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October 17, 2007

Change Management: US Recession Impacting India

Signs of a recessionary US economy are being seen thousands of miles away in India. India’s apparel exporters are facing canceled orders and dried up pipelines, a result of a weakening US economy and a strengthening Indian Rupee against the US Dollar.

Recently I met with the merchandizing head of a leading Indian apparel chain. She mentioned that top Indian exporters, who were operating at full capacity till a few months ago and had little interest in smaller Indian orders, are now queuing up outside her office to produce her private labels. Apparently, weak consumer spending forecasts have led several US retail and apparel majors to reduce their purchases. And a stronger Indian Rupee has made countries like Vietnam and Bangladesh more attractive than India.

She isn’t complaining much though. Now she has more sourcing options and better bargaining power for her own labels. At the same time, thoughts of large-scale unemployment and a depressed business environment worry her. Even though she hasn’t read Thomas Freidman, she realizes that a weak US economy will affect India’s income, thereby adversely affecting Indian consumer spending and her own business.

Several small and medium scale exporters are folding up, and large exporters are desperately trying to keep their businesses afloat. The ‘garment export city’ of Tirupur in South India has already seen 15,000 layoffs with more expected in the following weeks. In Bangalore 30,000 garment factory workers – mostly women – have lost their jobs in the last few weeks.

The Indian technology industry appears more optimistic, at least publicly. Despite the rising Rupee adversely affecting their revenues, business projections announced by top outsourcing companies remain encouraging. But inside news from several top technology companies tell a completely different story. Recruitment divisions are being asked to go slow on hiring. Till last quarter these companies were hiring in hordes, building strong bench strengths to nullify attrition. Now, hiring is being directed strictly on project and requirement basis. Infosys has reported a higher utilization rate, which shows a leaner bench. And major newspapers are showing declining employment advertisements. Worse, this year’s IT recruitment is projected to be the lowest in the last 3 years.

As India prepares to celebrate the festival of lights – Diwali - lights in several quarters of the Indian economy seem to be going out…slowly, but surely.

Anupam Mukerji • Bangalore, India • www.mmi-india.com

Posted by Anupam Mukerji at October 17, 2007 1:07 PM | Topic: change management | Add Comment