ETtechIndian software exporters are battling a reduced onsite strength in the US due to higher attrition and visa restrictions, putting pressure on revenues and margins of firms such as Cognizant even as their clients increasingly turn to offshoring amid pandemic woes.
Onsite attrition has become a trend across the board in the information technology (IT) sector, data from staffing firm TeamLease show.
Higher onsite attrition has a ripple effect on companies’ profits as it forces them to opt for subcontracting to meet skill demands, which eventually leads to higher costs and pressure on margins.
“As the subcontracting cost is directly influenced by visa delays and skills, higher subcontractor costs would lead to decrease in margins,” Nanduri said.
Cognizant is among those affected the most.
In its latest earnings call in early November, the IT services major said fewer “billable” resources in the US over recent quarters have been hurting its revenue directly. Company CEO Brian Humphries had then said the effect would continue through Q4 (Cognizant follows the calendar year) before “clear progress” by the first quarter next year.
In a statement to ET, Cognizant has underscored Humphries’ earnings call references to company efforts to stall attrition.
The company said its daily resignations count has reduced due to its overall people strategy involving a reformed promotions plan and higher salaries and benefit programmes.
“For instance, we recently communicated to our associates that we will accelerate next year’s merit to the second quarter of 2023, meaning we will have two more cycles in the space of six months for most of our associates,” Cognizant told ET.
Indian IT companies are facing onsite attrition issues despite stepping up local hiring in those locations and shifting a greater amount of the work offshore since the pandemic.
Companies like Tata Consultancy Services (TCS) typically hire 2,000-2,500 trainees every year in the US.
While Cognizant has managed to turn the corner on overall voluntary attrition climbing down a tad to 29% in the third quarter ended September, analysts said the company is still worse off than most of its peers.
“Onsite attrition is fairly consistent with what we are hearing; however, Cognizant may be losing a bit more than competitors,” said Ray Wang, founder and chairman of Silicon Valley-based research and advisory firm Constellation Research. “The challenge for Cognizant is finding the right mix of profitable projects, large deals, and building customer loyalty. The arrival of Ravi Kumar S (as president of Cognizant Americas) will help as he brings many relationships and large deal experience,” he told ET.
Cognizant’s India chief Rajesh Nambiar had told ET early November that he company’s employees based in the US offer a higher billability quotient than their offshore peers, hence a reduction in onsite strength due to higher attrition delivers a strong knock to revenue.
In Cognizant’s earnings call, Humphries had said the financial impact of the onshore attrition was “magnified”, given that it was the company's highest revenue and margin dollar per head population.
Onsite attrition has become a trend across the board in the information technology (IT) sector, data from staffing firm TeamLease show.
Attrition rate in the IT industry onsite surged up to 25% in 2022, against 6% in 2020, Siva Prasad Nanduri, chief business officer of TeamLease, told ET.
Higher onsite attrition has a ripple effect on companies’ profits as it forces them to opt for subcontracting to meet skill demands, which eventually leads to higher costs and pressure on margins.
“As the subcontracting cost is directly influenced by visa delays and skills, higher subcontractor costs would lead to decrease in margins,” Nanduri said.
Cognizant is among those affected the most.
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In its latest earnings call in early November, the IT services major said fewer “billable” resources in the US over recent quarters have been hurting its revenue directly. Company CEO Brian Humphries had then said the effect would continue through Q4 (Cognizant follows the calendar year) before “clear progress” by the first quarter next year.
In a statement to ET, Cognizant has underscored Humphries’ earnings call references to company efforts to stall attrition.
The company said its daily resignations count has reduced due to its overall people strategy involving a reformed promotions plan and higher salaries and benefit programmes.
“For instance, we recently communicated to our associates that we will accelerate next year’s merit to the second quarter of 2023, meaning we will have two more cycles in the space of six months for most of our associates,” Cognizant told ET.
Indian IT companies are facing onsite attrition issues despite stepping up local hiring in those locations and shifting a greater amount of the work offshore since the pandemic.
Companies like Tata Consultancy Services (TCS) typically hire 2,000-2,500 trainees every year in the US.
While Cognizant has managed to turn the corner on overall voluntary attrition climbing down a tad to 29% in the third quarter ended September, analysts said the company is still worse off than most of its peers.
“Onsite attrition is fairly consistent with what we are hearing; however, Cognizant may be losing a bit more than competitors,” said Ray Wang, founder and chairman of Silicon Valley-based research and advisory firm Constellation Research. “The challenge for Cognizant is finding the right mix of profitable projects, large deals, and building customer loyalty. The arrival of Ravi Kumar S (as president of Cognizant Americas) will help as he brings many relationships and large deal experience,” he told ET.
Cognizant’s India chief Rajesh Nambiar had told ET early November that he company’s employees based in the US offer a higher billability quotient than their offshore peers, hence a reduction in onsite strength due to higher attrition delivers a strong knock to revenue.
In Cognizant’s earnings call, Humphries had said the financial impact of the onshore attrition was “magnified”, given that it was the company's highest revenue and margin dollar per head population.
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