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Industry Research : IT, ITeS Firms Pack More Employees in Confined Work Space to Save on Real Estate Costs
It's 9.30 am and there's near commotion at a building in Gurgaon that houses offshoring units of US firms. The parking is full - employees are being turned away - and there are long queues that snake their way to the elevators. The lifts themselves are packed to the gills. Inside an office, employees sit within sniffing distance of each other.
Cubicles have made way for linear sitting, and the office does not look too different from a factory shop floor. Lavatories are few, and it isn't uncommon to spot a line outside them. The scene at the cafeteria is not much different from that at the parking lot or the lift.
Welcome to just another day at a typical small or medium-sized IT outsourcing company. Under pressure from their clients, or parent organisations, to reduce bills amid increasing rentals and employee salaries, these IT-enabled services (ITeS) firms are taking stringent measures to cut costs.
They are reducing space per employee, and decreasing the size of common areas like cafeterias and conference rooms. At a clutch of ITeS companies, office space is being shared between IT workers and the call centre workforce (as the latter work the late shift to synchronise with US timings). And a few firms have even been asking employees to work out of the library.
At the Gurgaon offshore office mentioned above, space per employee has been reduced to 60 sq ft from 100 sq ft; at large IT companies, 125 sq ft per employee is a standard. Workstation width has dropped from 3-4 feet earlier to 2 feet.
All this is leading to severe workrelated stress. "I can't move my hands in the fear of hurting someone. And all day one has to hear colleagues talking about issues from boyfriends to food recipes to childcare, which is not just distracting, but irritating," says Rajsekhar.
The 28-year-old, who quit a Bangalore ITeS company to join another last week, says he was even made to work out of the library at times. "It is an intrusion into one's privacy and extremely stressful," he adds, requesting that his first name not be revealed.
A Kumar, an employee at one Gurgaon ITeS centre, adds: "In the morning, the lifts are so packed it feels like you are travelling in a Mumbai local train." "In the West, people come out on the street to protest when governments allow higher bird density in poultry farms.
But here even basic human hygiene is being subsidised for large foreign companies," adds his friend, who doesn't want to be identified. Over the past five years, rentals for IT and ITeS firms in the main metros have gone up by between 20% and 90%, according to real estate consultant Jones Lang LaSalle India. Salaries, on the other hand, have seen a 15-20% growth year-on-year.
"Competitive pressures are keeping salaries up. What we can reduce is real estate costs," says Piyush Sinha, assistant general manager at IT firm, NEC HCL System Technologies, where salaries have almost doubled in the last five years. In the last two years, the company has reduced space per person from 100 sq ft to 80 sq ft. The company has also asked its senior staff, which moves between offices, to share space.
Offshoring to India made business sense for foreign companies because costs were a third of that in the US. But that gap is now narrowing. A junior employee with generic skills in India costs about $20 an hour, or $40,000 a year. An equivalent resource in the US comes for $60,000.
A senior executive resource in India costs $30 an hour, or $60,000 a year, while an employee with a similar experience and skill in the US costs $90,000 annually. The result? Margins in business process outsourcing (BPO) have been stagnating at 18% for the past years even as revenues declined in 2011.
For IT services the drop in profitability is worse: margins have plunged from 32% in 2006 to 18% in fiscal year 2011. The IT-BPO sector, which employs 2.5 million people, had revenues of $76 billion in this period.
Microland, a tier-II IT services provider, has reduced per person space by seating six employees in the space that was being used by four employees until last year. Deluxe Digital Studio, a small back office service provider, has asked its new hires to work from home rather than investing in a new office.
While these efforts might be helping companies optimise their real estate usage and reduce costs by at least a fourth, they are not going down well with the employees. This should worry the employers at a time when the workforce is on a job-hopping spree. Industry chamber Assocham said in a recent study that the ITeS sector has seen an attrition rate of 65% during the last two years, the highest among all sectors.
Posted by Veronica Silva Cusi, news correspondent
Today's Tip of the Day - Capability And Reliability
Published: Friday, July 29, 2011