Macroeconomic headwinds along with emerging technologies like Generative AI and Low Code are posing 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 certain — some of the deals may face harder 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 is indicative of a trend or not. We had not seen any meaningful cancellation of large deals in the recent past.”
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 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 this is something the industry should watch out,” he said.
Pareekh Jain, founder of Pareekh Consulting, said, with much more advanced technology like Meta or Generative AI coming into play, clients who have 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.