THE STRENGTHENING of rupee, imminent recession in US, sub prime mortgagee crisis in US and its worldwide coupling effect - it seems that everything is going against Indian software industry. On one side, due to slowdown in US economy and effect of sub prime crisis in US as well as in Europe, search of new clients and increasing the contracted rates are becoming tough for software companies and on the other side, whatever income realisation these companies are getting, the strong rupee has eaten it by more than 10 per cent.

 

Indian software companies are taking tough decisions in tough business environment for survival in this difficult time. The decisions are ranging from mild wage cut to as stiff as axing from job. On January 30, India’s largest software company Tata Consultancy Company (TCS) has announced to cut the variable component of its employee and on an average, the cut will affect the employee’s salary by anywhere between 1.5 – two per cent less this month and onwards. Though 1.5 – two per cent cut does not look very huge in the industry, which is suffering, but getting less salary is certainly pinching the employee. But it appears that the company may not have any other choice keeping in view that they have maintained the same level of salary despite appreciation of rupee since last one year. It is also correct that if a company’s stake holder and shareholder are facing lower returns (in the form of depreciated value of the company share), then some brunt should also be borne by the employee.

 

It is not that only employees of Indian software companies are in tough water, yesterday news has come that International Business Machines (IBM - the multinational software giant) is also trimming its payroll list. An estimated 700 fresher employees have been given the ‘pink slip’ (an American practice of retrenching people when notice of termination is given on a pink paper and wrapped in an envelope). Most of such employees are Entry Level Trainee Programmers (ELTPs). IBM is claiming that the layoff is based on the performance of the employee but sudden retrenchment, it seems, is an after effect of the poor performance of its India operations. It may be learnt that IBM does not have its own developed software as companies like TCS or Infosys do. Rather IBM provides complete software (for the software of TCS or Infosys or I-flex companies etc) solution package and it is something like contract services. So naturally, if the software companies will be affected then IBM performance also will be affected.

 

The hiring spree of the software companies is also at low ebb. It may be evident by the less number of recruitment advertisements appearing in the newspapers. Already so many software companies are suffering due to increasing number of attrition.

 

Though big companies are managing their profit during the year by hedging their overseas income through forward contract, the real acid test is for small and medium-sized companies who do not have a big established full-fledged treasury department. The small companies are really facing the worst time, as going for search of new customers and new currency (Euro) in Europe would be a tough task owing to wide spread sub prime crisis effect.