Tech insourcing gains as global cos set up centres

Bengaluru: Global enterprises are increasingly setting up their own technology centres in India for managing their own technology development work rather than outsourcing those to IT services companies.

This trend has picked up further in 2023 with manufacturing and BFSI (banking, financial services and insurance) sectors taking the lead.

According to experts in the know, this trend is likely to increase further with BFSI sector, taking more work inhouse than outsourcing those to IT vendors.

“Technology industry is witnessing a trend of more insourcing by enterprises in recent years and this has picked up further in 2023. Manufacturing and BFSI verticals are witnessing most of the insourcing. Currently, many financial services sector clients are performing 65 per cent of technology work inhouse with rest 35 per cent outsourced to IT companies. This ratio is likely to further increase to 75 per cent insourcing in coming years,” said a technology consultant, who works with many of these IT firms.

This year, hiring among GCCs (global capability centres) or technology captives of global companies operating in India has been higher than IT services companies and startups. This is primarily driven by the initiative of these technology captives to implement more technology work through their engineers than outsourcing those to third party vendors like IT firms.

According to data from a Nasscom-Zinnov report, India had 1,580 GCCs with 1.66 million employees by the end of FY23. In the first half of 2023, 18 new GCCs have come up in tier-I cities such as Mumbai, Pune, Hyderabad and Bengaluru.

In addition to new technology centres, the existing GCCs are also expanding their footprints by setting up second or third centres in India. About 23 new centres were established by existing GCCs during this period and some of the notable names include Pernod Ricard, Bristol Myers Squibb, DE Shaw and Co, Harman, Deloitte, among others.

Interestingly, many of these centres are coming up in tier-II cities like Ahmedabad, Mysuru, Vadodara, Nashik, Tirunelveli, and Coimbatore, among others.

According to global consultancy firm EY, India is likely to be the home of 2,000 GCCs in coming years.

In terms of likely loss of business from global enterprises, which are insourcing more technology work, Pareekh Jain of Pareekh Consulting said that global firms will continue to outsource many of technology projects in the emerging technology space to IT services firms.

“For new and growing areas in the emerging technology space, companies will continue to outsource much of the work to IT firms,” Jain said.

According to HR experts, GCC was the only space which saw uptick in employee addition in 2023 with sound salary hikes. They, however, opined that such uptick may stabilise in 2024.