Indian IT majors battle high outsourcing costs as more and more employees leave them
With rising attrition, subcontracting is one of the essential things in the Indian IT sector. The biggest IT companies in India mentioned an increasing dependence on subcontracting or outsourcing work to complete client needs in their quarterly results. And, yes, this is a result of supply-side issues caused due to high attrition.
IT-major HCL’s management had stated they ‘had to resort to some higher price for outsourced services.’
“Some of the outsourcing costs are also a little bit reactionary steps that we had to take to continue to fulfill some of the commitments in certain geographies where we could not do the right people mobility solutions,” HCL’s Chief Executive Officer & Managing Director C Vijayakumar said in the earnings call.
HCL’s outsourcing expenses have increased from Rs 2,886 crore in Q1 of FY22 to Rs 3,593 crore in Q1 of FY23.
The Tata Group’s cash-cow Tata Consultancy Services (TCS) said in its conference call that the total subcontractor expenses are at 9.7% of the company’s revenues and have increased from about 7%.
The company stated that its current focus would be to meet its demands.
“Our current priorities are to stay focused on capturing the demand. And we have known how to balance on the subcontractor side. And as the need arises, we’ll be able to realign it or balance it”, the company’s Chief Financial Officer (CFO) said in the Q1 earnings call.
In the earnings call, the company’s CEO and MD Rajesh Gopinathan said that subcontracting is to tide through supply-side constraints in some local markets. Still, it is of significance in an ‘uncertain environment.’
A lot of the outsourcing was to fulfill onsite demand when securing a visa is an issue, but now with high levels of attrition offshore as well, reliance on outsourcing is increasing, Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting, said.
For companies that have declared their quarterly results so far, the attrition has significantly risen compared to the previous quarter and in the Q1 of the last financial year.
Jain says that outsourcing is picking up in India as well now.
“With Covid, people want more flexibility like working from home, better salaries, shorter projects. A lot of people do not want to take up the managerial role. They want to continue to be technical, which is rare for anyone at the managerial level. Therefore, people are leaving their regular IT jobs. This is also why subcontracting is picking up”, Jain says.
He adds that recession might change the role of subcontractors with highly specialized functions like cybersecurity, and a specific need for a system in engineering IoT would be in demand.
“Even if there is a recession, within a few quarters, there will be a requirement for ready staff to work.”