Recent news reports of upcoming layoffs in India’s IT-BP industry are painting a pretty gloomy picture for 2020. Indeed, the reported layoff numbers from Cognizant, DXC Technology, IBM, and Infosys collectively amount to more than 20,000 employees and account for 4-5 percent of their total India headcount. Coupled with the economic slowdown in the country, these layoffs will add to India’s high unemployment rate over the next few quarters.
What’s driving these layoffs? Is it the maturity of legacy systems, as Cognizant and Infosys said? Is it due to workforce restructuring and cost pressures, as Capgemini, DXC, and IBM cited?
There are four reasons that many of India’s IT and BP providers – not just those mentioned above – may have to trim their workforces in 2020.
Cost and margin pressures
The slow economic growth is putting pressure on providers’ ability to meet their target margins. Heavy discounts to retain existing clients, building new relationships, and slow revenue growth are exacerbating the situation. Letting some employees go helps them streamline their costs.
Rise in reshoring
Reshoring continues to grow for multiple reasons: stricter visa regulations, new data security regulations (i.e., the introduction of GDPR in 2018), and buyers’ increasing desire for providers to grow their onshore presence for ease of coordination, better alignment/training, and promotion of customer intimacy.
Given their dependence on multi-national and global clients, service providers have drastically increased hiring in some onshore locations to localize their business presence. This not only adds to the overall costs of operations but also translates into a reduced number of transactional roles in India to optimize overall costs.
Legacy technologies are fast giving way to new digital technologies like cloud, Internet of Things (IoT), Machine Learning (ML), and Artificial Intelligence (AI). This is increasingly reducing the need for workers with expertise in legacy technologies. And automation adoption has made jobs redundant, leading to lower headcount demand than before.
Rationalization of the experience mix
One lever service providers are pulling to help their clients optimize their delivery costs is rationalizing their middle-heavy delivery pyramid, particularly in India. This is because mid-level resources add to the existing high cost of operations, aren’t particularly adept in emerging technologies, and have been slow to up-skill themselves on them. Thus, providers are increasingly targeting a healthy mix of resources spread across entry-level and experienced talent. This will result in substantial mid to more senior employee layoffs.
The double whammy of the economic downturn and technological transformation might lead service providers to cut more jobs in the coming quarters. This will not only help them streamline their costs, but also redirect their focus towards reskilling and restructuring the existing workforce. While the existing employees struggle to upskill themselves to retain their jobs, the fear of future uncertainties is comprehensible.
To learn more, please read our recently published report, “Market Vista: Q4 2019.” It’s designed to equip global sourcing professionals with incisive research and insights on the latest trends in the sourcing market, sourcing locations, and service provider developments. We develop the Market Vista reports based on deep-dive discussions with leading shared services centers, service providers, and other market participants.