Tech firing may be to reduce location headcount; global captive houses coming up again: Vijay Sivaram, Quess

Why the job cuts, why the need for job cuts? Part of it seems to be the fact that the tech companies hired very aggressively in anticipation of growth post pandemic and now there is too much band strength and the growth has not come in. Is that a fair assessment?

A couple of things have happened and one is like you said, over the last year, there was a surge in hiring across the globe. A lot of organisations increased their spending towards attracting employees and bought in employees at a much higher cost than what they assumed to be real demand and which obviously was not required when the gross margin started taking a little bit of pressure.

Second a lot of very new large scale projects are also incubated in view of the focus that they have on building more product lines and more distant streams. A lot of new and large incubation projects started, for which they hired people and many of these projects have not taken off as well. Quite a big percentage of layoffs that we have seen are for those projects which had started recently but are not really taking off.

Third, people are getting back to stores and malls and not ordering online much. So a lot of the ecommerce ecosystem, including a lot of start-up ecosystems are bearing the brunt in terms of demand, which is further hitting their gross margins and EBITDA. Therefore, there is some pressure to reduce some tech cost there as well.

Last but not the least, the heavily funded startups have been facing a lot of tough questions from boards as well as equity investors. There is some pressure to plough some cost benefit back to them as well. Maybe not in the format of Amazon but in the format of some of the other companies that are facing pressures on the bottom line to make sure that their IDC stays, their indirect cost is stable and the focus on gross margins as well as the revenue line stays clear.

The narrative that India is marching to its own tune is possibly very true. Can that be set in the IT space though at the end of the day, it is an export-oriented sector and depends on how the world moves?
Let me break that out for you. We should be very careful when we start comparing hiring demands with the surge that happened last year. We have to take what is pre-pandemic, what is post pandemic during the surge and then we have to arrive at a number and see whether it has gone down or gone up. So we will be very careful when looking at the comparison points over here.

Number two, I think that a decision taken to lay off staff may not always be to reduce headcount but to reduce high cost location headcount. In specific pockets within the Quess business, where we see global captive sectors ramping up more than what they did in the last two-three years on an average per month basis. So we are seeing global captive houses again. My assumption is that somewhere possibly the jobs have come down and they are getting replaced here because there is a cost advantage and also there is a value add. There is talent availability around here.

Third we are seeing a significant uptick in the Indian consumer business. In areas like retail, consumer products and other areas, we continue to see a decent hiring demand coming through maybe ecommerce is seeing a little bit of a slump in terms of hiring. But there are jobs in the other consumer-led businesses; we see people thronging malls and movie theatres. That means they are purchasing and spending and which is where the India story comes in. India is weathering a large amount of storm through the change in consumer behaviour that is happening on the ground today.

We do not know if Covid is going to hit us again. We do not know how the recession fears will work out. There could be a deep trough right now and then a big spike later. It is more of a wait-and-watch story.