How technology sector going through huge turmoil in the post-Covid world

The coronavirus disease 2019, popular as Covid-19, is behind us thanks to the vaccine makers who developed vaccines on a war-footing. Travel curbs, lockdowns and other controlling measures also helped us in reining in the pandemic. China, where the novel coronavirus originated before sending shivers across the world and claiming thousands of lives, is still witnessing a surge in the Covid cases these days, but the situation is back to normal in the other parts of the globe. However, the world is still reeling under the after-effects of the unprecedented pandemic. The ongoing layoff of employees on a massive scale by the technology companies including tech giants is one such after-effect.

The Chinese-born Covid-19 crippled sector after sector, thus pushing economies around the world into negative territory. For instance, the Indian economy contracted by a whopping 23.9 per cent during April-June 2020 (Q1FY21), its first contraction since 1980. It registered a negative growth of 7.3 per cent in FY21. The world economy also shrank by 3.3 per cent in 2020, indicating the adverse impact of the pandemic on economies. But one sector that escaped from the debilitating impact of the pandemic was the technology sector as the Covid-induced hyper digitalisation offered it a higher growth opportunity during the pandemic. The faster adoption of the work from home option also helped the sector. Thanks to curbs on travel and lockdowns, people relied heavily on the internet for their sustenance. As a consequence, online purchases and payments skyrocketed around the world.

During the Covid period, people depended on the digital world for information, entertainment, education, communication and what not. It was everything digital, so to speak. This has led to an unprecedented growth in digitalisation. To meet the increased demand, technology companies went on a hiring spree. For instance, Meta, which owns social media giants such as Facebook, WhatsApp and Instagram, recruited people on a large-scale during the Covid pandemic. So are also other tech giants. In India also, top three tech majors TCS, Infosys and HCL hired over 2 lakh people in FY21 alone. Edtech majors also did the same as online classes were in demand. But post Covid, hyper digitalisation started easing, taking a toll on tech companies' revenues.

Meta's total revenues fell by four per cent during July-August 2022 as compared to the same period a year ago. Its share price was also down by as much as 70 per cent this year. To put the company on a higher revenue growth path, Meta founder and CEO Mark Zuckerberg delivered pink slips to as many as 11,000 people, or 13 per cent of Meta's global workforce. His announcement came two days after Elon Musk, the new owner of Twitter, sacked 50 per cent of the micro-blogging site's 7,500 workforce. Several other tech giants including Microsoft reduced headcount this year. Some estimates put the total layoffs by US-based tech companies at over 100,000 this year till now. In India too, several edtech startups and IT companies sent employees home. For several companies, these layoffs are more like a course correction as demand for e-commerce tapered off and digital advertising spends came down significantly post the Covid pandemic.

But layoffs do leave a lasting impact on those who lose jobs. Recently, an executive in a Hyderabad-based real estate major told me that a couple abruptly shelved their plans to buy an apartment in the city as both, who were working in mid-size technology companies, lost their jobs at one go. The couple booked an apartment in one of the real estate company's projects and even paid advance. Sadly, they received pink slips a few months after they zeroed in on the property. Working people obviously rely on home loans for buying their dream homes. This couple lost that avenue when they were sacked all of a sudden. So, there was no option for them except cancelling the booking and seeking refund of the advance paid. It must have been a harrowing experience for them.

We are hearing many such heart-rending stories from India, the US and other parts of the world. Some people lost jobs within one or two days after joining a company. A woman travelled all the way from India to Canada to join Facebook in that country. She lost job soon after landing there! So was a new mother who lost her communications job at the social media giant when she was on her maternity leave. This looks like another pandemic for all those who are part of the massive layoffs being undertaken by the technology companies around the world.

But all those who are losing jobs need not worry if they have good talent. There is always a shortage of talented people in the world. Most of talented people will be absorbed. As someone said, tech giants' loss is small technology companies' gain. So, small technology companies may absorb them, perhaps at lower pay packages. And those who can't find jobs immediately can use the free time to enhance their employability skills. So, it's not the time to lose hope.

But there will be a cascading effect of layoffs in the technology sector on several other sectors. As I mentioned earlier, such job losses will impact the real estate, especially in India. Consumption-driven sectors will also take a big hit. But the fact of the matter is that the Indian IT sector always benefited whenever there was a recession and slowdown in the global economy in the past as companies and technology spenders looked for low cost destinations for executing their technology projects. Low cost and availability of an abundant talent pool are the key factors for the success of India's technology sector. These factors may work in India's favour this time too. But the world is heading for yet another phase of hard time. And the turmoil and layoffs in the technology and other sectors is an ample indication. So, it's time to brace up for yet another difficult period on the economic fronts globally just a couple of years after the Covid-induced upheaval. That's unfortunate indeed.