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Are the talent challenges over for the IT Services Sector?
Are the talent challenges over for the IT Services Sector?

February 28, 2023

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Off late we have been witnessing a lot of news from technology sector companies in India about layoffs and postponed joining for freshers, in a nut shell an overall decline in the demand for a new workforce which is reflected in the decline in net employee additions across the industry.

Talent which has been a big concern for companies for most of 2022 suddenly took a u-turn in the last few months. What happened?

Declining Attrition and Hiring

The key reason is the fall in attrition as the overall demand for talent in the industry rationalized as hiring slowed in response to macroeconomic concerns across most GCCs and Startups which were hiring at an unprecedented level at the beginning of the year.

As a result, supply-side challenges have been at the forefront over the past 18 months, with the post-pandemic attrition sweeping the industry, which was fast matched by an equally massive wave of hiring. This massive hiring led to the “Great Reshuffle,” when – in the middle of last year – over 40% of the IT services workforce had been at their company for less than a year.

Cut to 2023 the scenario has changed with two key trends emerging globally for IT services companies: the Great Reshuffle is largely behind us, but macro uncertainties have slowed hiring significantly.

  • Annualized attrition in 4Q was 18%, down from 23% last quarter; this is slightly elevated over the 2018-2019 averages.

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  • IT services workforce growth was flat from 3Q to 4Q; this was the first quarter since 3Q20 to not post sequential growth.

A similar trend was witnessed in the case of Indian Technology majors where attrition and net headcount addition both were down in the third quarter results reported over the last two months.

For example, Wipro and TCS reported a lower addition and negative headcount growth for the quarter. In the case of Infosys and HCL attrition was lower, with positive net addition.

What is in store next?

While attrition is declining to pre-pandemic levels – it is still elevated compared to historical averages for global as well as Indian providers.

As per ISG – “If it stays at this level, it means the recent slowdown in hiring is likely to be short-lived for providers to capture the 5% growth we’re projecting for the sector in 2023.”

To know more about the Indian Technology industry numbers read our Industry Quarterly.

Happy Reading!

 

 


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Neha Jain
Senior Analyst

Neha Jain

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