Unionisation of the IT workforce can potentially cause the Indian IT sector to fall behind other emerging markets – Varun Ramachandra and Gopal Devanahalli
In December 2014, Tata Consulting Services, India’s largest Information Technology (IT) services company, laid off 3,000 employees citing poor performance. This has triggered debates about unionisation in India’s IT & BPM industry. In fact, IT employees were seen protesting the actions of the TCS, a phenomenon not characteristic of an industry that currently employs 3.3 million people.
The Trade Unions Act, 1926, defines a ‘trade union’ as “any combination, whether temporary or permanent, formed primarily for the purpose of regulating the relations between workmen and employers.”
It can be said that these regulations are intended to achieve the following objectives:
- Fair wages for employees.
- Good working and living conditions.
- A reasonable level of job security for union members.
Although they are created with the right objectives, trade unions have a checkered history of taking unyielding stances that result in the loss of valuable time and resources. Moreover, average wages in the IT and Business Process Management (BPM) industries are quite high, and employers also offer excellent working and living conditions. Retrenching employees is not ideal but most, if not all, IT employers offer excellent severance packages when they let go of their employees. Given that these industries reward their employees fairly well during good times, it is unsurprising that they move towards austerity when times get tough. The case for unionisation in the IT industry is, therefore, weak.
In its short history in India, the IT industry has seen high growth that has added people, primarily college graduates, into the workforce at a rapid pace (10% Cumulative Average Growth Rate). This growth has made it is easy for employees to switch jobs, and, contrary to popular perception, the demand for top quality experienced employees is much higher than the supply. This has resulted in firms coming up with different ways to retain employees – loyalty bonuses, flexible timings, relatively easy transfers, high quality training imparted ,extended ‘notice’ period in employee contracts(in some cases as high as 3 months).
With the advancement of technology, the number of employees required to perform a task has come down in all industries. Consequently, the growth of a firm’s workforce may not keep pace with the growth of its revenues, especially in the IT industry. For example, with the advent of Amazon’s web-services, the need to maintain physical servers has come down. In this context, the narrative of saving jobs is a strong and compelling one. But there is no conclusive evidence to show that technology will not continue to be a key lever for companies across the world to transform themselves. These transformations might occur in ways that are completely different from current methods and Indian IT firms therefore, must be highly adaptable to new technologies.
Indian IT firms also largely cater to clients working in other parts of the world. A majority of this work requires the management of the core technology systems of clients in the IT industry and the core operations in the BPM industry. In this construct, high organizational efficiency is a pre-requisite for the success of individual firms and the industries as a whole. India is still considered as the top destination for the outsourcing of IT work as it has a skilled workforce and relatively low operational costs. However, it is easy for Indian firms to lose this competitive edge as there are several low cost countries like Philippines and China that are building their IT & BPM capabilities.
The unionisation of the workforce could potentially cause the Indian IT sector to fall behind such countries. It could also lead to a further loss of jobs because it will not just create ‘interest-groups’— a select few who stand to gain disproportionately — but also hamper the efficiency of a sector that is fast evolving. With unionisation, there is a risk of creating situations where the incentives for employees to acquire new skills cease to exist and it becomes exceedingly difficult for firms to retrench employees rendered redundant by the advent of new technologies.
In an industry that already pays relatively higher wages and provides employees with good working conditions, there is a high aspirational value attached to IT jobs by a majority of the population. Unionisation will not only jeopardise the chances of several new aspirants entering the workforce, it risks creating an environment where skills are not given importance.Source: Respective quarterly statements Oct-Dec-2014
That being said, employees in the IT sector certainly have some genuine concerns. However, these can be redressed, by implementing one or more of the following recommendations and not necessarily by creating unions:
- Actively encourage and reward skills upgradation. Currently, most of these activities are viewed as a mandatory requirement for a promotion into a managerial position that expects fungible people management skills as opposed to technical skills.
- Ensure that the excellent working conditions are maintained.
- Ensure proper severance schemes in the event of an employee’s contract being terminated. Currently, several firms expect new employees to sign contracts requiring them to pay a certain amount if they wish to leave the firm before the fixed period. Though such bonds are not always legally tenable, it is natural for employees to expect a similar reciprocal treatment if their employer terminates their contracts.
- Enable Human Resources departments to deal with complex people issues rather than merely reducing them to recruitment engines
These ideas are not necessarily a comprehensive list of recommendations, but they provide a broad framework to address the valid concerns raised.
Gopal Devanahalli is a senior VP at Manipal Healthcare and is an alumni of the Takshashila Institution. He tweets at gops85
Varun Ramachandra is a policy analyst at the Takshashila Institution and tweets at _quale