It is a known fact that Indian IT companies are feeling the pinch of the falling dollar vis-à-vis the rupee on their bottom-line. There are estimates that assess the impact of every percentage drop in the dollar to the profit margins of IT companies.
Added to this is the anticipated slowdown or recession in the US economy this year. Though companies like Infosys and Wipro have gone on record stating that they would treat the recession more as an opportunity than as a threat, it definitely calls for some strategizing and planning on the part of IT companies.
Traditionally, Indian companies (in all sectors) respond to adverse market conditions by cutting costs rather than downsizing the workforce. This typically involves cutting perks (like variable pay) and other accruements. Many companies reduce benefits like free lunches, expensive team outings and the like.
IT companies like TCS, Infosys and Wipro, being home-bred, have adopted these practices in the past (we went through a similar slowdown in the initial years of the new millennium).
Contrast this to the downsizing of Entry level Trainee Programmers by IBM. Though touted as an exercise in weeding out “poor performers”, it leaves little doubt about how foreign companies (or MNC’s) operating out of India would deal with the situation.
Some companies typically put all new recruitments on hold until the economic conditions appear favourable.
Further, it has to be borne in mind that most companies these days have variable pay as a high component of the overall package. This variable pay includes company performance linked pay, group performance linked pay and individual incentives. TCS has reduced the company performance component by 1.5%. This step has to be viewed as a cautious response to the emerging economic scenario.
It is a moot point whether other Indian companies will follow the same strategy adopted by TCS or evolve their own response based on the emerging trends. The situation will have to be watched closely before we can comment.
In the meanwhile, it is likely that we will definitely see some action by other IT companies too, as they struggle to retain their position in these uber-competitive market conditions.
As the Chinese curse goes, “May you live in interesting times”. Indeed, we are!
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