Managing a large workforce across countries and continents while being globally consistent and locally relevant and compliant is a new challenge and not an easy task
The increasing labor costs in India are creating cost pressure on the industry that is accelerating and contributing to attrition and turnover
The Indian IT/ITeS sector is at an extremely crucial inflection point in the current economic scenario and must address the critical challenges of rising labor costs and attrition to accelerate growth
Businesses across the world are under tremendous pressure to change and adjust to a shifting global economy. In the Indian context, the IT/ITeS industry has been at the forefront leading dramatic changes to many parts of Indian business and society. Massive employment including jobs for thousands of young people each year is dependant on the IT/ITeS sector, which has changed the way global companies, including the largest multinationals, perform and manage their business operations. At the same time, the business dynamics that we all are experiencing are shifting as fast as we can make changes and adjust to them. The IT/ITeS industry is at the core of this inflection point given its massive employment and connection to so many global companies. In my opinion, there are a few key trends that are swirling around that will shape the industry going forward. The challenges arising out of these trends, if managed well, will determine the next wave of growth and success for the Indian IT/ITeS industry as leading global players.
First, as I believe we all recognize, the increasing labor costs in India are creating cost pressure on the industry that is accelerating and contributing to attrition and turnover. While cost advantages still exist in India, this leverage is narrowing at an aggressive pace. The net result is higher costs in an area that can represent more than 50% of total corporate expense. IT/ITeS companies will need to find ways of controlling and managing these costs to stay competitive and improve the bottom line.
The second trend is a direct result of many Indian IT/ITeS companies going global. The days of US, European and Japanese companies being defined as ‘The Multinationals’ is no longer accurate! Today, the multinationals are right here in India with the local IT/ITeS companies at the forefront of changing dynamics. Managing a large workforce across countries and continents while being globally consistent and locally relevant and compliant is a new challenge and not an easy task. For Corporate HR today in India, this is getting more complex with the IT/ITeS sector right in the middle of this changing environment.
The third trend is the impact the value of the US Dollar is having on Indian global providers. With the Dollar predicted to possibly drop below Rs.40 in the near future, this will create significant strains on the revenue growth of companies with an export focus like the IT/ITeS industry. While increasing domestic focus in India may dilute some of this impact, it’s still the developed markets which provide much of the business and opportunity to the Indian IT/ITeS companies. How companies maintain profitability and add a few hundred basis points to the bottom line in this scenario will be interesting to watch!
The fourth and final trend I want to mention is the very specific concerns for the IT/ITeS industry of attrition and absenteeism. Attrition ranges from 20-40% in most companies and in some instances even higher. But it doesn’t stop there. The high rate of Absenteeism given changing workforce dynamics and how we manage this important area will have a direct impact on results. With staff absenteeism representing up to 35% of Base (Fixed) payroll costs when planned and unplanned absence is included, any savings in this area goes straight to the bottom line when measured and managed well. And its impact is not just on costs but also on employee morale, work related stress, productivity losses and resulting attrition.
While these trends are happening, CXOs often grapple with these issues in isolation allowing costs and results to come under pressure. The next decade belongs to those organizations who achieve operational excellence including the ability to effectively manage their workforce.
Aron Ain is Global CEO, Kronos Inc.