To save costs for themselves and their clients, information technology firms in India have started increasing the work done from Indian shores (known as offshore). In some cases, these IT companies have even started calling back onsite (on foreign shores) Indians.
India's largest IT firm, Tata Consultancy Services, for instance, has called back over 1,000 employees as a part of its focus to increase offshoring work. Infosys Technologies and Wipro have called back a similar number. "We achieved our overall target of 45 per cent offshore leverage, an improvement of 310 basis points on an annual basis from Q4 of '08 to Q4 of '09," said a TCS spokesperson. Part of this gain is attributed to costs saved due to employees shifting back to India.
Infosys, too - while posting its fourth quarter results - mentioned that in a survey among its customers, 22 per cent said there will be a slight increase and 5 per cent said there will be a more than 10 per cent increase, in offshore spending.
The fact that the H1-B visa quota has still not touched the cap of 65,000 adds credence to the story of cost cutting. Till May 2009, the US Citizenship and Immigration Services (USCIS) had about 45,500 H-1B petitions, 19,500 short of the quota. The cost of one H-1B visa is around $3,000. The number of H-1B visa holders in Infosys, which was 8,700 as of December 31, 2008, came down to 8,200 as of March 31, 2009. This number is expected to come down further by another 500 at the end of the first quarter of fiscal year 2010, said the company.
With total employee costs as a percentage of revenue being around 50 per cent, analysts note it is obvious for IT firms to look at the employee base to bring in cost efficiencies. The salary difference of an onsite and offshore employee can range between 40- and 60 per cent On an average, a software coder with 3-4 years of experience will get a salary of Rs 600,000-800,000 per annum. The same person will get a minimum salary of $40,000 (around Rs 19 lakh) per annum in the US, according to an HR consultant.
It also helps the clients save on costs, since offshoring (when compared to onsite work) is much cheaper in terms of billing rates. IT firms are said to have helped US-based customers to save $12-16 billion in 2008, and European customers somewhere between $8-10 billion.
"Bringing back employees from onsite centres will surely lead to substantial savings but you also have to understand that customers are also getting stringent and looking at all possible ways to reduce costs. Besides, IT firms are also moving away from time and material to fixed-priced contracts that now allows them to focus more on delivery," explained Venkatesh Subramanian, VP-IT Practice, TMI Network, an HR consultancy firm.
HR consultants also said that IT firms are reducing the bench period for employees onsite. "We have observed that the bench availability has been reduced to 30 days. So, if an employee is able to get absorbed in the project, he/she can continue, otherwise they are being asked to return. Besides employees that are not billable, as in managerial-level employees, are also being asked to return," said an HR consultant on condition of anonymity.
Ganesh Shermon, partner and head of people and change advisory services, KPMG, also adds that more than just cost optimisation, the utilisation level among firms has gone up. "Besides, when you call back a senior executive, other costs also reduce. There is travel cost, there is consolidation of real estate, among other measures."
But what about the backlash when jobs are outsourced? For one, Indian IT firms have realised the importance of creating more local jobs in the geographies they operate, especially the US, to counter growing 'protectionist' rhetoric from US senators and pressure from the Obama administration. Even though the net addition of jobs would be marginal due to jobs moving back to India, during the last six months alone, analysts estimate that Indian IT-BPO firms would have created over 10,000 jobs in international locations, with the majority of these being created in the US.
For instance, HCL Technologies alone has created approximately 2,500 jobs in the US and UK combined in the past six months. TCS, the largest employer in the IT sector in India, has added 2,146 employees in its overseas branches, including those in the US, UK and Mexico, during the past two quarters. And though Infosys and Wipro declined to share the number of overseas recruits during the past two quarters, industry sources say these numbers are well above 1,000.
"It is but natural for the US government to talk about protectionism. Anyone would have if you have an increasing number of umemployed citizens. So, in that sense, I think this is temporary," said Shiv Aggarwal, CEO, ABC Consultants. Concurred Shermon: "IT firms still need to attract good talent and sending them overseas is a big incentive."
