Indian IT services companies are betting big on generative AI space. And the pace of such investment is rising with each passing day. The latest announcement has come from the country’s largest IT services player, Tata Consultancy Services (TCS), which has launched its generative AI practice in collaboration with AWS. The IT firm is now focussed on deepening its expertise further, including certification of over 25,000 employees on AWS generative AI services. Interestingly, it has already invested in foundation training of over one lakh employees on generative AI. Last month, Infosys announced that it was expanding its collaboration with Google Cloud to help enterprises build AI-powered experiences. Under this arrangement, Infosys would build Generative AI labs to develop industry-specific AI solutions. It would also train 20,000 employees on Google Cloud’s gen AI solutions. Even their peers HCL Tech, Wipro, LTIMindtree, and many other mid-tier IT firms are aggressively investing in the gen AI space. They are not only collaborating with cloud service providers and related stakeholders, but are also training their employees on the new-age skills.
No wonder, earnings conferences are now-a-days significantly skewed towards discussions on gen AI-related business potential, and collaborations.
Despite the buzz, the IT industry is yet to see any significant uptick in revenue accretion from gen AI solutions. Of course, the current day digital transformation and cost takeout deals have gen AI components embedded in those contracts. However, no visible uptick is yet to be seen in the profit and loss account. This raises the rationale question behind such enthusiasm. And the reasons are many. Many experts opine that gen AI is considered as the most significant innovation in the last four decades in the world of technology, just like the internet. It will fundamentally alter the business models of many enterprises. Therefore, IT firms don’t want to be left behind when it comes to tapping the emerging opportunities. Secondly, the world of technology is slowly moving towards an era of technology arbitrage from labour arbitrage.
Indian IT firms have enjoyed significant cost advantage over their US and European counterparts because of low-labour cost. This offshoring model, which will continue, may see certain shift in the coming years. Because, gen AI tools will help in making many existing jobs automated. It means IT firms may not require as many employees to perform those job roles. Any drop in employee requirement will change the traditional time and material pricing model followed by most IT firms. Currently, billing in many projects happens based on the human resources used. Gen AI has the potential of altering this business model. That is the reason why Indian IT firms are reskilling their employees to make them relevant in the changing conditions and reduce scope for redundancy. Moreover, cost inflation across the world has compelled enterprises to take cost reduction measures. Gen AI tools in many ways sit at the core of such cost reduction strategy. Against this backdrop, Indian IT firms are likely to further accelerate their pace of investments in the coming quarters.
