TCS, Infosys, Wipro Will Remove Sub-Contractors To Save Upto 22% Employee Expenses

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

Why Would This Happen?

According to Tata Consultancy Services, Infosys, Wipro and Mindtree, the subcontracting costs are expected to fall in the coming months. 

Normally, subcontracting forms about 10-15% of the total employee costs, on average.

The subcontracting costs had spiked in the last few years as IT firms looked beyond an in-house talent for new-age technical skills.

The Global Head, Human Resources TCS, Milind Lakkad said “We will be reducing dependency on contractors to some extent to optimize it (cost). Lateral hiring will be done for specific skills in a limited manner and we also continue to build talent within the organization,”.

So far, subcontracting costs made up for 13% of total employee cost (a sum of internal employees and subcontracting costs) at TCS last financial year.

While at Wipro and Infosys, it formed about 22% and 12%, respectively, during the same period.

So, we can say that subcontracting costs accounted for about 11% of total employee costs at Mindtree end of last fiscal.

What Do The Companies Say?

The Chief Human Resources Head at Wipro, Saurabh Govil said the company was evaluating the complete supply chain of employees, including hiring, bench and subcontractors.

Further, Govil said, “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…,”.

During a post-earnings call with analysts, Infosys’ CFO Nilanjan Roy, said subcontracting will be one of the ways to optimize costs.

“Our ongoing strategic cost optimization levers around automation, pyramid rationalization, 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,” added Roy.

Recently, Mindtree CEO Debashis Chatterjee also said that the Bengaluru-based firm will continue reducing subcontracting costs in the coming quarters.

While specialist staffing firm Xpheno said IT firms have started to cut subcontracting costs in multiple ways.

Further, the Kamal Karanth, co-founder of Xpheno said “It is a combination of cost-saving measures…in some cases, companies are reducing the number of contractors/suppliers they have, in others, they are asking suppliers to take rate cuts. The third case is that some companies are asking their subcontractors to take deferred payments,”.