Next for Indian IT Companies: Auto Design

They're hiring engineers and design professionals from carmakers, in a bid to expand their range of business

Small and medium IT companies are going on a hiring spree when it comes to expanding their engineering and automotive design practices. And they are poaching engineering professionals from auto component companies and car manufacturers. Firms such as KPIT Cummins Infosystems, Onward Technologies, Neilsoft and CADES among others are getting into the automotive design business for better margins and higher growth in these times of economic slowdown.

"We are seeing a lot of smaller IT companies getting into the engineering and automotive component design space lately. In this segment, the opportunity is high," says NASSCOM vice-president Sangeeta Gupta. As per a report by NASSCOM and Booz Allen Hamilton, the potential for India in the engineering services sector in the automotive vertical is $1.8 billion by 2010 which could grow to $8 billion by 2020.

Auto industry insiders point out that attrition in bigger auto OEMs is around 15% while in the smaller OEMs and auto component manufacturers , it could be as high as 25%. IT companies, which are getting into this segment are luring many skilled professionals. "Poaching from the automobile sector by IT companies is more pronounced now. It was never so high. It is more today because the rate of return in designing is much more than that in other IT verticals," says Sriram Pistons CEO Ashok Taneja.

The company is a supplier to leading OEMs. The company is one of the 100 vendors for the Tata Nano that were part of designing of the upcoming Rs 1 lakh car. Even larger auto companies such as Mahindra & Mahindra (M&M) are losing people to IT. "While we are able to offer better growth opportunities to our employees across our various verticals, there might still be 10-15 % people who look beyond," says M&M group chief technology officer Arun Jaura.

Big IT companies such as TCS and Infosys have been in the auto component design space for a few years now and have established teams for the same. Anup Sable, VP for automotive and allied embedded tools at KPIT Cummins Infosystems, explains that the company's auto business has two parts. One is the software technology part for which there are not enough trained people in India and therefore, they train their own people. For the mechanical engineering design part, they require a number of domain specialists, who they pick up from various sources including auto companies. "We will need more engineers from auto companies and OEMs if we need to improve the quality of our work for clients," says Mr Sable. He believes for smaller companies, focusing on specialist activities will bring in higher margins.

Onward Technologies chairman and MD Harish Mehta says they take many people from the auto industry but also bring in freshers and train them in-house. "There is not much talent in India when it comes to design. India is way behind in design," says Mr Mehta. Of course there are more margins in engineering design for IT companies. "We would start making better margins when we start innovating and auto design offers better opportunities," he explains.

Auto industry experts point out that it takes around two years to train an employee in the design department. So when a company loses an employee, on an average it loses at least Rs 10 lakh (that's the money spent on salary and training per employee over two years). However, according to an HR professional with a major automobile OEM, employees shifting to the IT sector can also be attributed to better salary packages being offered by the IT firms.

"In the automobile sector, the average salary hike is around 12-15 %, while in the IT sector, especially in the design department, it is 40% or sometimes even more," he says. Endurance Group CFO Sunil Bedekar agrees. "The turnover in the designing department is higher compared to other departments. We have to train the people for designing and it takes quite a long time, and availability of trained professionals is comparatively low," he says. The auto industry is now stepping up its training and skill building efforts to cope with this exodus.

Before it's here, it's on the Bloomberg Terminal.