New Delhi: Macroeconomic headwinds and emerging technologies like Generative AI and Low Code pose a challenge to the outsourcing business offered by Indian IT companies.
Last week, Transamerica ended its $2 billion 10-year deal with Tata Consultancy Services two years ahead of schedule and is now reportedly planning to reduce its dependence on third-party IT vendors.
IT industry executives say it’s early days to tell what kind of trends would emerge, but one thing is sure — some deals may face more brutal scrutiny with changing technologies, and insourcing may gain traction.
V Balakrishnan, chairman of Exfinity Ventures and former CFO of Infosys, said, “It is too early to say whether this indicates a trend or not. We had not seen any meaningful cancellation of large deals recently.” He said that typically, insourcing happens if the customer is in a better position to handle it more efficiently than the outsourced vendors. The advances in AI technologies is automating a lot of IT work which will have a huge impact on the productivity side.
“With AI platforms and engines becoming more mainstream, customers will look at insourcing to capture all the productivity gains which will help them cut cost and improve competitiveness. Even though it is early days, the industry should watch out for this,” he said.
Pareekh Jain, the founder of Pareekh Consulting, said with much more advanced technology like Meta or Generative AI coming into play, clients who signed deals five years ago would think they are locked into older technologies. So, while large deals bring visibility to revenue flows to IT vendors, they also bring challenges for them.