IT firms upskill employees to gain cost advantage

IT companies in India are hiring a lot of engineers for trying them out in Indian projects. They later bill the engineers in US dollar. Programme basics are being instructed and employees are expected to gain expertise as they work on real time projects

By Author  |  T Muralidharan  |  Published: 27th Feb 2017  12:10 amUpdated: 27th Feb 2017  12:50 am
IT Firms

IT workforce is diverse in terms of academic backgrounds of the employees. If you study the past data, you will notice that only a small percentage of the workforce is from Computer Sciences background. It is rather a heterogeneous mix of IT, Electrical, Electronics and Mechanical engineers.

Companies such as Infosys, TCS and Capgemini have massive infrastructure to train candidates from various engineering backgrounds for IT skills. Their training capacities are huge. Their premise is that IT skills can be trained. So, even if you are a mechanical engineer, they will teach you the basics of programming and then move you to a billable job.

Now, look at this. Historically, the exchange rate between Indian rupee and US dollar has been between Rs 40-60 for a dollar considering the data from past ten years. There is something called as purchase power parity, which puts the price of a dollar at a lower rate. The difference between the actual dollar value and the price due to purchase parity is what allows IT companies to make huge profits. It is called exchange arbitrage.

So, what the IT companies in India have been doing is, they hire a lot of engineers, put them on bench, train them, try them on Indian projects and then bill them in US dollar. The companies teach only the basics to these candidates and then put them on the job. The employees gain expertise as they work on real time projects. This model leads to cost advantage and is a powerful way of making money, which all the IT companies follow.

IT companies train employees on customer’s time and money. They pay the employees much less compared to what they bill their US clients. Put in simple terms, in this model, customers pay for employees’ training.

So, while American companies bid high for projects, the Indian companies can afford to bid a lower amount, as they pay their employees lesser. This way, IT companies were getting a lot of business. Customers, till now, did not realise that they were paying high for what they were getting. They only looked at what they were saving by preferring to partner with Indian companies over the US ones.

Now, the customers are waking up and putting their foot down against paying for the candidates’ training. They are now expecting companies to hire people who are competent enough to do the job from the day one. This is where the challenge arises.

There are a lot of high paid employees in Indian IT companies. It is now time to up-skill these employees to increase their work value. Up-skilling has two aspects – one, knowledge and two, practical experience.

How do you up-skill employees?
The first step in this direction is upgrading their knowledge. There are several courses available in online, regular and part-time modes. Candidates have to zero in on the area they want to specialise in and choose an appropriate course.

The second step is practical experience. Candidates can get any number of certifications but if they do not have practical skills, they cannot apply their knowledge at work and succeed. So companies will increasingly accept Indian projects and put their employees on them to allow them to pick up practical skills. Indian jobs are at a lower rate. The margin of profits the companies make will come down but these projects are the best way to put employees on real time jobs and up-skill them.