business | IST

Hiring frenzy in tech sector likely to continue, say experts

The main area of hiring has been in the digital area - things like full-stack developers, data engineers, and cyber security professionals and so on. Therefore, it is hard to manufacture these skills in the short-term. So, companies are trying to make counteroffers, said Anil Ethanur, Co-Founder and Talent Specialist, Xpheno.

There has been a hiring frenzy in the technology sector in the last six to nine months with companies doling out some unusual incentives to new employees - motorcycles, phones etc. While the sector has the highest number of active job openings since March 2020, companies are struggling to fill in key positions due to a talent crunch. The dropout rates following offers too have been climbing steadily for these companies.
CNBC-TV18 discussed the issue in detail with Manish Sabharwal, Executive Vice Chairman, Teamlease Services, Anil Ethanur, Co-Founder and Talent Specialist, Xpheno and Anirban Gupta, Senior Consultant at AON India.
When asked if Sabharwal anticipated this hiring frenzy to continue given the demand explosion India had never seen, especially on account of the digitisation adoption following the pandemic, he said luck matters much more than skill and there are two pieces of luck that have come with the pandemic. “One is the super cycle of digitization. But the second is the resistors -when you have work from home, if you're doing a job in New York, from Colorado, or from Denver, then you might as well be doing it from Bangalore,” he said.
Therefore, COVID has shifted the horizon of what can be done from offshore to something that would probably have taken 10-15 or 20 years in normal circumstances, Sabharwal said, adding that he expects IT employment in India will go from 5 million to 10 million in the next few years, which originally would have taken much longer. He added that it is a combination of the software services, of captives, and obviously the unicorns.
“My sense is that India is getting the switching costs in software that China has in manufacturing. There is really no other place in the world that has developed the people supply chain of engineering colleges, though engineering college capacity went down from 17 lakhs to 11 lakhs in the last six, seven years when hiring wasn't as robust as it is today. So some of it may go back on stream but I don't think talent will be the binding constraint for growth here,” said Sabharwal.
Meanwhile, Ethanur said, the main area of hiring has been in the digital area - things like full-stack developers, data engineers, and cyber security professionals and so on. Therefore, it is hard to manufacture these skills in the short-term. So, companies are trying to make counteroffers, he explained.
“I have never heard of IT services companies getting into the mode of negotiating salaries. Normally they would let people go but now they are open to it. They are also hiring called ‘borrow’, which is they are hiring from staffing companies and are trying to mitigate the short-term demand by borrowing talent from staffing and temping companies. And third one is the tried and tested model, which is the hiring from campus,” he said.
A couple of years back, in 2017 many companies had a net reduction in the talent pool, in headcounts because they said they would drive the automation agenda, but that hasn’t come up a lot these days, said Ethanur, adding that the demand pipeline is good - many $100 million and billion-dollar deals are being won by large IT companies.
“Three things are happening - IT services companies expanding their client pipeline, so order books are looking good. Second thing is that GIC's are hiring big time, we expect that GIC alone will hire about 100,000 people this year. IT Service Company should hire about 200,000 people this year, and for the tech startups this year, it's been a super active period. From a deal standpoint, about 780 deals have been struck and $20 billion have been already infused into the ecosystem. So they are hiring. Although, they don't hire in the same volume as IT services and Captives but they really hire the cream of talent. And that space they are ready to pay even 100 percent hikes,” Ethanur explained.
So what does this mean now as far as the wage war is concerned, and the impact that it is likely to have across the sector?
Gupta said, looking at salary increases, consultants always would say the era of double-digit salary increase in tech is over. “But now when we are seeing salary increases, we are seeing the early stage pays go up, year on year by as much as 15-16 percent. Product firms are not far behind and surprisingly the tech services firms that have been notoriously cautious in terms of their spending, those numbers are going up and to a point where it almost seems like the sins of your past are coming back to haunt you - the limited wage growth, the way you control cost, in a market where demand is in an upswing, you are having to pay for it,” he said.
Gupta highlighted the need to be cognizant that most tech firms, especially services firms, over the years, pared the bench down to the bone and the moment there is a spurt in demand, specifically on the digital side, there is not enough capacity. “So you are going and buying talent,” said Gupta.
He said what is different this time is that if one looks at four segregation organisations, the captives, the products, the services in the Big Four, they were almost near isolated ecosystems, so if the firms had services talent, the services companies wouldn’t hire from captives, captives wouldn't hire from a tech product.
“But with the advent of digital and the fact that there is a real supply glut, those lines are gone. And if you overlay business models and cost models on top of that, what it means is that if you are a tech product company, and you find somebody in tech services a 100 percent increase will not dent your P&L,” Gupta said.
He added that on the flip side, the IT services companies need to fulfil and book the revenue in the short term, which will outstrip the need to manage costs immediately. “It is almost like a Faustian bargain right now - do you need talent or do you need talent at the right cost and most people are saying we need talent right now,” said Gupta.
For the entire discussion, watch the accompanying video