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Monday , May 9 , 2011
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TCS marches towards hiring landmark to meet order surge

Mumbai, May 8: Software technology giant TCS is about to make a little bit of history.

Its employee pool is expected to swell to well over 200,000 sometime this month, nudging it ahead of the State Bank of India and turning it into the second-largest employer among listed companies after Coal India.

The SBI reported an employee base of about 200,299 on March 31 last year, while Coal India has just under 4 lakh on its rolls.

But it’s still a far cry from the Indian Railways — the Big Daddy among India’s employers — with almost 16 lakh people on its rolls.

TCS hired almost 70,000 last year taking its employee base to 198,614 at the end of March. It plans to recruit another 60,000 this fiscal and can crank up that number if the demand for its products and services remain as robust as they were last year.

“We have already handed out offer letters to 37,000 people after visiting 343 campuses,” says Ajoyendra Mukherjee, vice-president (global head-human resources). The expectation is that at least 25,000 of those with offer letters will join the organisation this year.

In fiscal 2011, the $8-billion software giant had started with a “modest” hiring projection of 40,000. Early in the second quarter, it started to see strong demand in its overseas markets and had to scramble to recruit the so-called “laterals” — people with some years of work experience and domain skills — for whom they had to pay a decent packet to lure them away from rivals.

It closed the year with a gross employee addition of 70,000 — its largest recruitment in any single year.

Demand spurt

The sudden demand for its products and services had caught TCS by surprise. “We hadn’t anticipated it,” admits chief financial officer S. Mahalingam.

After the software major was sand bagged by the recession in early 2008, it had soft-pedalled its recruitment drive, opting for a strategy of just-in-time hiring so that it could keep its utilisation levels fairly high and not have to see employees cooling their heels on the bench. “But after the sudden spurt in demand last year, we have unscrambled that strategy and plan to recruit more from the campuses,” added Mahalingam.

As part of the shift in strategy, the headhunters from TCS will start hitting campuses earlier in November rather than in February. “That way people have their offer letters in hand even before they take their final exams and are free to join us the following June,” said Mukherjee.

However, the intake of the initial 25,000 raw recruits will be staggered over the year. “We usually have them all on board by the third quarter,” Mukherjee said.

Last year, the spurt in lateral hires had skewed the mix for experienced professionals and newbies. Usually, the mix is 50:50. But in 2010, it went to 56:44, tilting for the first time in favour of the laterals.

Mukherjee is only too aware of the challenges he faces in managing one of the largest employee pools that’s spread across 42 countries.

“Just dealing with a pool of 2 lakh employees is a huge challenge in itself,” said Mukherjee.

But there are a couple of other factors as well: aside from the fact that TCS services 99 markets across the world, there’s the challenge of dealing with competency development in an industry that demands its employees are au fait with the latest domain skills.

Diversity — both by gender and age — is another challenge. “Thirty five per cent of our employees are women. We also have to juggle with demands for flexible working hours, sabbaticals and re-orientation,” said the HR boss.

The global recession forced TCS to restructure its business into 23 strategic business units — each with the potential to churn out revenues worth $1 billion in the future. The creation of these units helped TCS to house the mammoth employee pool and effectively deal with individual ambitions and aspirations.

The software industry has had to wrestle with attrition levels that have started to climb in the past two years. TCS has seen it rise to 14.4 per cent — but it’s a lot better than its rivals that have seen it surge to as high as 17-18 per cent. “We hope to bring it down to around 12 per cent — a level that we had before the recession kicked in,” says Mukherjee.

Margins will grow

TCS reported solid fourth-quarter results last month with over 30 per cent growth in both revenues and net profits, putting its rivals in the shade.

But its bean counters have been taking a hard look at the margins which have been buffeted by the strong headwinds posed by an average salary hike of 12-14 per cent last year and a rampant rupee that has crimped dollar-denominated revenues on translation.

Despite this, TCS closed the year with its highest-ever operating margin at 28.02 per cent.

TCS chief executive officer and managing director N. Chandrasekaran told analysts after the fourth quarter results that he expected a slight decline in margins in the first quarter of next fiscal (April-June).

However, Mahalingam is fairly confident that margins will hover around 27-28 per cent after the anticipated first-quarter blip.

Tax burden

TCS also expects its tax rate to rise marginally this year but hopes to haul it back to under 20 per cent next year — and maintain the tax edge it has traditionally enjoyed over bricks-and-mortar businesses.

“The tax rate could rise to about 23 per cent this year but we should be able to bring it down to the level of 19-20 per cent next year,” says Mahalingam.

The software giant reported an effective tax rate of 19.4 per cent in 2010-11 against 14.9 per cent in fiscal 2010.

Tax breaks for software technology parks ended on March 31 and were not extended. The big hope is that the direct tax code — which is expected to kick in next April — may provide some comfort by introducing tax benefits for special economic zones that are notified before March 31, 2012 and start operations before end-March 2014.

There remains a niggling worry over the value of the dollar that has remained pretty.

“We have seen it yo-yo from a weak 47 to the rupee to as strong as 39 in the past. But its value will depend on economic factors that we can’t control,” says Mahalingam who isn’t fazed by the growing chatter from Cassandras in the US who are prophesying that the dollar will lose its pre-eminent position as the reserve currency of the world in the not-too-distant future.

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