Multinational companies are beginning to hire the best and the brightest from campuses -- and they're stepping up their hiring. The outcome could be job hopping.
Here's a forecast that information technology company men would ignore at their peril -- IT company employees will start to demand fatter pay cheques and job hop in the next 12 months. That warning comes from Partha Iyengar, vice president at Gartner Inc. Says he: "I expect the mercenary behaviour to reappear in the next 12 months."
Oddly enough, the reason the IT industry will start to see huge attrition rates is the very success of outsourcing to India. Spurred by this, multinational companies around the world have decided to come to India, set up shop and hire aggressively.
That should be music to the ears of the thousands of employees at IT companies who are itching to switch jobs, at a time when attrition rates at software companies are hovering around the high teens.
A quick look at the number of people multinationals are hiring tell the story. The top three multinational companies, IBM, Cognizant Technology and Accenture, added over 15,000 people in India in the last 10 months.
Include Daksh, which IBM acquired, and the number leaps to around 20,000. At the same time, the top three Indian software companies too added about 20,000 people in India.
Wipro itself recruited over 5,000 people in the quarter ended in September. So the number of people being hired could be similar for both the top local and multinational companies in the months ahead. Accenture which has about 10,000 people in India is expected to double its headcount by the end of this year.
A look at the next 10 or so multinationals that have a presence in India and the next 10 Indian software companies reveals a very different story.
Multinationals such as Microsoft, Oracle Corporation, Electronic Data Systems, Computer Sciences Corporation, Cisco Systems, Intel, Xansa, SAP, PeopleSoft, Cap Gemini and Deloitte have cumulatively ramped up by over 20,000 people in India in the last 10 months and have announced plans of hiring an equal number, if not more, in the coming months and years.
In contrast, 10 Indian mid-tier IT companies like Patni Computers, NIIT, Mastek, i-flex, Polaris, CMC, Tata Infotech, Mahindra British Telecom, Birlasoft and MPhasis BFL have cumulatively added less than 10,000 people.
That doesn't exactly auger well for their future -- it can be argued that the IT services business is a people intensive game.
Notes an analyst at a Chennai-based IT firm: " Multinationals are stealing the thunder from Indian companies. History always repeats itself. It happened to the fast moving consumer goods, financial services, automobile and pharmaceutical industries. We are now seeing a replay of it in IT services."
The bottomline, he contends, is that the Indian IT services industry is losing out to multinationals when it comes to recruitment.
Agrees Vivek Paul, vice chairman of the Bangalore-based Wipro Ltd: "Foreign companies will end up hiring more Indians than Indian companies will, not because they are US or foreign based service companies but because of US companies setting shop in India. This will be a very fast growing area."
A recent AC Nielsen-ORG Marg campus survey confirms this. Microsoft, Intel, Texas Instruments and other multinationals outgunned Infosys Technologies, Wipro and Satyam as preferred employers.
What this implies is that the battle for talent will intensify -- and the big Indian software boys and the big multinationals will walk away with the best and the brightest.
N Lakshmi Narayanan, president and CEO at Cognizant Technology, who concedes that attrition rates will go up, believes that the battles will be fought on college campuses around the nation.
"Hiring by multinationals will have more of a trickle-up effect rather than a trickle-down effect. This will lead to small companies losing people to the mid-tier ones and the mid-tier ones losing people to the larger ones. In turn, this will see more and more of the small and medium companies going to campuses for hiring," Narayanan notes.
Indeed, most observers think that Indian companies will have contend with more competition, both on campus and at the lateral level, for talent. If, currently, five companies are contending for bright students on campus on day one, there could be eight and then 12 or more in the future.
As Narayanan points out, the level of employee attrition depends on the growth of an industry -- the higher the growth, the higher the average attrition. And employees gravitate to companies that see higher growth because these companies offer them better growth opportunities.
"This is precisely what we are seeing with multinational company hiring in India -- they are hiring from a zero base which helps them to be seen as growing faster, because of which, their suction power is also seen to be higher," the Cognizant CEO says.
This, of course, implies that mid-tier companies that report below industry average growth rates are going to be hit with a double whammy -- they will be unable to hire from the best campuses and they'll be unable to retain existing employees.
To be sure, the smaller IT companies are aware of this emerging situation and are doing their best to combat it through better brand building.
Says Ashok Soota, chairman and managing director of the Bangalore-based $50 million MindTree Consulting: "We are conscious of this but as a company we have invested in creating a good brand. We have had absolutely no problem in attracting talent so far and the fact that recent best employer surveys have put us in the top league is proof of that."
MindTree itself plans to hire about 1,000 people at its newly-opened Hyderabad centre in the next two years.
The case of Virtusa Inc, a US-based mid-tier company with about 1,600 employees across the globe, about 1,100 of them in India, is similar.
Says Santanu Paul, general manager at Virtusa's Indian operations: "The demand-supply gap for talent is there but ultimately I think size will not matter as much as the quality of work. This apart, we have an aggressive campus strategy which has helped us grow our brand on campuses."
Virtusa has grown from 0 to 1,400 people in about four years in the country and though Paul refuses to disclose this, the company may end up with about 2,800 people by the end of next year.
Most IT company heads differ on when when the demand-supply mismatch will end. "If you ask me how long the multinational company hiring will continue, it will take the next several years (perhaps 7 or 8 years) until an equilibrium is reached," says Narayanan.
MindTree's Soota, though, predicts that the situation will ease much earlier. "I expect this to happen only for the next two years as by then the hirings by multinational companies would have stabilised," he says.
Significantly, the kind of people that the top multinational companies are hiring and the kind of people the top Indian companies are hiring are very different.
"The bulk of multinational company hiring will be broad-based and not just for niche or specialist skills. It would be similar to Indian companies going to China and hiring people for broad-based skills," says Narayanan. At home, the top Indian companies are hiring specialists.
Multinational companies are tapping the low cost employee advantage that Indian IT companies have by setting up base here. What does all this mean for Indian IT companies and their competitiveness?
"I think that if you look at it on an ongoing basis, the broader question is, will the US IT service companies with an Indian back end be in a position to trump us or stop us in our growth? The answer is absolutely not. Regardless of the fact that they have set up shop in India, we continue to have the process discipline and the global collaboration, which they don't. So there is no doubt in our mind that even when US companies set up shop in India, we continue to retain an advantage," replies Wipro's Paul.That has to be seen. Meanwhile, the threat of multinational companies increasingly writing the software story in India rather than India's IT companies is real and simply can't be dismissed.