massive layoffs | Photo Credit: Getty Images
the story So Far: Over the past two months, several US multinationals, including tech giants Amazon, Meta, Intel, Twitter and financial giants such as Citi and Morgan Stanley, announced mass layoffs. According to a global placement and coaching firm, layoffs crossed 60,000 in September and October. These developments are bound to have an impact on India’s export prospects, especially in the Information Technology (IT) sector.
Why are layoffs becoming common?
Alphabet CEO Sundar Pichai warned of a coming winter in the tech sector earlier this year. At a wide-ranging meeting in September this year, he had one response to staff questions on budget cuts: “We don’t always get to choose macroeconomic conditions.” A possible economic downturn is a big red flag. With inflation rising in most parts of the world, central banks have been scrambling to rein it in by raising rates since March this year to make it more expensive to borrow and consume. This will ultimately affect economic growth and jobs. The International Monetary Fund (IMF) has downgraded global GDP growth forecast for both 2022 and 2023 in view of the pandemic and the ongoing Russia-Ukraine war. Putting aside the 2008 financial crisis numbers, projections for this calendar and the next by the IMF are the weakest since 2001.
What do US CEOs say about the coming months?
The Conference Board’s measure of CEO confidence showed that top honors in the West have not declined so much since the 2007-2009 recession. The survey asked 136 CEOs what economic conditions they were preparing to face over the next 12-18 months. An overwhelming majority – 98% – said they were preparing for a US recession; While 99% said they are preparing for an EU recession.
What is the outlook for the Indian IT industry?
Indian IT services firms are among the largest employers in the organized sector and any global economic trend is bound to have an impact on their growth projections. Management looks at headcount numbers as critically as they want to cut costs and protect profit margins because they are accountable to investors. While there is no clear trend yet, there are some signs that may indicate what to expect in the next few months. All top companies except Wipro saw growth in revenue and net profit. Wipro’s net profit for the quarter ended September declined 9% from a year ago.
The attrition rates, or numbers per 100 employees, of the top two firms, TCS and Infosys, show that these rates are still high, meaning there is enough business for the sector to attract employees from competitors. With the promise of higher pay. At Infosys, the attrition rate declined marginally to 27.1% in July-September 2022 from 28.4% in the previous April to June quarter; At TCS, the attrition rate increased from 19.7% between April and June to 21.5% in the July-September quarter. As for operating profit margin (OPM), Infosys saw its OPM improve to 21.5% in July-September from 20% in April-June, but both 3-month and 6-month OPM declined compared to a year ago; TCS saw its OPM rates rise by 24% in the three months ended September as compared to the previous quarter (23.1%).
Media reports said Infosys aims to pay 65% of variable pay to employees for the July-September quarter, as against 70% in the April-June quarter, because of ‘margin pressure’.
What about start-ups?
The news of layoffs in the Indian start-up front is mainly in the EDtech, or Educational Technology front. A decrease in the number of Internet users visiting educational websites since the fall of the pandemic has been cited as a reason. The Indian start-up layoff tracker by Inc42 showed that over 15,700 employees were laid off in 2022 amid tightening funding conditions. According to Inc42, Byju’s, Chargebee, Cars24, Ola, Innovaccer, Udaan, Unacademy and Vedantu are the names that have been in the news for layoffs.
The tracker showed that the edtech sector saw the most layoffs – 14 start-ups expected to lay off 6,900 employees in 2022.
Are Jobs Growing in America?
When layoffs occur in some parts of the American economy, jobs are added in other parts as well. According to data from the Bureau of Labor Statistics, the US saw the largest increase in employment in healthcare at 53,000 as of November 4. Manufacturing added 32,000 jobs. October saw a modest 7,000 retail job gain, despite the US heading into the holiday shopping season.
For Indian IT firms, roughly one-third of revenue comes from financial services – a sector that has seen little change in terms of job growth in the US economy over the past six months.
What happened in India during the last global recession?
During earlier global recessions, while companies rarely publicly announced layoffs, they sought to reduce all employees who were at the bottom of the performance ladder. Companies that were in a particularly bad patch cut bench strength. On the other hand, if a person was on the bench for about a month (i.e., without projects), he could be asked to sign up for some training courses etc. If a professional has spent more than three months on the bench and a project hasn’t panned out, the system will simply weed him out. After the recession of 2008 which lasted for more than 2-3 years, what happened after that is that the companies would start slowing down the growth in the number of employees. Planned additions from the campus will come down or offers will be made but absorption in the company may take 9-12 months from the time of offer.