Layoffs in IT firms: Reasons and Gravity

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TOPIC:General Studies 3

• Effects of liberalization on the economy, changes in industrial policy and their effects on industrial growth.
• Indigenization of technology and developing new technology.

Earlier in April, ASSOCHAM had warned about the industry’s growth prospect and said that aggravated by rising rupee leading to lower realisation of software exports, the IT firms may be forced to displace workplace.

Barely a week after this warning, India’s software companies like Wipro and Infosys are in the process of laying off of employees on a massive scale. Also, companies like Cognisant technologies solutions offered its top executives, directors, associate and senior VPs a voluntary severance package as a part of its plan to shift operations to automation and digital technology. The move has come after growth in India’s 150 billion dollar IT industry as slowed down more than anticipated.

What is ailing the IT economy?

There is a slowdown in the world economy. In addition to it, there is a technological change in the industry. There is a great deal of automation happening and people are trying to generate more revenue per employee as compared to adding more employees to increase revenue. The entire business model is changing within the industry. So earlier, if there were layers of management required to supervise the word done, today, there are softwares which let few people monitor the work being done and the progress and quality of it. So layers of management is ripe for elimination.

The global environment for India’s IT industry has become more hostile because of protectionism and fears about job losses. More than that, it is the technology which is disrupting the entire way in which business is conducted. NASCOM has estimated that perhaps 25-30% of low skilled jobs in IT sector may become redundant as a result of digitisation, automation and artificial intelligence.

While these layoffs are taking place, it would be important also to have programmes to re-skill these people in ways which would make them employable in the new environment.

Various companies rested on too much of success. It did not realise that they had to evolve and change. For example, the technological changes in IT industry are making classical code writing less and less relevant. The new areas emerging are- Big data and Artificial intelligence.

There are Indians in USA who are working on big data but there are no Indian companies working on it.

The other side is that the companies have not adjusted to the changing application requirements. They were working with the first generations of businesses like banks which went digital.

There is new type of requirement which is coming up from new businesses such as e-commerce and social media. Thus, the Indian companies have not been dynamic enough in anticipating market changes.

The American system is so open that if somebody anticipated something new happening, can easily become a big person.

Thus, there is a need to look at the industry differently. Its not just a service industry in the classical sense. There has to be an ecosystem which is focussed on continuous innovation and dynamism.

Employment scenario in India

Reports since long have been mentioning that 90% graduates coming out of Indian universities are not ready for jobs. With new technologies, it has become even more necessary to change the education system on how the engineers and technology students are being trained and be job ready for the future.

The education approach has been so far of 17 years in school, 4 years higher education and further 2 years of education and then 40 years of job. This process has to be changed and a continuous learning approach has to be adopted where reskilling and skill upgradation happens intermittently.

Start-up is the future

The new India is embarking upon a new journey in employment with creating an enabling environment for entrepreneurships.     The central and the state government start-up policies are encouraging students and alumni of universities by providing them facilities and funding mechanism. India is one of the most favoured destination for international start-up funding. In next 4-5 years, India could become of the leading countries in startups.

Just because there is slowdown in economy and some layoffs, it doesn’t mean India’s IT industry is in crisis. Some of the companies are now moving in the new areas. For example, TCS has started working in Big Data area, HCL is moving into IOT. Thus, companies are resilient enough in understanding the needs of the situation and move up. There are short cuts which companies could adopt such as acquisitions overseas strategically designed to give them better technologies and innovations, hiring more Americansat the top management which give them technological skills to the company.

Increasingly in this business, returns are going to intellectual capital and not labour. The ecosystem for innovations will not work if one relies on existing corporations. If US hadn’t allow the garage startups to grow, it would have been stuck with IBM. Today, there is google and Microsoft ruling the world.

India has bright people with bright ideas but for an ecosystem for venture capital means there should be person with ideas, entrepreneur who knows how to convert the idea into something marketable and have a financing system which is ready to take a chance and risk. Not many Indianentrepreneurs have set up a venture capital operation. American companies have set up venture capital operations in India but Indian companies have not done that.

Good ideas have to be encouraged and the required support should be provided by the government as well as private sector.

Way forward

There are no short term solutions to this problem. The people who are laid off will either get acquired by other small firms or they have to increase their skills to make themselves employable at promotional level. For the new entrants to graduate colleges and the fresh graduates, they have to learn new skills which will help them in gaining employment. There are many free courses available online and also specialised courses with a fee.

As far as companies are concerned, the bigger companies have to start looking for their survival. Innovations are going to come from start-ups. It is not the job of government to protect the companies but the sector and employability. For that, there is a need of ecosystem which allows the start-ups to flourish and grow.

The IT industry employs about one million people. So even if 50000 employees are laid off, it is not a big worry has 5% turnover is normal in these big sectors, especially when movement happens along it constantly.

More important is the space of expansion of job. Earlier, a company would announce employment of 40000 people. This would give hopes to many. But now, with the growing technology, this kind of job opportunities is difficult. So instead of giving a push to existing companies, boost should be given to new companies who have equal opportunities to create jobs.

Many of the H1B visa holders may not be getting extension and may come back to India. This talent should be productively used to create this kind of new ecosystem which will reward not just the wage arbitrage and low hanging fruit advantage but also enable Indian IT companies to move up the value scale. The Indian IT industry has shown the ability to be flexible each time there has been a crisis.

There also a revolution in communication technology with 4G services being offered at competitive rates. This will create new opportunities in health care, financial products, education and entertainment. So the real challenge will be to fill the people’s demand to cater to the growing needs.

Connecting the dots:

Do you agree that Indian IT industry is facing challenges in its survival in global market? Critically analyse the way forward to make the Indian IT industry the top service provider in the world.