in its note said, "Wage inflation is expected to moderate dramatically from over 12 per cent to close to zero, which will help margins."

A TCS spokesperson confirmed this, saying, "Salary hikes in TCS next fiscal are likely to be lower than this year. Wage hikes in India in FY09 were 10 per cent, as against 15 per cent in FY08," reports the Economic Times.

The Indian IT industry is under tremendous pressure at present, with the slackening of US and European economies. Companies are seeking various ways to reduce their operational costs and one of the key components in this will be the remuneration segment, which accounts to nearly 40 per cent of their operational costs.

Another Indian IT major, Wipro, has already announced a seven to eight per cent hike in wage for its offshore employees, and for Infosys it has been in the range of 11 to13 per cent. According to Vati Consulting's Amitabh Das, the average hike for Indian IT industry in the current calendar year has been between eight and ten per cent,  down from last year's level of 15 to 18 per cent.

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