Bodyshoppers feel the pinch of Slowdown

With a lakh of them sitting it out on the bench, one would have thought techies were the hardest hit by the US economic slowdown. But, it is H1B consulting firms that have borne the brunt, reportedly facing a sharp decline in business -- as much as by 20 to 40 per cent.

"H1B manpower firms are experiencing a sharp decline in business from October-November 2000 levels. The hardest hit is Web applications development due to the dotcom burst," says Sarvajit Thakur, president and CEO of Applisoft Inc, a California-based consulting firm owned by Trigyn.

"US Consulting Industry is extremely slow. The problems are multiple -- dotCom busts, Slowdown of economy, stock market swings, wait and see attitude of major companies, layoffs, impact of news about layoffs etc," says Bapaiah Koneru of Infovision, which has 5 consultants on bench, 22 on projects and 5 waiting in India.

"According to our estimates a total of 30 per cent are on the bench," says Thakur, whose Applisoft, with about 10 per cent techies on bench, has also laid off a few Web-developers. Another firm Ramco Systems, has 15 on the bench, and 150 awaiting in India to travel to the US.

Some very small companies have closed down, but most of them are able to continue to operate at lower revenue levels by cutting costs. They are recruiting less and are choosy apart from laying off existing ones in droves with a handshake of a two month consolidated salary or a return flight ticket back to India.

"The fixed overheads are generally low for these companies and the variable costs can be cut by letting go consultants with skills in low demand areas," Thakur told ET.

Once a booming business, there's a slowdown even in setting up of new consulting companies. For instance, Y-Axis CEO Xavier Augustin, who is re-focusing and redesigning the company's focus to address the needs of techies on the bench, has also put on hold a new consulting firm he was to set up in the US.

The dollar rates have declined sharply much to the consulting firms' discomfort. While there are no correct figures avaialble, the estimates range anywhere between 30 to 50 per cent depending on the skill sets and the experience level of the techies.

"Instead of an average of $80 per hour, it has come down to around $60 at the end client," says Augustin.

"It could be upto 50 per cent. Techies with 2-3 years experience Used to command an average of $70 to 80 per hour, now commanding only half of that amount, says TMI Network executive director T Sreedhar.

"The rates are real bad in the sub-contract market. The primary vendors are squeezing the rates and reaping the most benefit instead of the end-client," says Koneru.

And what's disturbing the firms more is that the end-clients are exercising the leverage by not just demanding lower rates, but also more relaxed terms like contract-to-hire after six months.

Client companies in the US are also looking at higher experience levels and a better match between required and available skill sets. "Only the best candidates get selected in interviews unlike in the past when it was a seller's market," says Thakur.

Consulting firms are, however, using the slowdown to sharpen their focus on growth markets and develop new direct clients, pushing solutions employing off-shore development (in India) which are particularly attractive in a down market to end clients as they become more cost-conscious.

They are also selectively recruiting -- mostly in telecom, networking and embedded systems as well as system administrators.

"We are training them on some of the advanced technologies like Microsoft.net, Bluetooth, and CRM tools. We are hire candidates possessing 5 years of experience including 1 to 2 years in the US. C, C++ & VC++ on Unix the prime focus. Apart from that we would also looking at hiring TIBCO resources, solutions/system architects," says V S Subramaniam of Ramco.

"Technical consultants are dime a dozen, but the market is in shortage of good business analysts and project managers," says Koneru.

The consulting firms are optimistic about the future. "The market will improve in the next 3-5 months.

More spending in the Defence sector by the new US President will directly and indirectly trigger heavy demand for IT workers. Also, multiple state governments have long term projects in the pipeline towards moving their services to the Web. These factors will keep the momentum on the IT Workforce," says Koneru.

"It's more of an opportunity than a disaster. We will move up the value chain, exporting quality manpower. Also, techies with US expertise will be coming back. It will be brain gain after brain drain. Indians will look at cost effective ways and enhance production levels," says TMI's Sreedhar.