High Attrition Rate Continues To Plague Services: ASSOCHAM Survey

Unabated level of attrition rate continues to plague India Inc and spreading fast from IT and ITes to other service sectors such as civil aviation, financial services, retail and engineering, according to an ASSOCHAM Eco Pulse Study. The highlights of the study are:-

• While the attrition rate in IT and ITes sector has slowed by 10 per cent to fall in the range of 25-30 per cent in the year 2007 as compared to 35-40 per cent rate in previous year but the services sector at the crucial juncture of their growth including civil aviation, financial services and retail are facing tough times in retaining their staff.
• Big time consolidation in the civil aviation sector has fuelled attrition to an unmanageable level of 46 per cent as the pilots and cabin crew spot opportunities in growing demand by domestic as well as foreign airlines.
• Dearth of professionals, technical nature of operations, increasing finance-KPOs and attractive salary packages have led to rising job hopping at entry and middle level in the financial services sector. The attrition level has increased from 32 per cent in the year 2006 to 44 per cent in the current year.
• Banking, trading and real estates are facing maximum problem due to the job changing by the human resource.
• Massive expansion in the retail sector is accompanied with rapidly increasing attrition rate to even to the extent of 50 per cent in few cases. The companies now prefer to sign bonds for three years as they are imparting them the necessary training and specialized knowledge of retail functions.
• Growth in construction activities in the economy has led to surge in demand for engineers, resulting into increase in their movement across companies at rate of 25 per cent. The engineering companies are sorting to pay hikes and growth assurance, to curtail the attrition level.
• Level of attrition rate in the manufacturing sector has remained almost same at 20 per cent in 2007 as previous year. The functional areas like those of production, maintenance and safety controls, bear highest attrition problem.
• Loss of intellectual property is one of the most challenging problems faced by the companies as an upshot of attrition. Hospitality, IT, hospitals, engineering sectors are worst affected sectors in terms of intellectual property loss especially in absence of any laws to protect interest of an organization from employee turnover.
• The Study has found that the maximum of attrition is taking place among the employees who are in age group of 26 to 30 years. It found that the segment of employees who are most vulnerable to change are with experience range between 2 to 4 years.
• The most stable chunk of employees is found to be in age 39 to 45 years as they find themselves to be unsettled in their jobs and companies that they have been associated.
• Attrition trend also reveals that women employees are less prone to frequent job changing than their male counterparts. For every 10 males jumping the fence by changing the job, there was only 2 females crossing over.
• The immediate gains in salary package was found to be responsible for job change in almost all the sectors, however the growth potential remains an important reason prompting employee movement.

Appreciating rupee did not deter hiring spree by softwrae companies

As per the report of Assocham, IT sector along with other sectors continued with its hiring spree during April-July this fiscal, despite being hit hard by the appreciating rupee, which ate into the profitability of a majority of sectors.

The highlights of the study are:-

• IT jobs constituted nearly 24 per cent of over 1.47 lakh vacancies listed on job portals and in newspapers during the period, followed by financial services at 14.5 per cent and sales and business development at 13.5 per cent, it added. The IT sector provides employment to over 1.6 million people directly and to about 4 million indirectly.
• The engineering sector constituted 8.7 per cent of the employment opportunities created during the said period. Job opportunities in sales and business development have beaten financial services openings listed on job portal. While the former had a 15 per cent share, the latter accounted for about 11.5 per cent.
• "Though, robust growth of economy has created numerous vacancies, severe shortage of the talented workforce and high attrition rates continue to plague the industry," Assocham President Venugopal N Dhoot said in a statement.
• Major demand for the finance personnel emanated from sectors like banking and real estate, which are estimated to hire 1.40 lakh recruits this fiscal. Human resource or administration portfolios accounted for seven per cent openings. HR professionals constituted just about 1.5 per cent of the total graduates, indicating a limited choice for firms in the sector. Manufacturing sector comprised just 6.75 per cent of the vacancies, it added. Other professions such as medical, law, media, airlines and ticketing among others constituted almost 19.5 per cent of the positions advertised.

Source: The Economic Times - August 14, 2007

Industrial production grows by 11% in the first quarter of current fiscal

The Index of Industrial Production (IIP) numbers for June 2007 indicate a persistence of the somewhat unbalanced pattern of growth that was evident in the numbers for the first two months of this fiscal year. The overall index grew by 9.8 per cent over the corresponding month of last year, somewhat slower than during April and May, both of which showed double-digit growth; but growth during the quarter clocked in at 11 per cent, which is still quite respectable.

As in April and May, it is the significant variation in growth across industries that is a primary feature of the numbers and raises questions about momentum and sustainability. In both April and May, by far the fastest growing industry was wood and wood products, not at all significant in the overall basket but contributing disproportionately to the growth during the quarter. June was a third spectacular month for this industry - it grew by over 103 per cent over June 2006 and by over 104 per cent during the quarter. One could imagine that all the real estate that has been developed in recent months, be it residential or commercial, needs to be decorated and furnished, leading to a surge in demand for the products of this industry, but, even then the numbers are staggering. The other industry which performed exceedingly well is food products. Though it moderated considerably during June, growing at only 1.3 per cent, it notched a growth rate of over 27 per cent during the quarter. This was on the back of 55 per cent growth during April. If it hadn't been for these two industries accelerating so sharply, overall growth would have been far less buoyant.

By contrast, several major industries were relatively sluggish during the quarter. Metal products, for example, declined by almost 8 per cent during June; as a result, this sub-sector grew by barely 1 per cent over the quarter. Transport equipment, which has not been having a particularly good time, grew by 0.8 per cent during June and less than 2 per cent during the quarter. Paper, chemicals and non-metallic minerals were some of the other relatively slow-growing segments during the quarter. The one major industry which has sustained its momentum and also points to enduring optimism about the medium term, is machinery and equipment, which grew at over 18 per cent during June and over 19 per cent during the quarter. However, as the economic advisory council to the Prime Minister has pointed out, rapid growth driven more by an investment boom can be halted more quickly than if led by a consumption boom. In that sense, it is the capital goods sub-sector that needs to be watched closely for any change of tempo.

Over the past three months, it seems quite clear that the broad-based momentum that had been visible over the last couple of years has now subsided. Certain industries are doing very well, presumably driven by micro-economic factors, while some important ones which are more closely associated with macro-economic cycles are showing distinct signs of flagging. The latter appears consistent with the overall impression that the first-quarter corporate results created; the first signs of a plateau after several quarters of escalation. None of this should be surprising. After several interest rate hikes and liquidity control measures as well as the sharp appreciation in the rupee, a slowdown of some magnitude was inevitable. The only question is one of degree.

Related Reports:-

• Quick estimates of index of industrial production for June, 2007 - domain-b.com - August 10, 2007
• IIP growth almost flat at 9.8% - The Economic Times - August 11, 2007
• India's June IIP Growth Slows Down On Tighter Monetary Policy - rttnews.com - August 10, 2007

Corporate Sector continues to shine: says CII State of the Economy report

CII released the July 2007 issue of 'State of the Economy' analysis for the last quarter-Q4 (Jan-March) results. According to the CII state of the Economy, the impressive performance of the Corporate sector is consistent and led by the Services sector. The July 2007 CII State of the Economy has surveyed and analyzed results of 3283 firms comprising 1971 firms from manufacturing and 1312 firms from services.

The highlights of the report are:-

• Corporate Sector continues to shine led by Services . The impressive performance of Corporate Sector continued in the last quarter of the financial year 2006-07, showing consistency with the GDP growth rate of 9.1 per cent achieved in that quarter (Q4). On almost all the parameters, Corporate Sector is doing better during Q4 in comparison to the same quarter in the previous financial year.
• The net sales has recorded a growth rate of 19.35 per cent in the fourth quarter (Q4) as compared to the growth rate of 17.86 per cent achieved during the same quarter in the financial year 2005-06. The profit after tax (PAT) has registered a significant increase in the growth from 13.68 per cent in Q4 of 2005-06 to 19.12 percent in Q4 of 2006-07, owing to a lower rate of growth in input cost and operating expenditures.
• It is mainly the performance of the Services sector that has resulted in the overall increase in the profits growth of the corporate sector. The Services Sector has recorded a significant decline in the growth of operating expenditure from 16.33 per cent to 10.41 per cent while showing an increase in the growth rate in net sales from 16.48 per cent to 24.74 per cent.
• Though the interest payments increased significantly showing a growth from 21.63 per cent to 47.68 per cent in Q4 of 2006-07, the Services sector companies have registered growth rate in profit after tax to the extent of 45.68 per cent against the growth in profit at the rate of 10.32 per cent in the Q4 of 2005-06. The growth rate of profit after tax of manufacturing has declined during the same period from 15.17 per cent to 7.91 per cent.
• The report has also highlighted a distressing trend in the area of Agriculture - decrease in Oilseeds production. In fact, Oilseeds production, has registered a negative growth rate of 14.79 per cent. This is likely to lead to increase in the import of edible oil due to its reduced domestic production and rising demand. The demand is rising owing to the rising income levels and growing popularity of fast foods among the rich and upper middle class. Therefore, the CII State of the Economy Survey recommends that there is need to restructure domestic pricing policy of various crops as farmers are switching from oilseeds crops like mustard to more lucrative alternatives like wheat and gram.
• The recently released Index of Industrial Production which has shown declining growth rate for manufacturing to 11.9 per cent in May 2007 from 15.1 per cent in April 2007 is in line with the warning given in this issue of the State of the Economy about the lagged effect of the increase in interest rate. The dip stick survey done by CII on behalf of National Manufacturing Competitive Council (NMCC) to assess the impact of the rise in interest rates had reported negative impact on business due to the increase in cost of financing.
• The 'CII State of the Economy' also reports the negative impact of appreciating rupee on profit margins of textile and leather sectors. The CII survey of textiles and apparel companies engaged in exports revealed that there has been a decline in total revenue, operating income and profit margin to the tune of 7.9 per cent, 8.9 per cent and 7.9 per cent respectively and further, there could be an erosion of profit margins to the extent of 10.4 per cent during the next six months only on account of appreciation of the rupee. If the impact of rise in interest rates on the profit margin is also considered, then it is a further decline of another 1.5 per cent. The impact of the appreciation is worse in the leather and leather products sector. The erosion of profits expected in the next six months is 13.7 per cent and the industry is already facing an erosion of 8.8 per cent on its profit margin.
• On the whole, the CII State of the Economy expects the GDP growth to be 9.2 percent during 2007-08; with Agriculture growing at 3 percent, Industry at 9.4 percent and Services at 11.2 percent.

Source: The website of CII

Complete Report :-

State of the Economy - July, 2007

India - A preferred destination for low cost mobile handsets manufacturing

From a slow start, mobile manufacturing in India is beginning to take off and may soon rival China as a base for low-cost handset production. According to US research group Gartner, in the last 12 months alone, the number of units produced in India has soared by 68%. The subcontinent is forecast to have the highest growth in mobile manufacturing again this year.

The first factories for mobile phones were not established in India until 2005. Since then however, growing demand at home coupled with a relatively cheap labour force, has seen production increase dramatically. In 2006, Gartner reports that India produced nearly 31 million mobile phones, with a street value of US$5 billion. For 2007, it has forecast that handset production will increase by 68% in units to nearly 95 million handsets and 65% in value terms. Over the next five years Gartner says that the Indian market will see a compound annual growth rate in terms of mobile phone production of 25%.

The rampaging growth of demand for mobile connections in India is driving the demand for home-based mobile manufacturers. India is the fastest growing mobile market in the world, with a further 6.57 million mobile subscribers signing up for services last month alone. At the beginning of June 2007 the sub-continent was home to 178 million mobile users. Over six million users are being added every month and there is a captive local market for mobile manufacturers. Low mobile penetration and favourable government policies are driving mobile phone original equipment manufacturers to set up manufacturing facilities in India. Nokia started its unit in Chennai in January 2006 and produced a record 25 million handsets in the first year of operation. The vendor is also exporting mobiles from India to Sri Lanka. Motorola and electronics manufacturing service vendors (EMS) like Foxconn and Flextronics have also set up plants in India.

Gartner said though the world's top five handset makers will retain a major share of production volume, it expects local manufacturers to capture up to a fifth of India's overall mobile phone production volume by the end of 2011. It is believed that growing demand for low-cost and ultra-low-cost mobile phones and the need for EMS vendors to reduce their revenue exposure to Nokia, Motorola and Sony Ericsson, for whom they are now manufacturing in India, will contribute to the growth of local-brand mobile phones in the Indian market, said the report.

Another key challenge will be to keep handset prices low, as Indian consumers are very price sensitive. This will be achievable by gaining access to low-cost, feature-rich and local-specific chip designs, as well as a strong distribution network. Key stakeholders in the mobile phone industry value chain can provide this, so local manufacturers must look to form alliances and partnerships with them in order to succeed, it said.

In April 2005 Finnish company Elcoteq was the first company to set up a telecoms manufacturing unit in Bangalore. Korean giants LG and Samsung quickly followed suit, before market leader Nokia also got in on the act in 2006. However, Nokia has begun to export mobile phones from its plant near Chennai (Madras) to the Gulf States and Africa. In addition there are a few locally branded phone vendors and manufacturers such as Spice, Usha Lexus, and BPL that are either manufacturing locally or import the handsets.

A recent MacKinsey research report says "India leads the market in offshored back-office services, but as a manufacturing center it lags behind China, Thailand, and the rest of Asia. The reasons are well documented: multinational companies operating in India must overcome erratic electricity supplies, poor roads, and gridlocked seaports and airports while contending with government policies that discourage hiring and hold back domestic demand for goods in many sectors. Such obstacles can be considerable, but they haven't stopped some multinational manufacturers from setting up shop in India."

The research report further says "already just over half of all offshore manufacturing by US companies involves skill-intensive sectors, and that figure could rise to 70 percent by 2015. With high-skill sectors accounting for almost 40 percent of the manufacturing output of India, it is in a good position to absorb some of that increase. For one thing, the country offers abundant engineering and technical talent: every year, it produces 400,000 graduate engineers, second only to China's 490,000. Companies might also be attracted to India (and to other developing countries) by the increasing availability of reliable suppliers, the chance to escape unrelenting price pressures at home, and the size of the domestic market. LG, for example, plans to make handsets in India to take advantage of its rapidly growing demand for mobile telephones".

It also says "multinationals willing to make the effort to source and manufacture products in India are likely to obtain first-mover advantages such as exclusive relationships with the best suppliers, access to the brightest talent, and government support. Overall, these companies will learn how to cut their costs more quickly, to improve their returns, to increase their competitiveness in Western markets, and to position themselves for leadership in Asian ones. What's more, India's combination of a highly educated workforce and a large, lower-income, and underserved population could help companies learn lessons and develop products with applications in emerging markets around the world.".

Related Articles:-

• India - Fastest Growing Base for Mobile Manufacturing - BWCS Consulting - 26-06-2007
• Nokia manufacturing unit in India for Base Station Controllers - March 31, 2005
• When to make India a manufacturing base: Mckinsey - January 28, 2006

Industrial Growth will remain robust in 2007-08

Allaying apprehensions of a slowdown in the face of inflationary expectations and high interest rates, the government has said industrial growth will remain robust in 2007-08 on the back of impressive performance by the capital goods sector. ‘‘High rate of 14.1% growth of manufacturing in March and 12.3% in the whole of 2006-07 is expected to be sustained in this year as well,’’ department of industrial policy and promotion secretary, Ajay Dua said.

He said major contribution to manufacturing sector has come from a sharp increase in production of capital goods and intermediates in contrast to consumer goods. The capital goods sector registered a 17.7% growth while production of intermediate goods was up 11.7% in 2006-07. ‘‘High rate of growth of capital goods indicates that new production capacity is being added driven by consumer demand. Both the consumer demand and investment in capacity will continue to grow,’’ Dua said. “Increasingly liberal attitude to FDI in manufacturing and infrastructure is being adopted by the government. We are reviewing the ceilings on FDI in various sectors every year and reducing the number of clearances required,” he added.

In 2006-07, FDI inflows have witnessed an increase of 284% to $15.7 billion from $5.5 billion.“This year, we are expecting FDI of $25 billion in equity and $5 billion of earnings reinvested by existing companies,” he said.

The Index of Industrial Production (IIP) compares the growth in the general level of industrial activity in the economy with reference to a comparable base year. In order to capture the structural changes in the industrial sector, the base year of the all-India IIP which was commenced in India in 1937 was revised in 1946, 1951, 1956, 1960, 1970, 1980-81 and 1993-94. The current series of all-India IIP (base 1993-94) was released in May 1998. It covers the Mining, Manufacturing and Electricity sectors with weights of 10.47%, 79.36% and 10.17% respectively.

The Quick Estimates of IIP are compiled on the basis of data furnished by the source agencies located in various Ministries/Departments/Subordinate Offices of the Government of India. The index is released within six weeks from the reference month and are subsequently revised in the next and the third month based upon the revised production data furnished by the source agencies. For wide accessibility by the users, the copies of Press Release on Quick Estimates of IIP released through the Press Information Bureau are also put on the website of the Ministry of Statistics & Implementation (http://www.nic.in/stat) on the day of release.

• An overview of revision of Base Year of All-India Index of Industrial Production (IIP)
• Comparison of weights by item group in the manufacuring sector
• India Economic Growth Probably Fastest in Three Years - Bloomberg