Outsourcing deals at stake as IT spend takes a hit

Navigating Slowdown

- GCCs also coming under stress

- MNCs cutting down costs

- India home to over 1,500 GCCs

- GCCs already reduced hiring by 25-30% in last 3 mths

- Some consolidation is also underway

Bengaluru: Technology outsourcing deal space across the globe is feeling the heat of the impending slowdown in the US and European economies. While some projects are getting cancelled, the talks of large cost takeout deals have started to happen in recent months.

Sources in the know said that Indian IT services players along with leading global ones are likely to face many more client-specific issues in coming months as enterprises cut technology spends, especially the discretionary ones.

Some of the deals cancelled have also come to public domain. Recently, Microsoft's a news related projects executed by HCL Technologies got cancelled, leading to loss of jobs of 350 employees. Similarly, sources in the know said that one of the Facebook's projects done by Accenture is likely to be face the axe this month. The work is likely to be outsourced to a Singapore-based firm.

With the likes of Google, Microsoft, Meta freezing new projects along with cancelling some, this will affect all major services providers globally.

"The slowdown concerns will definitely lead to client-specific issues in coming months. Barring a few, most of such instances are not in public domain. Meanwhile, as enterprises cut costs, talks of large cost take out deals are also being initiated. Like the pandemic period, such mega deals are also a clear possibility in coming months," said Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting.

During the pandemic period, all large IT firms won mega deals amounting to multi-billion dollars. This was the major driver in pushing up the revenue growth in the double-digit trajectory.

Not only IT services players, but even Global Capability Centres (GCCs) are also coming under stress as MNCs prepare to navigate the slowdown. In India, which is home to more than 1,500 GCCs, has already reduced hiring by 25-30 per cent in last three months.

Some consolidation is also underway with companies selling up their captive centres. Last week, Accenture has announced to acquire Europe-based automotive manufacturing firm Stellantis' captive centre. This indicates that consolidation in GCC space is likely if the slowdown aggravates towards the end of this year.

Meanwhile, margin pressure among large Indian IT services companies is prompting them to stay away from low-margin deals. Indian IT firms are facing unprecedented pressure on their operating margins owing to rising wage cost apart from increasing travel and related costs. "Growth moderation is likely to happen in 2023. We have to see how IT firms deal with the slowdown in terms of their approach to deals and margins," Jain said.

As enterprises cut costs, talks of large cost take out deals are also being initiated. Like the pandemic period, such mega deals are also a clear possibility in coming months

- Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting