Multinational software firms in India plagued by high attrition rates

Yahoo, Microsoft, Adobe face brunt of resultant slowdown.

Bureau Report

BANGALORE: Research and development centers at Yahoo Inc., Microsoft Corp., Adobe Systems Inc. and other multinational software product firms are facing a slowdown in growth and product development work in India as they battle double-digit attrition rates with key personnel quitting to join start-ups or launch their own ventures.

Headhunters specializing in talent for large software product firms in India, executives at emerging start-ups and entrepreneurs said attrition rates are set to touch 20-25% annually, making it difficult for such product makers to hire and retain top talent, reported Live Mint.

“They are losing people to start-ups. And why is that happening? In the MNC captives, people’s careers are stagnating and many people are saying, ‘Look I’ve built this product, I’ve gone through five product cycles. Why not go through a product cycle at a smaller company because I can get better value out of that?’,” Sharad Sharma, chairman of the Nasscom Product Forum and entrepreneur-in-residence at Canaan Partners, a US-based venture capital firm focused on technology start-ups, was quoted as saying by Mint.

Take, for example, 30-year-old software architect Mohammad Aamir, who recently quit his job at Adobe to join an enterprise mobility start-up Bitzer Mobile Inc. After six years of working on a single product at Adobe, Aamir felt he had reached a saturation point and needed to work on newer products.

Also, the entrepreneurial environment is becoming increasingly conducive to start-ups in India, with more angel investors and venture capitalists willing to throw their weight behind innovative ventures.

Even though average attrition rates for the country’s R&D industry have not increased, the levels haven’t dropped either, experts said. India’s R&D industry accounts for 200,000-300,000 engineers working in more than 700 multinational firms, according to technology advisory firm Zinnov Management Consulting Pvt. Ltd.

“With the number of offshoring jobs coming into the country not that high right now, attrition should have ideally slowed down. But that has not happened,” said Anshuman Das, co-founder and chief operating officer of CareerNet Consulting, a company that recruits engineers for product development centers at MNCs, to Mint. “Thanks to so much entrepreneurship happening out here, attrition rates are still kind of similar, which is 15-25% range, that I still see happening.”

Another reason for the stagnation in growth is that India doesn’t figure high on the value chain, with many of the MNC’s centers in India contributing only 2-3% to their overall global revenue. Also, many MNCs have reached the maximum level on the amount of R&D work they can send to India, which is 30-40% of their overall R&D activity, said Sharma.

“Will it be 60% tomorrow or 80% tomorrow? It’s very, very unlikely. They logically can’t offshore more than 40% of their R&D… They’re building a product that the company is selling to the market, so it is core to the market and, therefore, there’s a limit to how much they can offshore and that limit is being reached,” Sharma said. “Also, with some of these technology changes that have taken place, cloud-like changes, the team sizes of products have shrunk.”

Incidentally, Sharma, who quit Yahoo in 2009 after two years as its research head in India to join Canaan, helped form a separate forum for product companies last month called the Indian Software Product Industry Round Table, or iSpirt.

According to industry executives, even if a products team becomes smaller, the co-ordination costs remain the same.

Yahoo’s its vice president and CEO Shouvick Mukherjee said in an email to Mint, “We have seen a reverse trend in recent years where a lot of folks working for us in the US have been coming back to India to work at our Bangalore center… Even people who left Yahoo to join start-ups have chosen to return for a second innings…”

Microsoft did not provide a break-up of attrition levels for the last two years but said in an email response that the average attrition rate at their India R&D center was 7% for the last five years.

A Zinnov study issued last week seems to support that theory. The study, conducted among 100 multinationals with an R&D presence in India, revealed that only 26% have global roles based in the country despite over 40% of the headcount being located here.

 

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