Mass layoffs in IT? An experienced financial advisor shares his thoughts

What is happening in IT now from an economic point of view, and what should you expect in the future? Experienced financial consultant Nikolay Sascheko, who has many years of experience in IT, shares his view.

Experienced financial consultant Nikolay Sascheko


— At this point, I invest, I help others invest, and I conduct investment courses. But this wasn't always the case. Before that the investment stage of my career, I worked for 12 years in large IT companies in Belarus. I started as a tester and finished as a project manager. I had experience in business analysis and consulting. I not only successfully entered IT, but also successfully exited the field, so now I know it both inside and out.

What is happening to the global economy

How it was

— What is happening in the world right now? I would say countries are still dealing with the consequences of the pandemic. In 2020, when the coronavirus began, everyone ran home, switched to remote, and many businesses simply stopped. Accordingly, the central banks and governments of various countries began to take measures to support their economies.

In the United States, so-called "helicopter money" began to be issued. The government lowered interest rates to stimulate demand. As a result, the revenues of companies increased sharply, and people actively began to spend their newly-available money. Everyone was in a positive mood. Companies were growing, they began to actively hire, and the labor market was highly competitive as a result, so companies offered appealing conditions and benefits.

How it became

— In 2022, the situation changed. People had spent all their “helicopter money.” The price for the availability of "helicopter money" and the soft policy of the Central Bank was inflation, which grew considerably. In the US, it peaked at 9% per year. To combat inflation, governments began to tighten conditions and raise interest rates. Loans became expensive, people ran out of money, and company revenues fell. If the revenues of companies fall, then the share prices of these companies fall. The price per share depends on the income of companies now or in the future (forecasted). Accordingly, companies face the question: what should they do?

People's incomes are declining. It is impossible to force people to buy products that they do not need. And it is logical that in this situation, companies are going to reduce costs. In IT, cost reduction results primarily from the dismissal of people.

Why companies are cutting

— Several reasons influenced the cuts in the IT industry. The main ones are:

  • Economic downturn due to the pandemic and the fight against inflation, as explained above;
  • Promotional packages for employees; and
  • Overhiring.

Overhiring

— Salesforce CEO Marc Benioff called one of the reasons for the many IT personnel cuts in 2020 and 2021 “re-engineering.” Before the cuts, competition was high, and companies clearly overdid their hiring. In any large company, there are always many projects that can be closed painlessly. The bigger the company, the more such projects there are. Therefore, it is logical that the biggest cuts are in the world's largest companies.

Promotional packages for employees

— Shares of public companies are generally traded on a stock exchange. Top managers at these companies have compensation packages, including bonuses that are tied to the value of shares. Management is interested in the shares growing, or at least not falling much, otherwise they lose a lot of money. When a company's revenues fall, the shares also slide down. To stop the shares from losing too much value, management may pursue unpopular measures such as staff reduction. This process takes place in different ways in different countries. In some countries, legislation provides for compensation payments to employees facing reductions. Despite the possibility of costly payouts to terminated employees, companies are still cutting, because their main focus is arguably to convey the message to their investors that everything is okay in the company, and to maintain the stock price.

What will happen next

— In general, such a tough situation cannot last long. Inflation in the US is already going down. Therefore, many predict that stimulation will begin before the end of 2023 and the situation will gradually change. 2023 may be even more difficult for IT companies than the prior years, but it is quite possible that in 2024, everything will turn around.

Of course, there are different types of IT companies — outsourcing and product oriented. Outsourcing has more diversified risks. Outsourcing companies that supply products for the tourism industry, for example, are now showing good results as the tourism industry is gradually recovering. I won't call the current situation a crisis or collapse. Yes, there is a slowdown in the economy, but the market expects (and so do I) that the situation will normalize soon.

There is also a diversification across various economies. The situations in the USA and in China, for example, are different. In China, there was a policy of "zero tolerance for COVID-19." Pursuant to this approach, at the slightest outbreak of the disease, cities were closed, and businesses shut down. Now, after the protests and indignation of citizens, the country is opening everything. You might say that China was the first to enter the pandemic and the first to get out of it. It is possible that the Chinese have saved more money during the pandemic, and perhaps now they will spend more on IT products. It seems the US has not yet managed to "catch the wave" of economic recovery.

Where to move in IT

— Whenever a financial crisis begins, people change their attitude toward money. They cut their expenses, are ready to work for a slightly lower salary. If wages have not increased, then inflation has increased. In real terms, incomes have decreased. This is always a push and an incentive for some people to start doing something different: retrain, open their own business, master a new in-demand profession that will be more reliable. But, unlike in 2021, do not expect large investments in startups again too soon.

Now, everyone is talking about chatbots with AI like ChatGPT. I'm not worried about this progress. IT specialists will continue to be in demand, only in another field. A new direction is always a new opportunity. There will be programmers who will develop neural networks. There will always be a need for admins who will support the products. PR specialists, marketers, managers, and sales specialists will be needed to develop and sell it all. We can't get away from IT and technology no matter where we are, so this direction will always be promising.

At this point, I don't really anticipate the development of IT in countries such as Georgia, Kazakhstan, and Uzbekistan. To develop IT, a country’s economy and state must be stable. And in a not-quite-market economy, it is difficult for business to develop. Plus, I think these are not the most comfortable countries for relocation at this time. The flow of people moving there has grown, but gradually it will decrease. Most people move to Europe. Eastern Europe has added a lot of people in places such as Poland and the Czech Republic. There are also a lot of resources for IT development in Asia and India, and Latin America is becoming more and more popular.

What should beginners in IT do

— I advise newcomers to IT to look not at what will be promising, but at what will be massive. Testers will be needed everywhere — no matter what you are testing: games or health care applications. Java will continue to be popular among programming languages for a long time, because large companies use products written in it, and it is difficult to "jump off" this stack and rewrite everything in another language or platform. What is massive now will still be in demand soon. I would not recommend chasing the latest fashionable thing, like blockchain, but rather focusing on broad skills and frameworks. There will be continued demand in these areas, which means it is easier to find a job, including for juniors.

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