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Cost-cutting measures: Startups using layoffs to tackle tightening fund flow

Investment from VCs has slowed to $583 mn in June-quarter of the ongoing year.

Written by Pranav Mukul | New Delhi | Published: August 29, 2016 1:07:07 am

At a time when investors are gradually tightening their purse strings on venture capital-backed e-commerce firms and tech startups — from $2.91 billion in September quarter of 2015 to $1.52 billion in December quarter to $1.40 billion in March quarter of 2016 and to $583 million in June quarter of the ongoing year — the investee companies are having to take a hard look at their growth oriented businesses. And it is the employees who are having to bear the brunt.

Since August 2015, eight of the poster-boys of the country’s e-commerce and technology ventures have reportedly trimmed close to 3,000 jobs because of reasons such as organisational restructuring, non-performance, scaling down of operations.

Online food-ordering company Zomato had asked nearly 300 of its employees in North America to leave in October 2015, after the firm restructured its operations to focus on increasing traffic on its platform. “The Urbanspoon acquisition taught us a lot about what works, and how things worked in the way that Urbanspoon used to run their business. Last year’s restructuring was a combination of the best of our knowledge and the best of Urbanspoon’s knowledge and processes,” a Zomato spokesperson said.

“The restructuring largely affected our content operations and community management teams in North America,” the spokesperson said, adding that the company did not expect any foreseeable job redundancies. Zomato acquired US-based food portal Urbanspoon in January 2015.

Consolidation in the sector is another key reason why experts believe companies will continue to rationalise costs, and to that effect, reduce jobs. Earlier this month, India’s largest app-based taxi-hailing service Ola laid off close to 700 employees of TaxiForSure (TFS), which it acquired nearly 18 months ago. At the time of the development, an Ola spokesperson had said that the cab aggregator has absorbed “as many TFS employees for open roles in Ola to support our growth.”

“For positions that cease to exist as a result of this transition, we are offering enhanced severance benefits and outplacement services to help affected employees pursue new career opportunities,” the spokesperson had said.

Till such a time when funds flowed freely from venture capitalists and angel investors, companies chased aggressive growth targets, and in that process, their expenses on human resources tended to be “irrational”, according to analysts.

“Sometimes what happens is when things are going well, you think they will continue to grow at the same pace for the next five years, but if that doesn’t happen, there are a lot of redundancies in your people. And a lot of focus being on bottomline now, the companies are trying to cut costs at all levels, and employees is one of them,” Pragya Singh of advisory firm Technopak said.

While in some cases, these venture companies, tend to maintain employees even after undergoing mergers and acquisitions, many do not see additional human resource as an asset to the company, and keep only those fitting the need of that company.

“Resource management in any tech firm is dependent on how best the talent is utilised to optimally make use of the technological innovation. It is need-based and should be in sync with the immediate and holistic future goals of the company,” a spokesperson of food-tech company Foodpanda said.

“We are a tech based company which will always focus on innovating in the space. Owing to that, there are certain roles which would be redundant and hence would require a restructuring of the team. That being said, we also look at how best we can utilise brainpower in alternate business verticals and that is why a lot of talent has been recognised and integrated in various functions through the churn we have seen in the past,” the spokesperson said, adding that Foodpanda has an “optimally sized team at about 2,000 employees”.

In December 2015, Foodpanda laid off nearly 300 people across segments, representing 15 per cent of its total staff strength. The company had cited automation in order processing as the reason of firing these people then.

The reasons due to which people are losing their employment in the e-commerce and startup sector, also stand true for the information technology and the business process outsourcing sectors. Recently, several employees of Infosys Ltd were asked to leave due to their poor performance.

Furthermore, even though automation, as an operational tool, is expected to affect manual jobs in the manufacturing sector, employment in the services sector has also felt the heat of increasingly automated processes making several jobs redundant. The effect of this has been seen in the falling jobs in the information technology and business process outsourcing sectors.

Among the eight sectors surveyed by the Labour Bureau, the information technology and business process outsourcing sector witnessed the highest decrease in employment during the October-December period of 2015. Employment in the sector increased by 37,000 in January-March 2015, decreased by 5,000 in April-June 2015, increased by 58,000 in July-September 2015 and decreased by 14,000 in October-December last year.

A recent report by Bengaluru-based consulting firm Zinnov said that internet of things (IoT), or machine-to-machine communications could eliminate as many as 94,000 jobs in the country’s IT industry over the next five years.

Even as the government continues with its push to the tool of IoT, an analyst with a leading consultancy firm, on condition of anonymity, said it should make sure it doesn’t result in a glut in the job market of the services sector, which accounts for one of the highest employment in the country.

When contacted for their views on this story, spokespersons of Flipkart, Snapdeal, and AskMeBazaar did not respond. Amazon India, while acknowledging receipt of the query via e-mail, also did not respond.

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