Pendulum Swings Back to Demand

Not too long ago, I shared an observation in a recent post about the Demand-Supply syndrome. I noticed that subdued demand resulting from recessionary pressures and supply exceeding the industry requirements of manpower were impacting the offshoring industry. Companies were unable to create new jobs or even sustain full operating capacity because demand in the market was so weak. Consequently, service providers needing to reduce staff shifted the balance of power to employers after several years of considerable growth and hiring in the outsourcing industry.

Now in 2010 we are again witnessing the reversal of this trend. The pendulum seems to be swinging back to the supply-side with the optimism of a reasonable increase in demand and renewed hiring plans from the service providers.

Recent news out of India from publications such as Business Outlook and livemint.com have been focused on providers’ concerns about retaining talent, debating whether or not to continue doling out hefty bonuses as well as annual compensation increases for employees across the board. Tier I providers are again talking about dusting off their hiring engines to hire employees in tens of thousands for the expected growth in demand of their services. As a result, with the scores of new job opportunities in the marketplace and employers engaging in the war for talent, the negotiations power will shift back to the employees. In weeks and months ahead, voluntary attrition is expected to rise again. The increased attrition of talent will bring back the challenges of managing the ongoing delivery to customers as well as put considerable pressure on the wage bill of the providers which constitutes the single largest middle line item on their Income Statements.

What does this signify to the industry from a macro perspective? In my view, nothing but a reflection of the fundamental economic laws related to “business cycles” and “demand-supply economics”. Wouldn’t it be naive to say this new trend will last forever (as the investments analysts would like to believe and surmise)?

About the author

Dinesh is a highly experienced and well-respected advisor in the outsourcing industry with more than 23 years of experience in management consulting and outsourcing. He works with enterprises to craft sourcing strategies, structure and negotiate complex sourcing transactions and design and implement sourcing governance organizations. Prior to joining ISG, Dinesh worked with Infosys and Accenture, where he led large transition programs and consulted on IT strategy and implementations, business process-reengineering and operational improvement programs. He is a published thought leader and a regular speaker at industry conferences. Dinesh manages the ISG India Business.