IT firms take steps to tackle Re rise

Source:economictimes.com

The IT sector is tackling a stronger rupee with stern measures. Most firms in the IT and ITeS industry are looking at cutting down on staff, reducing the bench strength and hiring more professionals with lesser experience to keep salary costs under control.

Besides, the companies are also looking at improving operational efficiency, productivity and focusing on multitasking. Further, on the outsourcing front, the IT industry is planning to pass on the difference in rupee appreciation to their clients.

For small and medium-sized companies, the problem is much more than just measures. The companies are slashing workforce, increasing working hours and working days to reduce the billing cycle and asking employees to start gaining other expertise.
However, what could be a major concern for the industry is the fact that IT companies are now taking more people with an average experience of three years.

“Of the total employee strength, around 45% of them have an average work experience of three years in 2007 compared to only 35% in 2005. This helps us in bringing down the cost per employee,” said a Wipro spokesperson.

Wipro is also taking steps on pricing, utilisation, recruitment and reducing additional workforce to fight the impact. The company will increase billing rates by 2% to 3% for their new clients as a measure to tackle rupee appreciation.

For its new businesses, the $187-million Hexaware Technologies has increased billing rates. As a measure to increase operational efficiencies, the company is increasing utilisation and productivity, particularly with respect to fixed-price projects. It is also training people on more than one platform to increase productivity and reduce cost.

“While improving operational efficiencies is an ongoing process, there is an increased pressure to improve efficiencies faster,” said Hexaware chairman Atul Nishar. Despite following a prudent hedging policy to derisk rupee appreciation ($200 million at an average price of Rs 41.40), Hexaware is negotiating with airlines to provide better prices. Apart from this, it will reduce the number of people on the bench over a period of time.

By improving the operational efficiencies, companies can reduce cost by up to 4%. According to KPMG, companies with more than $100 million turnover are looking at improving operational efficiencies.

According to KPMG’s global head, sourcing advisory, Pradeep Udhas, “Currency impact has been felt across the board, be it small, medium or big IT/ITeS companies. However, some bigger companies have hedged their funds and are able to minimise the impact.”

Infosys Technologies is focusing on creating industry-specific solutions. It is changing the business mix to high revenue productivity businesses to minimise the impact of an appreciating rupee.

“We are also applying other operational levers to minimise the impact. For instance, we have set up a payroll desk and a travel desk for the entire organisation in India. So, onsite payroll is also processed out of here through a single desk,” said Infosys CFO V Balakrishnan.

“Companies are aggressively looking at bringing in more operational efficiency to sustain in the market. The appreciation of rupee is taking place too fast and too soon,” said Nasscom VP Ameet Nivsarkar. Nasscom has already approached the government on the volatility issue.

For small and medium-sized companies, the problem is much more than just measures. The companies are slashing workforce, increasing working hours and working days to reduce the billing cycle and asking employees to start gaining other expertise.

Vadodara-based Rishabh Software has retrenched around 20 employees in order to reduce cost. The company officials, however, said that the employees did not have the expertise on the project and hence they were asked to leave. “IT companies can no more continue spending lavishly. It’s time to take stock of the situation. Until now, IT companies didn’t know cost-cutting, but now everyone is talking about it,” said Hi-Tech Exports’ Pranit Banthia.

As KPMG’s Udhas aptly put it “The IT industry has accumulated a lot of fat over the years. It’s time to lose some. Though luxuries are still far from over, they have seen the writing on the wall.”