Industry Competition: Startups and the Risk to Employee Retention

Written by Lakshmi Nair

India is by far the most popular IT outsourcing destination in the world. With the coming of the startup age, the country’s well-established IT industry is experiencing increasing competitive pressures, especially in hiring and retaining fresher-level IT talent. How are these new, smaller startups capable of causing waves in a sea of traditional tech giants such as TCS, Infosys, and Wipro?

Most notably, startups are typically backed by venture capitalist firms, giving them room to offer equity heavy compensation packages. These VC firms pour money into startups ranging from millions to billions of dollars, a trend that has not been seen since the Internet bubble.

The jobs offered by these startups are generally technical in flavour, and the best engineers are paid 10 times more than their peers in a non-startup environment. There is literally a wage war going on in the Indian IT market with the Silicon Valley, Bangalore being the battleground.

The jobs offered by these startups also tend to be more exciting for freshers, offering more challenging projects and inclined towards their career aspirations. Startups not only offer heavy packages but also several lavish perks ranging from free lunches and dry cleaning, to private buses to and from office. Unlike the scenario five years ago, Indian IT firms are no longer the choice for aspiring graduates anymore.

With the startup scene getting such a spotlight, it is becoming progressively more difficult for the IT bigwigs to not just retain employees but to hire them in the first place. This trend is forcing large IT companies to rethink their hiring strategy to secure the best graduates to fill their entry level positions. With placement season in the air, market leaders are increasing salary offerings for entry-level positions for the first time in seven years, by as much as 10% to attract the best talent. In order to gain an advantage, TCS also kick-started the campus hiring process to ensure it got the first pick of entry-level talent. TCS is not alone; Cognizant and HCL Tech have also announced wage hikes, and many more are expected to do the same.

Interestingly, these increases in salary are not in response to a shortage of talent. On the contrary, there is a significant fresh supply of engineering talent. As of Q2 2015, our Supply WisdomSM Info solution reported an IT Graduate pool of over 2 million. Instead, these wage hikes are more likely in response to changing market needs. As automation and other digital changes take shape, and as buyers are demanding suppliers to do more with less, suppliers are redefining their talent needs and adjusting their hiring practices to recruit the right talent.

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