“My guess is that somewhere maybe the jobs are coming down and they are being replaced in India because there is a cost benefit and also value addition. There is a supply of talent around here,” Sivaram said.
Why is the work cut, why is the need for job reduction? It seems in part because the tech companies were hiring so hard in anticipation of the growth epidemic, and now there’s so much bandwidth and the growth hasn’t come. Is that a fair assessment?
Two things have happened and one is as you said, in the last year, there has been a huge increase in hiring all over the world. Many firms have raised their costs to attract workers and bought workers at much higher prices than what they thought was real demand, and obviously gross margins started to put a bit of pressure on them, which was undesirable.
Secondly, many new large-scale projects have also been created due to their focus on building production lines and remote streams. Many new and large completion projects have been started, for which people have been hired and most of these projects have not even started. The vast majority of layoffs we’ve seen are for projects that have recently started but are still in progress.
Third, people are returning to stores and malls and not ordering as much online. So many ecommerce ecosystems, including many startup ecosystems, are experiencing pressure on demand, further hitting their gross margins and EBITDA. So, there is some pressure to reduce some of the technology costs.
Last but not least, highly funded startups are facing a lot of tough questions from boards and equity investors. There is some pressure to farm some of the cost benefits back to them as well. Maybe not in the format of Amazon, but in the format of some companies that are experiencing pressure on the bottom line, IDC said, their indirect costs are stable and they are focused on the overall profit as well as the revenue line. It remains clear.
The narrative that India is marching to its own tune is perhaps too true. That can be placed in the IT space although at the end of the day, it is an export oriented sector and it depends on how the world moves?
Let me break that out for you. We have to be very careful when we start comparing employment claims with last year’s increase. We have to take what happened before the epidemic, what comes after the epidemic during the operation, and we have to get to that number and see if it goes down or up. So we are very cautious when looking at the comparison points here.
Number two, I think the decision to lay off workers is not always to reduce headcount, but to reduce headcount in high-cost areas. In certain pockets of the Quess business, we see global captive sectors growing more each month than they have on average over the past two-three years. So we are seeing international captives again. My guess is that the jobs fell somewhere and are being replaced here because there is a cost advantage and there is added value. There is an abundance of talent around here.
Thirdly, we are seeing a significant improvement in the Indian consumer business. Like retail, consumer products and other areas, we will continue to see good hiring demand with perhaps a slight slowdown in e-commerce hiring. But there are jobs in other consumer-driven businesses; We see people thronging malls and cinemas. This means they are buying and selling and the history of India is coming. India is riding a massive storm with the changing consumer behavior that is happening on the ground today.
We don’t know if covid is going to hit us again. We don’t know how recession fears will play out. Now there may be a deep trough and then a big spike. It’s more of a wait-and-see story.