The Hindu Business Line : ‘Hold up one end for us’

The global economy is tottering. Indian IT companies are as unsure as their clients as to what will happen in the next six months. All eyes are trained on the operating margins of these IT majors. To see where they can cut costs, but are unable to, eWorld took a peek at the expenses these companies incur, especially in non-core areas. Obviously, to increase margins, you need to cut costs, especially in an environment where revenues drag their feet.

The list we came up with included: re-training fresh graduates, transport for employees to and from place of work; arranging for utilities such as electricity and water; and physical security to protect premises and workers.

Recently, the industry’s apex body Nasscom pointed out that if only the government made graduates industry-ready, top IT companies in India would save hundreds of millions of dollars.

Responding to eWorld’s queries on this front, T.V. Mohandas Pai, Chief of HR and Board member at Infosys, says, “Fresh recruits do not come industry-ready. We would spend less on training them if they did.” Currently, Infosys spends about 2.5 per cent of its total revenues in training employees. The company would save at least 1.5 per cent of total revenues if candidates came industry-ready from colleges, according to Pai. In other words, at annual revenues of just over $4 billion (March 2008), Infosys would save about $60 million a year in training costs.

Som Mittal, President, Nasscom, says, “IT companies in India spend about $5,000 in training a fresh engineer and about $3,000 for a fresh BPO employee. Training goes on for about 16 or 17 weeks. In the US, training does not last beyond two weeks.”

If the whole industry, which touched $52 billion (including IT, BPO in the export and domestic markets) saved at least 1 per cent in training costs, savings would run to about $500 million!

Transport

“The government must do something about the transport infrastructure. Our women, especially, are in distress.” The earnestness and desperation were unmistakable, when Pai said this while addressing the press recently.

That Bangalore, once the tech capital of India, is inundated with transport problems is old hat. The disease is fast spreading. Infosys, whose roots are in Bangalore, has only expanded in other cities such as Pune and Chennai in the recent past. Even in Chennai, it feels choked by the infrastructure problems. Says Pai, “We chose Mahindra City near Chennai because of the railway line connecting it. Now, even that is not adequate.”

In a chat during a ride in a lift with this correspondent, an Infosys employee with three years’ experience working at Mahindra City said, “I travel between three and four hours a day just getting to work and back home. That is the only complaint my colleagues and I have about working in the IT industry.”

In a back-of-the-envelope calculation, Pai told eWorld that the company and its employees together spend about Rs 110 crore per year on ferrying employees back and forth. (His take is that it costs Rs 3,000 on transport for a BPO employee a month and Rs 1,000 for an IT services employee. Infosys’ headcount includes 10,000 BPO employees and about 70,000 IT employees.)

For Satyam Computer Services, transport costs come to about Rs 26.4 crore per year. For an organisation housing about 50,000 people, it runs about 180 buses to carry employees to and from work. It recovers from employees about Rs 6 crore a year for this purpose.

Says Som Mittal, President, Nasscom, “Companies pitch in and do these things themselves. But that does not mean that they do not need government involvement.”

He cites the example of the Philippines. “The call centre industry thrives in Manila and nearly 70 per cent of its workforce comprises women working unearthly hours.” The question is, if the Philippines can do it, why can’t we?

“The industry here is certainly going to grow. At those estimated levels of future performance, can the industry afford to invest in all these things without government investments and planning?”

Utilities

With the power situation being poor in several States and worsening in others, companies are forced to invest in generator sets for each building of theirs and then see running costs spiral as they spend on fuel.

That isn’t the only thing. Says Mittal, “In some areas we get power 50 per cent of the time. In other areas we have to look out for it all the time. That would mean having a 100 per cent back-up. That cost is seldom talked about.”

Satyam’s fuel and maintenance costs for Gen-sets comes to Rs 6.8 crore a year, according to Capt Prasad, HR Global Head – Corporate Services. Its capital expenditure for purchase of such equipment alone runs to Rs 2.85 crore annually.

Across all its centres in India, it spends about Rs 1.5 crore a year on just buying water, for potable and other uses.

Here’s a figure in tanker terms: an IT major headquartered in the US and with a significant chunk of its 53,000 people based in Chennai, Coimbatore and Kolkata, buys about 100 tankers of water a day! At Rs 1,000 a tanker, that would amount to about Rs 3.6 crore a year.

Pai says that as per WHO standards, the local municipal authorities ought to provide for at least 140 litres of water per person per day. “In Bangalore, I am not sure if that happens. It’s more in the region of 60 litres per person per day!”

Security

Security is the next big source of concern for IT employees. And for a change, we are talking of physical security, not securing PCs against virus attacks!

A spokesman for the last mentioned company says, “If a like company in the US employs one security guard for a certain area of work, in India we would have to employ between five and ten security people.” Pai agrees, saying physical security does sap up some of its resources. “If roads are badly maintained and parking lots are undependable, you have to invest in all this yourself.” Infosys spent about Rs 60 crore on a vertical parking lot and now spends on security personnel to man it.

According to Mittal, “In Gurgaon, for example, about 110 security guards are employed by a group of IT companies to manage traffic at peak hours.”

Capt Prasad of Satyam says the company’s annual physical security expenses come to Rs 7 crore.

The flip side

But not every one is complaining all the time. Says the CEO of a top IT major based in New Delhi, “Compare the IT industry with manufacturing. Manufacturing companies spend so much on vendor development. Likewise, I spend on my supply side, which is education and students. No complaints.” But he does agree that the government needs to do something about the traffic problem.

Shiva Ramani, CEO, Cybernet-SlashSupport (CSS), a 5,000-employee company, says “To compensate for all this, I get tax breaks from the government on my export revenues. So no complaints with regard to the expenses.”

But what he abhors is the loss of productivity and management time spent on things that are not core to his business. “We have to ensure that the drivers of our cabs are careful on the roads. We have to work out the optimum routes depending on where our employees stay, so that we don’t waste petrol on round-about routes.”

His point is, why should a company spend time on these things? “I don’t mind the cost. But if one agency took care of all these things, I wouldn’t mind paying for them.”

And that ‘agency’ is the government! As Mittal says, “They should do these things and obviously, it would be paid for.” One possible solution, he says, is integrated townships. “The government should make these townships self-sufficient, in terms of power, sewer lines, water and public transport.” This would avoid congestion, which is unavoidable if a mass of workers all stay in a certain area and all go to work in a certain other area.

But till then, we limp along, as Pai does not fail to remind us as we thank him for spending time on the phone so late one evening. “No problem. It’s only 15 minutes since I left office. It would take me another hour to cover the 20-km trip home. I am all yours till then!”

bharatk@thehindu.co.in

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