BANGALORE: The rising number of idle workers in the US and Europe for Indian software companies could drag profitability lower. This will add to troubles already caused by an uncertain business environment, where clients are delaying decisions around technology projects.
The so-called ‘bench’ consisting of engineers who are not working on any active projects has increased by at least seven percentage points at TCS, Infosys and Wipro, analysts said. Industry executives and analysts are of the view that the swelling bench could shave off up to 150 basis points from operating margins in the coming quarters.
Onsite utilisation rates, or the proportion of engineers in client locations assigned to billable projects, have fallen to below 90 per cent from 97 per cent at the beginning of the year. A senior industry executive, who works closely with large IT companies, said that up to 18 per cent of onsite staff are sitting idle at some firms.
“Onsite bench size has swollen across large IT firms,” said Hitesh Shah, director of equity research at Mumbai-based brokerage IDFC Securities. “With every contract won, companies hired more local staff, but they are retained even after the deal matured. This adds to the bench until they find another contract.”
Typically, as an outsourcing contract matures, part of the work is moved to less expensive offshore locations such as India. However, with the jobless rate staying stubbornly high in the US and outsourcing becoming caught in election-year politics, Indian IT companies would not want to be seen as adding to problems.
Infosys, TCS, Wipro and HCL declined to comment.
Over the past two years, Indian IT firms have also been hiring more aggressively in the US in anticipation of economic recovery there as well as in response to higher rates of rejection of visa applications to send workers from India. Local hiring is also being used to project a community-friendly image in the US.
For Infosys, which counts JPMorgan and Bank of America among clients, the swelling US bench has already made a dent in profits – a 210-basis-points negative impact on its operating margins during the April-June quarter, according to Barclays Equity Research, which said that Infosys saw its onsite bench rise to about 11 per cent during the period from 5 per cent earlier.
Part of reasons why workers are sitting idle is because they do not have the right skill sets that new IT projects call for.
“There is a serious mismatch between the available skill sets and the market demand,” said Ajit Isaac, chief executive of Ikya Human Capital Solutions, a professional staffing company that serves the Indian IT sector.
If traditionally, application development and maintenance made up lion’s share of Indian IT’s work, increasingly, clients are increasing seeking services based on emerging technology areas such as enterprise mobility, cloud computing and data analytics. Employees trained in these technologies, however, are scarce, especially in the US.
Typically, about 10-15 per cent of the workforce of large IT firms is based overseas at client locations. Bangalore-headquartered Infosys has around 13,000 employees in the US while Wipro has about 10,000 employees. HCL Technologies has around 8,000 and TCS some 6,000.
Such a fall in utilisation levels and the burden of an idle workforce in expensive locations could snowball into a persistent headache, if business does not pick up in US and Europe, which together contribute about 80 per cent of revenues for large Indian IT companies.
Source : TOI
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