The US financial meltdown has finally managed to do what the business process outsourcing (BPO) sector has been trying to do for years on end — reduce the attrition rate of employees by 5-15 percentage points. BPOs that were coping with 30-40 per cent employee turnover are now reporting numbers between 20 per cent and 30 per cent.

Industry insiders as well as sector experts said that companies are unlikely to miss this opportunity to rationalise bloated boom-time salaries. “Companies are aiming to go back to the cost levels of 2005 and 2006. So, we will see an across the board reduction in salaries,” said KPMG Head (people and change advisory) Ganesh Shermon.

Genpact, the largest BPO in the country, reported attrition rate of 26 per cent for the nine months ended September 30, 2008, down from 30 per cent in the same quarter of 2007. 24×7 Customer said the drop in attrition has been 10 percentage points this month. The company’s annualised attrition rate is 38 per cent.

For Satyam BPO, the month-on-month attrition has come down by approximately 15 percentage points. Healthcare BPO Cbay Systems has seen a drop of 10 percentage points in the last few months. And Nasdaq-listed Syntel has seen a 4-5 percentage point drop.

BPOs, on their part, said this had less to do with the economic meltdown and more with the human resources development practices they have put in place. But analysts said that this has happened because of the global economic uncertainty — employees are choosing to stay put on their jobs than risk new ones.

Companies said they had not seen any contraction in the demand for their services and they will keep on hiring people in large numbers. Cbay Systems, for instance, plans to increase its headcount by 10,000 in the next 18 months. “Satyam BPO has not witnessed any diminishing of demand from our existing customers,” added Satyam BPO Global Head (human resources) Naresh Jhangiani.

What is certain is that salaries in the sector will soon get rationalised. “We believe there is an opportunity for salary rationalisation. We are looking at not only the entry level but the middle and senior levels as well. We might see a drop of 5 per cent in salary levels in the coming few months,” said Syntel Global Head (human resources) Srikanth Karra.

“Going ahead, salary increases will be on the basis of productivity. While the fixed salary should remain the same, the variable pay will see changes,” Cbay Systems Chairman and CEO Raman Kumar said. “At the middle- and top-management level, things had gone a bit haywire and this period will bring the required balance.”

India’s second largest software and services exporter Infosys Technologies is keen on acquisitions in Europe and Japan and in the areas of consulting, SAP implementation and BPO. Senior officials of the company said that they would be comfortable with a deal size of $600-700 million (around Rs 2,930-3,420 crore).

“More than the price and valuation of the company, its profile is important and it should help in our growth. Besides, we will continue with our expansion plans. We are committed to regions like China, Mexico and Eastern Europe,” said Kris Gopalakrishnan, CEO, Infosys at the India Economic Summit being held in New Delhi.

The company’s December quarter revenue will see an adverse impact due to the rise of dollar against other currencies. “Definitely, currency movements will have an impact but it is difficult to say what exactly it is,” said Kris. About 40 per cent of the company’s revenue comes from non-US markets.

During its second quarter results ended September 30, 2008, Infosys management revised its full-year dollar guidance down to 13.1 to 15.2 per cent — perhaps its lowest revenue growth since inception — from 19-20 per cent. It also cut earnings per share to $2.24 from $2.32-$2.36 projected in July.

Kris said that while there were indications that IT budgets in 2009 would be lower than this year, the offshoring component will be higher.

Despite these conditions, the company is on track to add 25,000 employees in the current fiscal. “We have not revised our salaries downwards. The utilisation has come down and the bench is higher but that is alright. We are taking this opportunity to train employees and we are increasing the R&D spend,” added Kris.

As for cost cutting, the company didn’t share the internal targets but cuts can happen in discretionary spending like travel and entertainment.