One of the fallouts of the success of the Indian outsourcing story is that attrition has become a serious issue for domestic technology companies.

For leading multinational companies setting up shop in India for software services, domestic companies have proved a fertile ground for easy poaching.

Outsourcing and India: Complete Coverage

Quarter-on-quarter, the attrition percentage of India's top tier companies have seen an upward climb.

The last two quarters ended December 2003 and March 2004, attrition hit the upper teens for almost all the leading IT companies. The raiders of talent, of course, being marquee names such as IBM, Oracle, Accenture and CSC.

The attrition for Wipro and Satyam has been hovering around 17 per cent. For Infosys, the attrition has been lower but Infosys as a company also follows a pattern of attrition reporting that is unique to it.

Infosys last year changed its formula for reporting attrition and calculates attrition for the last twelve months. This tends to average out attrition over 12 months and is not a direct comparison with quarter-on-quarter reporting which is the industry norm.

Says, Mohandas Pai, chief financial officer, Infosys Technologies, "We started reporting ratios and percentages on a 12-month trailing basis over the last two years. Parameters such as RoCE, RoE, EPS are all being reported on a 12-month trailing manner and attrition reporting also came under this mode last year. We find that reporting on an annualised manner can be construed as giving future projections."

Location, it seems, can also play a role in bringing down attrition. A company such as Cognizant has been lucky for the simple reason that it is based in Chennai. None of the multinationals have set out to have a big presence in Chennai, and probably that is the reason for a lower rate of attrition for Cognizant.

In fact, Cognizant's attrition rate actually came down from 11 per cent to 10 per cent in the quarters ended December 2003 and March 2004.

Attrition, especially at middle and senior levels, has a direct correlation to delivery excellence of a company. Companies that have a lower attrition seem to be recognised by CIOs of corporations as better at execution excellence.

If the recent Morgan Stanley survey of over 225 Fortune 1,000 CIOs is anything to go by, it is a clear validation of this argument. TCS for example, alongside Cognizant, reported the lowest attrition among the offshore majors, and both are seen to have demonstrated the best execution excellence, followed by Infosys and Wipro.

A study of the attrition numbers for the last few quarters seems to fall in line with the theory that lower the attrition, the better the execution excellence. More so when the attrition is lower at middle and senior management levels.

Industry experts point out that attrition has gone up significantly in the last two quarters because of the aggressive recruiting by MNCs such as IBM, Accenture, EDS, CSC, Intel, Oracle and Microsoft. Interestingly, these companies have recruited over 4,000 people just in the last two quarters.

Says a senior human resource manager at a Bangalore-based company, "The requirement of manpower is around 100,000, while the leading top 15 Indian companies have anywhere between 250,000 employees between them. Sixty per cent of the recruitments for MNCs happen from campuses, while another 40 per cent is from Indian companies. Obviously there will be a 20 per cent attrition then."

The large MNCs are seen to be heavily recruiting people between three and eight years of experience, which is commonly seen as middle management of IT companies (module leaders, project leaders and project managers).

These people normally lead a project or an account, and take greater ownership and responsibility for delivery management.

In the December ended quarter earnings call, Vivek Paul, vice-chairman, Wipro, acknowledged that there is attrition at the middle level.

"The IT attrition rate on an annualised basis is 17 per cent; on a trailing 12 months is 14 per cent. If you segregate the attrition into greater than five years and under five years experience, our attrition among greater than five years experience is about two-third than that of less than five years experience. So that means that bigger attrition really is in the junior crowd and we are going to try and address that as well," he said.

But this clearly indicates that Wipro's attrition among over five years experienced people is around 6 per cent, which is in itself a whopping number. Infosys too sliced and diced attrition percentages to present a not-too-alarming picture.

"Attrition has gone up over the last 12 months, and it is not really in the middle or the senior level. It is really in the 1-to-4, 1-to-5 year periods when a person has spent a couple of years. But it has gone up and we are looking at what we need to do," said Krish Gopalakrishnan, chief operating officer, Infosys.

Satyam's chairman Ramalinga Raju, was a little more candid and forthright in acknowledging that the middle management is what they are losing.

"A higher percentage of attrition tends to be at the middle level at the project manager and project leader levels. This is seen as the trend in the industry as well," he said.