The Hindu Business Line : IT counter's closed, buddy

THE turbulence in the IT industry in the US appears to be showing no signs of easing in the near term. On top of a heap of profit warnings by fibre optic, hardware and telecom majors in the US over the past couple of weeks comes an enlightening study that reveals that the IT marketplace is still coping with a recession. And this study, conducted by the Information Technology Association of America, a US-based association engaged in addressing issues of IT industry concern, has attributed it to sluggish hiring conditions in the IT marketplace.

According to the survey, the US IT workforce has grown by less than one per cent since the start of January 2002, with only around 85,437 additions to the overall IT workforce of 9.89 million. This quarterly survey has, to a large extent, stifled the undertone of bullishness which was evident in the Annual Workforce Study titled "Bouncing Back" conducted earlier in the year. Some of the key trends highlighted by the latest survey vis-à-vis the earlier survey are:

Dismissal rate: Since the slowdown hit the IT sector by the beginning of 2001, it appears that the intensity of layoffs and restructuring was significantly greater in that year. This is evident from the numbers which reflect that between January and December 2001, nearly 2,18,000 were laid off every month. But for the period from July 2001 to June 2002, the monthly total has dropped to 1,16,000. Since the economic climate continues to remain murky, the slowdown in dismissals appears to be an encouraging trend.

Hiring rate: In the course of the Annual Survey, it had struck a bullish note by estimating that the demand for IT workers in 2002 was likely to grow by nearly 27 per cent over 2001. But the quarterly update has put paid to such hopes.

It has indicated that the total US IT workforce is likely to fall short of expectations by 10 per cent indicated in 2002.

The survey has reached this conclusion based on a 27 per cent drop in demand till July 2002.

Hiring by IT companies hit: The trouble facing the IT companies is also reflected in the dwindling contribution to the overall IT hiring trends. At the beginning of 2001, IT companies accounted for 20 per cent of total IT hiring, while the remaining 80 per cent was accounted for by non-IT companies.

According to the survey, by July 2002, the contribution of IT companies had dropped to less than five per cent. This clearly demonstrates that IT companies are suffering the brunt of the economic slowdown.

In the quarterly update, the ITAA surmises that the stagnant employment market is likely to contribute to rampant IT talent shortages over the next three years.

But the implications of this surmise hinge on the future trends in IT outsourcing from India, China and other low-cost countries.

Since the cost arbitrage continues to remain significant and India has a fairly established global offshore outsourcing model, there is a possibility that future employment generation in the US may suffer a sustained decline. Even if the economy stages a recovery by 2003, the full impact of "offshore outsourcing" on long-term growth in IT in the US remains to be seen.

maverick@thehindu.co.in

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