India's 'insourcing' boom does not spell doom for outsourcing, tech
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[February 27, 2024] By
Sai Ishwarbharath B
MUMBAI (Reuters) - Global companies are setting up more offices in India
and expanding in-house teams but that does not mean the end of the road
for Indian IT firms, which rely heavily on outsourcing deals, executives
said at a Nasscom event last week.
Companies opened 118 global capability centers (GCCs) in India over the
past two years in a boost to 'insourcing' efforts, taking their total
count to over 1,620, February data from the industry body showed.
IT firms are helping GCCs scale up, innovate and do much more, said
Ananth Chandramouli, the India managing director of French IT firm
"We are also helping their platforms and solutions to go to market. Now
GCCs are (being) made a revenue center from a cost center, and it is net
new revenue for both of us. It will not cannibalize our revenues," he
Other industry insiders agreed.
Satish HC, executive vice president and co-head of delivery at India's
No.2 software services exporter Infosys, said its strategy was to work
with GCCs, no matter which route they took to drive innovation.
"If somebody wants to scale up their captive (offshore unit), we will
co-exist and work with them. If somebody wants to create a captive and
ask us for a BOT (build-operate-transfer) deal, we will be glad to do a
BOT deal," he said, adding that it was important to "be collaborative
and not be prescriptive".
The comments come as some industry watchers are cautioning that India's
rise as a GCC powerhouse could dent the revenue of IT firms, which have
made a fortune by helping address overseas clients' tech needs.
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Employees work on their computer terminals on the floor of an
outsourcing centre in Bangalore February 29, 2012. REUTERS/Vivek
"Overall revenue growth can be impacted for companies with high
exposure to heavily insourcing clients," Kotak Institutional
Equities said in a December note, referring to the banking,
financial services and insurance sectors in particular.
"While insourcing has been on the rise, it has not reached alarming
Attendees at the Nasscom event sang a different tune, saying that
the two models could co-exist.
"MNCs are not taking outsourced spend and rechanneling it to GCCs,
most of the GCC ramp-up is driven by migration of existing insourced
spend," said Anuj Kadyan, senior partner at consulting firm
Some said the pie was big enough for everyone.
"There is enough tech spends to be shared between GCCs and
traditional IT players. The usual ratio is 60% is insourced and 40%
with outsourced partners," said SAP Labs India Managing Director
Sindhu Gangadharan. "We don't see any changes in that."
(Reporting by Sai Ishwarbharath B; Additional reporting by Haripriya
Suresh; Editing by Dhanya Skariachan and Varun H K)
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