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Cost pressure mounts as IT cos vie for talent

Current talent war can negatively impact operating margins of mid-tier firms

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Mid-tier IT services companies are likely to face greater challenges in the talent management front as compared to their larger peers as the talent war heats up in the IT industry. Experts are of the opinion that mid-tier IT firms may have to pay more to retain talent, which in turn is expected to put pressure on their operating margins in the coming quarters.

"Large IT companies have a structured training and recruitment machinery with the financial muscle to hire in big numbers and deploy them for executing new projects. Though mid-tier IT firms also have a stable system, they are not comparable with their larger peers. Therefore, mid-tier IT companies may have to face greater challenges in terms of human resources supply in the current environment," said Pareekh Jain, an OT outsourcing advisor & Founder of Pareekh Consulting. In the last quarter, most IT service companies have seen rising attrition as organisations hire digital talent to boost their digitalization journey. Especially, tech startups and GICs (global inhouse centres) of foreign companies operating in India have emerged as the major competitors of Indian IT firms.

Many IT engineers are preferring startups and GICs over IT services firms because of their better

salary and growth opportunities.

In the first quarter ended June, Mindtree reported an attrition of 13.7 per cent from 12.1 per cent in the previous quarter. L&T Infotech saw its attrition rising to 15.2 per cent as compared to 12.3 per cent in Q4 of FY21. Similarly, another mid-tier IT services firm Coforge witnessed its attrition going up to 12.6 per cent in Q1 of FY 22 as compared to 10.5 per cent earlier.

Employee attrition for engineering services company L&T Technology Services (LTTS) rose to 14.5 per cent in the first quarter of ongoing fiscal as compared to 12.2 per cent reported a quarter earlier.

Though many mid-tier IT companies don't report their employee attrition numbers, sources in the know said that scenario is not different in those companies. Also, dependence of mid-tier IT companies on subcontractors has been usually higher than their bigger peers. Experts opine that the current talent war can push that further up, negatively impacting their operating margins.

However, some experts said that given the strong revenue growth momentum and large deal wins, mid-tier IT firms are comfortably placed to attract and retain talent.

"Mid-tier IT firms are in a growing phase, and they have shown 16 to 27 per cent growth in the first quarter of this fiscal. Therefore, they are willing to grow their workforce and train the existing one.

These companies are on a boom phase and are placed comfortably (in terms of human resources

management)," said Vimal Daga, Founder of LinuxWorld Informatics & a technical expert.

Meanwhile, all mid-tier companies have announced aggressive plans to hire in the current fiscal on the back of strong deal pipeline.

Debasis Mohapatra
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