Software industry in India is booming
By Andy Mukherjee
Bloomberg News Service
Thalapalli Hari has a problem — a good problem.
"Every time our sales team wins another order," says Hari, senior vice president for human resources at India's Satyam Computer Services Ltd., "I groan."
Not a surprising reaction from someone scrambling to hire 150 engineers a week to write computer software in 20 development centers, six of them in India.
"It's like you're being asked to create a new company every month — it's a good problem to have," Hari explains in an interview in Singapore. "The challenge is to become a 50,000-people organization and not fall apart."
Satyam currently has 19,000 employees.
Hari isn't the only Indian recruiter facing the "good problem." Satyam, which has its headquarters in the southern Indian city of Hyderabad, is the smallest of the Indian software industry's Big Four, which includes Tata Consultancy Services Ltd., Infosys Technologies Ltd. and Wipro Ltd. All are adding customers and hiring engineers at breakneck speeds.
On the stock market, the murmurs have begun. With wages accounting for 70 percent of a software company's expenses, analysts and investors are looking closely at recruitments and pay increases. I-Flex Solutions Ltd., a smaller Indian software maker in which Citigroup Inc. owns about 43 percent, said second-quarter profit fell almost 6 percent because of higher employee costs.
The company's shares fell as much as 4.8 percent on Oct. 29 when it announced its financial results. I-Flex added 762 employees in the second quarter, its highest in any three-month period, taking the company total to 3,950 workers. It increased pay by 17 percent. The Big Four have increased salaries by 15 percent to 20 percent this year even as the national inflation rate for urban workers has hovered between 3 percent and 4.5 percent.
Talent pool
How long will it be before the hiring binge forces software wages to go through the roof in India, eroding the edge Indian companies have over their U.S. competitors? It may not happen anytime soon.
"They're hiring because they see a lot of demand," says Punita Kumar Sinha, who manages about $600 million at Oppenheimer Asset Management in Boston.
"There is still enough of a talent pool that they are going to be able to hire quality people."
Satyam will add 5,000 employees by March next year. By then, Infosys, which has 33,000 employees, plans to grow to 37,500. That will still be less than Tata Consultancy, which has about 41,000 workers, and Wipro, which already employs more than 37,000.
Wage spiral?
There are many reasons why the Indian software industry doesn't look like it's about to fall off a cliff.
For one, the wage gap is still very much in India's favor. A U.S. programmer with less than two years of experience earns a median pay of $50,390, according to Needham, Mass.-based Salary.com. Indian engineers come for about a sixth as much.
A second — and related — issue is manpower supply, which will keep a lid on pay. India is producing 184,000 engineering graduates in a year, compared with 71,000 in the United States in 2003. Bangalore-based Infosys Technologies received a million job applications last year. It hired about 10,000, Chief Executive Nandan Nilekani said earlier this year.
Moreover, the wage level is "determined by the cost of living in India," says Azim Premji, chairman of Wipro. "That cost of living is not going to escalate because it is determined by the country's 1 billion people, not 1 million engineers."
Every six months, the Big Four Indian software companies disclose, to one another, what they're paying for someone in Bangalore with, say, three years of programming experience. This allows companies to tweak their compensation plans so they lose fewer employees to one another.
Competition at home
It's a competitive advantage Indian companies need in order to avoid paying too much for talent even as their bigger U.S. competitors — International Business Machines Corp., Accenture Ltd., Electronic Data Systems Corp. and Computer Sciences Corp. — bid up wages by hiring more in India.
By end-2004, Accenture, the world's second-largest consultant, is expected to have 10,000 workers in India. El Segundo, Calif.-based Computer Sciences Corp., the third-largest U.S. computer services company, plans to have 3,500 people in India by March 31, 2005.
Preferred employers
Top-tier Indian software companies are now "brand-name" employers. So they can attract and retain talent more easily. The days of across-the-board salary increments of 25 percent a year — a norm in the 1990s — are over at Satyam. Only the top performers can aspire for such large pay increases, Hari says.
"Pricing, profitability and investor expectations will all get tighter," says Hari. "But revenue growth will continue, and it may even cascade as more companies see the value of off-shoring and outsourcing."
For Hari and other recruiters at Indian software companies, more orders will mean the need to create more jobs. The good problem isn't going away.
