India Staff Shortage No Big Deal - Premiji

Wipro’s chairman downplayed the impact of staff shortages in India, saying they won’t hold back the continued growth of the country’s outsourcing industry.

Indian outsourcers are managing despite the shortages by hiring plain science graduates and retraining them for engineering work, Wipro Chairman Azim Premji told reporters on Wednesday.

A significant portion of work currently done by engineers is actually suited to science graduates, he said. Some analysts and industry executives have observed that India’s outsourcing industry often deploys staff on jobs for which they are overqualified.

Wipro and competitors like Infosys Technologies and Tata Consultancy Services are also expanding in China and Eastern Europe to supplement their Indian staff. Wipro, which has operations in Shanghai and Beijing, will also set up operations at a third location in China, Premji said.

Indian outsourcers compete for staff in India with multinational services companies like Electronic Data Systems, Accenture and IBM that have set up service delivery operations in the country to take advantage of low staff costs.

A report released in December by consulting firm McKinsey & Co. and the National Association of Software and Service Companies (Nasscom) forecast a shortage of 500,000 staff for India’s outsourcing industry by 2010. That shortage can be largely overcome by improving the quality of education and having finishing schools for students, since currently only about a quarter of engineering graduates can be directly employed by the IT industry, Kiran Karnik, Nasscom’s president, said recently.

Wipro has the capacity to train about 5,500 staff at any given time, while Infosys can train about 4,500. Infosys is increasing the training capacity at its center in Mysore to 13,500 over the next year, an Infosys spokeswoman said.

Wipro’s attrition rate in the quarter that ended Sept. 30 was 15.9 percent, but the company is not worried about it, according to Premji. After a salary increase last month, the attrition rate has started to come down, he said. TCS reported an attrition rate of 10.6 percent, while Infosys reported an attrition rate of 12.9 percent for the quarter.

Wipro downplays any impact that the attrition rates may have on its business. Like other outsourcing companies, Wipro has processes and documentation in place to ensure that work does not get disrupted if staff quit, said Sudip Banerjee, president for enterprise solutions in the company’s Wipro Technologies Division.

Most of the attrition occurs at the "entry level," among staff who have up to three years of experience, Banerjee said. Although salaries in India, where Wipro has most of its staff, have been going up by about 11 percent annually, it has not had a big impact on Wipro’s profits, as the salaries of its staff in India account for only about 18 percent of its total costs, he added.

He made his remarks on the same day that Wipro reported its financial results for the three-month period ending Sept. 30. The company reported strong growth in revenue and profits, reflecting the overall buoyancy in offshore outsourcing to India.

Operating margins for the company’s outsourcing business were stagnant from a year ago, however, at about 24.4 percent, because of the increase in salaries last month for about two-thirds of its staff, said Suresh Senapaty, Wipro’s chief financial officer. A salary increase for the rest of the staff is due in November, he added.

India’s largest outsourcer, Tata Consultancy Services of Mumbai, and second-place Infosys Technologies of Bangalore both reported strong revenue and profit growth for the quarter, citing business from new customers and a general upswing in outsourcing to the country.

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