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Subcontractors face the axe as IT rejigs costs

Indian IT services companies may reduce dependence on subcontractors to control costs, as the Covid-19 pandemic threatens to slow new deal flow and pressure margins.

Tata Consultancy Services (TCS), Infosys, Wipro and Mindtree said subcontracting costs are expected to fall in the coming months. On average, subcontracting forms about 10-15% of total employee cost.

In the last few years, subcontracting costs had spiked as IT firms looked beyond in-house talent for new-age technical skills. “We will be reducing dependency on contractors to some extent to optimise it (cost). Lateral hiring will be done for specific skills in a limited manner and we also continue to build talent within the organisation,” Milind Lakkad, Global Head, Human Resources at TCS, told ET.

Subcontracting costs made up for 13% of total employee cost (a sum of internal employees and subcontracting costs) at TCS last financial year. At Wipro and Infosys, it formed about 22% and 12% respectively, during the same period. Subcontracting costs accounted for about 11% of total employee costs at Mindtree last financial year.

Wipro’s Chief HR head Saurabh Govil said the company was evaluating the complete supply chain of employees, including hiring, bench and subcontractors. “We have a fairly large contractor population who are doing work for us. About 10-11% of our billable population is the subcontracted population and we will look to replace those people with our existing employees…,” Govil told ET.

Infosys’ CFO Nilanjan Roy, during a post-earnings call with analysts, said subcontracting will be one of the ways to optimise costs. “Our ongoing strategic cost optimisation levers around automation, pyramid rationalisation, subcontractors will, of course, continue as in the earlier years. We are confident that our proximity to our clients and our superior talent engine will enable us to weather this storm,” Roy said.

―Business Telegraph

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