New Delhi: A spate of mass layoffs has rocked the technology industry globally, with an estimated 1,00,000 people losing their jobs in just the first 40 days of 2023, amid an uncertain economic climate. While the Indian tech industry has not been left untouched by the global carnage, experts are confident that the impact on India will be limited and the country will continue to remain a strong tech hub.
Since the start of the new year, about 334 tech companies have laid off nearly 101617 workers globally, according to data compiled by Layoffs.fyi — a website that’s been tracking layoffs in the tech industry since the beginning of the Covid-19 pandemic. Of these, nearly 35,000 job cuts have been done by India-headquartered firms. The data shows that globally, 1,044 tech firms cut nearly 1.60 lakh jobs in 2022.
Amid the pandemic-driven enthusiasm around digitisation and technology, organisations had gone on a hiring spree, which came to a screeching halt towards the later part of 2022 as companies began to announce workforce reduction, say experts.
While Microsoft owned-Github and tech giant Yahoo became the latest companies to announce workforce reduction by 10 per cent and 20 per cent, respectively, Friday, other big tech firms to have significantly cut back their workforce include Disney (7000 job cuts amid a decline in its streaming service subscribers) Google (12,000 job cuts), Amazon (over 18,000 job cuts), Microsoft (10,000 job cuts), Dell (6,650 job cuts), Zoom (1,300 job cuts), SAP (3,000 job cuts) and IBM (3,900 job cuts).
“Given the uncertain global economic scenario, we have seen tech companies across the world adopt a strategic layoff plan to restructure and align their workforce based on altered business goals. Some companies are re-evaluating their expenditure patterns to ensure a slightly conservative approach due to concerns related to a potential economic slowdown,” Yeshab Giri, chief commercial officer, staffing & Randstad technologies, Randstad India, told ThePrint.
In his communication to employees announcing the layoff, Microsoft CEO Satya Nadella had echoed similar sentiments. “We’re living through times of significant change, and as I meet with customers and partners, a few things are clear. First, as we saw customers accelerate their digital spend during the pandemic, we’re now seeing them optimise their digital spend to do more with less. We’re also seeing organisations in every industry and geography exercise caution as some parts of the world are in a recession and other parts are anticipating one,” he wrote.
According to Jang Bahadur Singh, director, human capital solutions at Aon in India, a couple of factors have driven this spate of layoffs. To start with, in the aftermath of the pandemic, as businesses started investing heavily in scaling their digital capabilities, organisations globally foresaw the need to build capacities very quickly to aid this shift to digital.
“While that was the story in 2021, as we entered 2022, three things happened — one was that during the pandemic, a lot of governments, especially in the UK and the US, gave a lot of fiscal stimulus to their economies. So there was a lot of excess cash that was there in the system. The cost of capital was low, which helped early-stage organisations raise cash at high valuations, term sheets were getting signed in a day. Every other organisation was quoted as a unicorn,” he said.
Singh pointed out in addition, two events — Europe still coming out of Brexit and the Ukraine-Russia conflict, which impacted the supply chains, leading to an increase in commodity and energy prices and hence adding to organisations’ inflationary pressures. Lastly, China’s zero Covid policy started impacting production capabilities of some of the largest tech companies, like Apple, he said.
“All in all, these things meant that economically across the globe, we started seeing a slowdown in GDP. With all of this happening and the input cost rising, the big tech firms started seeing their valuations getting hit, because from a street perspective, if your cost of capital increases, your profitability gets hit,” Singh said.
He added: “These are the factors which meant that organisations that had planned for a capacity of X, realised very soon that they don’t need that capacity. It is really causing these layoffs globally, across the board, predominantly to cut down costs and get rid of extra capacity that they hired in the last few years.”
Experts are, however, confident that India will see relatively limited impact, on the back of a robust IT services sector and the expectations that global giants will look at moving the cut jobs to a more cost-effective location like India.
Experts also expect a pick up in recruitments in India by the end of the first quarter of 2023, driven by the rollout of 5G services and the focus on digitisation in the country.
“While it is very unfortunate whenever someone gets laid off, (in India) that will largely be restricted to the startup sector or IT product sector, which employs less than 200,000 people; as compared to the four-five million people that are employed in IT services today,” said Singh.
Also read: ‘Hunger games’ in Bengaluru as home rents spike. Spruce up your LinkedIn, brokers are watching
Overestimation of demand, recessionary fears
Sundar Pichai, CEO of Google and Alphabet, in his mail to employees, had admitted that over the past two years the company saw periods of dramatic growth and “to match and fuel that growth, we hired for a different economic reality than the one we face today”.
Speaking to ThePrint, Vijay Sivaram, CEO, Quess IT Staffing, agreed the layoffs were a result of an overestimation of the demand by firms, combined with recessionary fears.
“There is a feeling that the larger growth markets, such as the developed markets in the US and Europe, may go into some kind of a zero per cent or less than one per cent kind of growth trajectory, which means that there could be some capping of capex and opex investment. So it is the combination of these factors.”
While Opex, or operating expenses, are those that a company incurs for day-to-day expenses, such as salaries and rent, capex, or capital expenditure, refers to long-term expenses done to build assets, such as machinery and buildings.
According to Sivaram, the surge of hiring that was seen in the tech industry in 2021-2022 resulted in two things, increased headcount and inflated cost of employee acquisition.
“These two reasons lead to a large cost base for many large organisations across the world, as tech talent became costlier than what it was and the demand did not result in that much of business, which then impacted the gross margins of many companies. Now, by virtue of that there has been some correction that has happened in the industry,” he said.
While he stressed that layoff or reduction in workforce is a difficult period for employees, according to him, this is a normalisation course which happened against the hiring surge that happened last year.
Mr Sivaram added that there has also been pressure from investors for start-ups and projects that are incubated projects within companies.
“So investors in start-ups are asking about gross margins and profitability scenarios… There was so much excitement around digital and technology that a lot of projects got incubated in very large organisations. Some of these projects were shut down which also led to job losses for engineers,” he said.
India to continue a strong tech hub
While there is definitely a spillover impact of the layoffs and recessionary fears, particularly in the tech product organisations and start-ups, experts are optimistic that India will be able to escape the current turmoil without a huge shock.
“There will obviously be an impact right now because an organisation can not choose to reduce only one country’s workforce. They have to run a global mandate. But I think from a percentage standpoint the impact will be lesser in India,” Sivaram said.
He added that according to his estimate the impact will largely be in the developed markets and not as much in the emerging markets. “India will continue to be a strong tech hub,” he said, adding that for the next few months India will see slowness or neutrality in terms of hiring, but a lot of the jobs that have been moved out in the developed markets will get replaced in a market like India.
“Organisations have accepted the reality of having employees globally. Which has resulted in an increase in global captive centres (GCCs) in India. Another good thing that is now happening in India is that all companies now have tech talent as opposed to just tech companies having tech talent till about three years back “which means that the base of tech talent has considerably increased,” he added.
Giri added: “While some of these layoffs have certainly affected Indian employees to some extent, we do not see this as a matter of concern in the long-run. Several multinational companies in the tech sector are heavily investing in India and there is ample room for the skilled Indian talent pool to grab lucrative job opportunities.”
While evaluating the fallout for India, there are four sectors which one needs to look at, explained Singh. The first is the startup sector. Since the US economy is not doing great, the access to funds for startups has reduced, which is why we are seeing layoffs in startups, he said.
The second sector that is directly impacted is the tech product/platform firms — companies such as Google, Microsoft, Amazon and others — who have announced layoffs, as they have offices in India and employ a significant workforce here.
“The third sector — important for us (India) is the IT (information technology) services sector, which includes firms like TCS, Infosys, Wipro, Cognizant and Accenture. For India, the biggest employers in tech are not the likes of Amazon and Microsoft, but this group. And, while IT service growth is not as robust as what we saw in 2021, they are still continuing to clock revenues and deliver better margins, especially as the cost of talent is coming down,” Singh said.
He added that these companies have padded up their capacity through campus recruitment. “We don’t see layoffs happening there.”
The last sector one needs to look at is the captive sector, which in contrast to the other three sectors is expected to see good growth, added Singh.
Captive centres are client-owned-and-operated service delivery centres, typically in a non-domestic, low-cost location, that provide service resources directly to their organisation.
“The moment any organisation starts to face cost pressures, they start looking at moving the jobs from more developed countries to low-cost geographies. And India is one such geography which has the opportunity for organisations to utilise the maturity of the talent at scale,” he explained.
“The captive sector, which is essentially back offices of these global organisations, have actually done well, and they’ve actually seen a high level of growth. So, as we look at the impact, we do expect some of these jobs where people are getting laid off in developed countries, moving to India, because the salary that you have to pay in India is only a fraction of the salary that you end up paying in other countries for the same work,” he said.
Singh added: “So that sector, wherein you have the outsourcing sector, the captive sector, that sector, we actually expect to do better than previous years, given the impact of costs in developed countries.”
Coming, hiring uptick in IT, telecommunications
While hiring in tech is expected to be muted for the next couple of months, experts expect a pick up in recruitment driven by rollout of 5G services and the focus on digitisation. However, they do not expect a huge surge in hiring as seen over the past couple of years.
Even at a conservative pace, this year, Randstad India expects a hiring uptick in sectors like information technology (IT) and telecommunications, given the increased focus of India Inc. on 5G expansion, automation, and digitisation, said Giri.
He added that Randstad India’s internal research suggests that seven out of ten tech companies operating in India expect to increase their headcount by the end of the first quarter of 2023.
“We also expect a 25-30 per cent increase in demand for tech talent in non-tech industries this year compared to the previous year. This growth will be driven by the continued digitisation of operations in these industries, as they strive for greater scalability,” said Giri.
Interestingly, a TeamLease Degree Apprenticeship report released Thursday found that India will need 30 million digitally skilled professionals by 2026 and 50 per cent of the current workforce would need to re-skill themselves in areas of emerging technologies.
According to Singh, while in startups the job loss is majorly restricted to non-engineering roles (corporate and operational roles), for tech product firms the layoffs are across the board.
“Within engineering jobs, what we also see is that the moment someone gets laid off in larger companies like Amazon, there is this huge internal ecosystem where they can apply and get absorbed. So a lot of high premium niches like AI (artificial intelligence), ML (machine learning) or full-stack engineers, backend engineers or data scientists… even if they get impacted by a layoff, they get absorbed by some other part of the business… For others, it’s slightly more difficult to find something within the same ecosystem,” Singh said.
Adding that the recent spree in layoffs, and subsequent slowdown in hiring, was a temporary response to the change in supply-demand dynamics post-pandemic, Giri added that it was not a reflection of the overall health of the Indian tech industry.
(Edited by Poulomi Banerjee)
Also read: Hired, but no job: Why some of India’s top IT firms are leaving ‘thousands’ of recruits in limbo