Valuation guru Aswath Damodaran in a recent interview said that the golden days of Indian IT firms are over and they would not be able to relive their past glories again. His reasoning hinged on the fact that other people have managed lower costs than India and the cost advantage game has ceased to exist for Indian IT.
In order to stay competitive IT companies are already retiring high-cost employees and replacing them with younger ones. Cost-cutting does not end here. Companies are now contemplating using freelancers and consultants.
Many companies already use the services of freelancers, but this used to be in specialized jobs or where the rates were extremely low.
An Economic Times report says that Pune-based Persistent Systems has included freelancers and consultants in a team that worked on a short-term project. It’s been reported that other IT companies are also toying with the idea.
Called the ‘gig economy’ or Uberisation of workforce, companies use the enormous amount of floating workforce who offer their services to various companies.
For IT companies, it makes immense sense to work with freelancers on projects where client interaction is minimum. ‘Cost to the company’ in recruiting freelancers comes down considerably while at the same time they get a workforce which is entrepreneurial by nature and has experience of working with various companies. This, however, does not augur well for the existing and future staff.
Gig economy is picking up world over, with all major consulting firms saying that it is expected to grow in future. There are many companies who offer a platform for interaction between freelancers and those who are looking out for their services.
Growth of freelancers is visible in companies like Intuit, owner of TurboTax, which provides tax-related services through a group of freelancers. According to Intuit, the gig economy is estimated to be about 34 percent of the workforce which is expected to be 43 percent by 2020 in the US.
A study conducted by US Bureau of Labor Statistics indicates the millennial generation (those employed in the field since 2000) has emerged as the largest workforce this year. Most of these workforce make up the gig economy. The ET report quotes Wipro CEO Abidali Neemuchwala when he acquired US-based IT consulting firm Appirio that owns crowd sourcing platform TopCoder as saying that they believe that the future of work in the IT industry is going to get Uberised to some extent.
While the development is good for IT companies who will be able to lower cost, it is not good news for job creation. Further, banking system does not recognize a freelancer as someone to whom loans can be disbursed since the cash flow stream is not visible.
Just as Uber created a disruption in the transport business by having an asset-light model, IT companies can spend less on capital expenditure in future by tapping into the gig economy. This might perhaps help revive interest in the IT sector. For analysts, perhaps there will be one more parameter to monitor – percentage of work done through gig economy. However, it’s too early in the day for the gig economy to make an impact, but future clearly looks bright for this segment of the economy.