High tech firms and outsourcers wrestle with improving labor markets

June 21, 2010

The Wall Street Journal has noted a phenomena that human resource managers have not heard in a while: Employees telling them that they are quitting. In fact, it was reported that the Bureau of Labor Statistics has determined that in February, the number of employees who voluntarily quit their jobs had surpassed the number being fired or discharged for the first time since October 2008. Moreover, a poll conducted by human-resources consultant Right Management at the end of 2009 had revealed that 60% of workers said they intended to quit their jobs when the job market got better.

Given the huge backlog of workers who wanted to advance their careers but were afraid of quitting during a bad recession along with the effect of the heavy cost-cutting and downsizing on the morale of workers, many companies, especially those in the rebounding high-tech and outsourcing sectors, are already wrestling with employee departures and having to hire new employees. In fact, the Wall Street Journal has recently reported that the uptick in hiring in Silicon Valley is already forcing high tech companies in second tier tech locations like Austin, Texas, who had an easy time recruiting talented employees during the recession, to rethink their recruiting tactics. The CEO of one such company was even quoted as saying that the days of “I’ll take whatever job I can get” are over with.

High tech firms and outsourcers wrestle with improving labor markets
In India though, the pay wars have already begun again. Back in April, the Wall Street Journal reported:

  • Tata Consultancy Services will increase salaries as much as 13%. For the first quarter of 2010, 6,076 people left and they ended the period with 160,429 staff.
  • Infosys Technologies will increase salaries as much as 17%. For the first quarter of 2010, 5,400 employees left the company out of a total 113,796.
  • Wipro has already given a 9% pay raise in February and may give more promotion related increases or payouts in the near future. For the first quarter of 2010, those leaving the firm on their own accord rose to 17% from 13% in the previous quarter – leaving the firm with 108,071 employees after a net addition of 5,325 people.

Moreover, it was noted that Indian outsource companies are generally in the position to increase compensation as they had held off on raises and had cut staff during the recession while Indian outsourcers in particular have profit margins that are running at multiyear highs.

However, another recent Wall Street Journal article cited the long-term challenges faced by Indian outsourcers, including rising labor costs, and concluded that companies will unlikely be able to return to the days of 30%-plus annual revenue growth without restructuring their business models along with the types of services they provide. Moreover, midsized outsourcing operations like Patni Computer Systems, have not been able to handle high employee attrition with enough hiring and this has slowed the revenue growth of such firms. Patni’s CFO noted that they could have thrown money to try to attract mid-level talent, but this would have compromised their operating model. Nevertheless, even they announced a 13% pay increase in April.

Hence and while the recession is clearly not over with for many workers who remain unemployed or underemployed or who do not work in the high tech or outsourcing sectors, many employers will need to start preparing for hearing the words “I quit” more often from their employees.


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