Uptick in contract hiring at IT cos amid slowdown
IT firms aim to reduce their dependence on subcontractors (third party vendors) for executing projects in their bids to save cost; In last 2 years, subcon expenses gone up to 14% of total costs from 9% during the pre-pandemic phase
image for illustrative purpose
Contractual Staffers In Focus
- Uncertain demand environment
- Higher number of furloughs
- Cyclically weak Dec qtr
- Above reasons for IT firms to look at contractual staffing
Bengaluru: Hiring of contractual staffers is witnessing a steady rise among Indian IT services companies in recent months as fears of slowdown is making companies nervous about taking people on roll.
This is in sharp contrast to the sentiment two quarters back when companies were keen to take employees on roll on the back of high attrition and moonlighting-related aspects.
"The hiring mandate is going up slightly as companies are hiring contractual staffers. When there is volatility in the market, and uncertain economic environment; companies usually prefer to spend on contracting than spending people on permanent basis. Though it's a wait and watch mode, we see the mandate going up by 2-3 per cent against previous months," Supaul Chanda, vice-president of technology recruitment firm Experis of Manpower Group, told Bizz Buzz.
According to sources in the know, apart from uncertain demand environment, higher number of furloughs and cyclically weak third quarter (October-December) are the reasons for IT firms to look at contractual staffing.
Meanwhile, IT firms are trying to reduce their dependence on subcontractors (third party vendors) for executing projects in their bids to save cost. In the last two years, subcon expenses have gone up to 13-14 per cent of total costs from 7-9 per cent during the pre-pandemic period.
This has impacted the operating margins of IT firms, which are facing elevated level of attrition in last few quarters. At a time, when companies are reducing their reliance on subcons, they are trying to execute more projects from their staffers and contractual employees.
Not only IT industry, but also sectors like FMCG, followed by sectors like e-commerce, manufacturing, retail, logistics and healthcare are also witnessing hiring of more contractual workers amid slowdown fears.
Global financial major Credit Suisse in a recent note said that GDP projections in the US are on a downward trajectory and further cuts couldn't be ruled out.
The report noted that there is a high risk of revenue downgrades due to weak global macroeconomic conditions. Though it said that there may not be any significant impact on margin and only expect a 2-4 per cent cut in earnings per share for a 2 per cent constant currency revenue cut for financial year 2024. While most Indian IT firms are likely to achieve revenue growth numbers as guided earlier during FY23, uncertain demand environment- especially in key markets like the US and Europe- is likely to dent revenue growth in the next financial year.
When there is volatility in the market, and uncertain economic environment; companies usually prefer to spend on contracting than spending people on permanent basis. Though it's a wait and watch mode, we see the mandate going up by 2-3 per cent against previous months
- Supaul Chanda, V-P of technology recruitment firm Experis of Manpower Group
