Subcontracting costs rise 60% for top four IT firms

Outsourcing costs at India’s top four IT companies have risen nearly 60% over the past two years, fueled by increased attrition and a post-pandemic digital boom.
Outsourcing costs at Tata Consultancy Services, Infosys, Wipro and HCLTech rose to more than $62.939 billion ($7.6 billion) in the fiscal year ended March 31, 2023, compared to $39.368 billion ($4.8 billion) in 2021. Xpheno, a specialized staffing company.
HR experts said the increase in hiring subcontractors to fill immediate staffing needs to ensure project delivery could be the cause of the company’s staff shortage.
“The $1 billion spent on outsourcing by large IT companies and its rapid growth post-pandemic has highlighted decades-old staffing practices,” said Kamal Karanth, founder of Xpheno.
According to industry sources, the number of subcontractors is 10-15 percent of the IT player’s workforce. These indicators also increased for individual companies. Fees paid by TCS to external consultants rose 61.5 percent to Rs 21,337 crore in the two years ending fiscal 2023, according to company financials. Most of this payment is related to outsourcing.
For Infosys, the cost of technical subcontractors has almost doubled to Rs 14,062 crore in the last two years. Wipro’s figure rose 38 percent to Rs 11,524.7 crore, while HCLTech’s expenses rose 47 percent to Rs 14,950 crore. “An IT company typically has 80-120 vendors with employees, and each vendor is brought in based on the unique expertise they bring, such as cloud, cybersecurity or data analytics. However, this leads to an unmanageably long tail and the process is prone to to vulnerability. Because empanelment is based on relationships (rather) than talent,” said Karanth.
Subcontracting costs and labor costs are presented in two separate lines in the annual financial statements. This is because salaries are usually considered a fixed overhead, while subcontractors are billed hourly and do not appear on the company’s payroll.
According to reports last week, a Tata Consultancy Services whistleblower accused some executives of violating the company’s code of conduct to give preferential treatment to certain hiring firms. The company announced at Thursday’s annual general meeting that six employees and six employee companies were banned due to differences in the recruitment of business partners.
“The industry is very volatile and decisions need to be made quickly as it (outsourcing) is directly linked to revenue,” said Aditya Mishra, CEO of CIEL HR Services. “There are too few process control and quality parameters in HR procurement and HR management compared to supply operations. He said it has always been a lower priority and has emerged due to recent events.