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India to change outsourcing business model due to automation - FT

Companies such as Tata Consultancy Services (TCS), Infosys and Wipro will move from a strategy-based on high headcount and low costs to one reliant on higher employee costs and flexible services due to automation, writes Financial Times.

2016-06-30 15:52:22

"Their financial model is under stress. It's that simple. They can't just keep hiring freshers [out of college] to keep costs down," says Pankaj Kapoor of JM Financial Institutional Securities, a Mumbai-based brokerage. "Clients know data centres can be operated by one person now, so why do Indian companies need so many?"

As their clients move towards automation, artificial intelligence and cloud computing, India's IT companies are being forced to redefine their pitches. "Our context has fundamentally and irreversibly changed and we cannot go back to the approaches and methods of the past. The world as we know it has been transformed," wrote Vishal Sikka, chief executive of Infosys, in its 2015-16 annual report.
Wipro's chief executive Abidali Neemuchwala shared similar concerns with the Indian newspaper Business Standard in April.

"It's very simple. The number of people required in the lower end of the pyramid is going down. Robots and bots are taking over. You will see a slowdown in hiring across the industry."
Infosys, Wipro and their rivals are now revising their old service model: to provide a fixed IT service for a fixed cost.

"We have started seeing models where we are jointly investing with the client, putting skin in the game," says Pravin Rao, chief operating officer of Infosys.

"I go to the client saying: ‘We believe that by applying these technologies, leveraging them, we can bring you benefit. You can pay me based on the number of transactions, or based on the percentage of revenue I drive, or the kind of cost savings I do.' It's probably a small percentage of the business right now, but over the next five years it will become much larger."


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