Layoffs in IT companies like Infosys, Cognizant, Wipro & Tech Mahindra aren’t Trump’s fault

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Updated: May 12, 2017 12:22:14 PM

India's outsourcing firms are firing workers. Don't blame it on President Donald Trump's hawkish stance on U.S. visas. The "end of hyper-globalization" story makes for compelling headlines.

India, Donald Trump, USA visa, United States, Indian, IT, IT jobs, technologyIndia’s outsourcing firms are firing workers. Don’t blame it on President Donald Trump’s hawkish stance on U.S. visas. The “end of hyper-globalization” story makes for compelling headlines. (Image Source: Reuters)

India’s outsourcing firms are firing workers. Don’t blame it on President Donald Trump’s hawkish stance on U.S. visas. The “end of hyper-globalization” story makes for compelling headlines. But the Indian code-writers’ misfortune has more prosaic roots in technology and customer tastes. Global corporations, the paymasters of Indian software vendors, are no longer so keen to ante up for application development and maintenance. The flab-shedding has been in the works for five years now; it’s only getting noticed in the age of Trump as muted hiring gives way to firings. With the trend gathering steam, these cash-rich firms from Bangalore or New Delhi are bound to pique the interest of buyout firms.

The Indian industry is coy about the word “layoffs.” That’s politically sensible, considering some of Cognizant Technology Solutions Corp.’s employees have already gone to the labor commissioner in the southern city of Hyderabad, alleging they’re being coerced into a voluntary separation. Cognizant could reduce its 260,000-strong workforce by between 2.3 percent and 5 percent, according to news articles that have not been confirmed by the Nasdaq-traded company.

Infosys Ltd. may let go of some people after bi-annual appraisals, the company said in a statement, insisting there won’t be layoffs. However, the number of affected employees could be in the hundreds, according to the Indian media, whose reports suggest that smaller rivals like Wipro Ltd. and Tech Mahindra Ltd. have also followed suit.

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All this is only to be expected. As Bloomberg Intelligence analysts have argued, digital products are now the IT services industry’s growth driver. For all the Indian companies’ talk of social, mobile, analytics and cloud, the share of digital at Tata Consultancy Ltd. and Wipro ranges between 18 percent and 22 percent, compared with 42 percent to 45 percent at International Business Machines Corp. and Accenture Plc.

Last October, when Gadfly wrote about the Indian outsourcing industry’s failure to embrace the future, Trump was yet to win the election. Offshoring firms like Infosys are hoping to counter his subsequent threat to curb H-1B visas by hiring more engineers in the U.S. But as my colleague Tim Culpan has argued, it’s more important that those jobs are in the right technologies. Otherwise, there’s little hope of a dramatic turnaround. Infosys’s revenue growth is now slower than Accenture’s. The ebb has added weight to demands by activist investors (and founding shareholders) for bigger payouts.

Cognizant, Tata Consultancy and Infosys have all decided to return more cash. Yet pessimism continues to deepen: Cognizant shares are trading at 16.5 times next year’s estimated earnings, which makes them roughly half as valuable as they were 10 years ago.Low valuations, cost cuts and a cash chest open wide — the mix could eventually be heady enough to attract the likes of KKR & Co., provided private equity is willing to catch a knife that almost certainly has farther to fall.

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