Information Tech

Pandemic, travel bans result in higher offshoring for IT firms

Indian IT services providers have reported higher offshoring in the previous financial year as employees worked from home through the Covid-19 pandemic and as a result of travel bans by the United States, their largest market.

The trend was likely to continue going forward, analysts and companies said, since clients have become more open to people working remotely and because of its positive impact on margins.

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“Offshoring has been increasing very rapidly and, in revenue terms, it has increased by 5% over the last year,” said Sudhir Singh, chief executive of Coforge.

The volume of work done offshore would be significantly higher this year, he said.

Even though the company plans to roll out salary hikes as normal, it does not expect that to impact margins, he added.

The mid-tier IT services firm has hired around 900 people in India over the last few months – over 90% of its total hires.

It is also pursuing a localisation strategy where it is training and hiring more freshers in key markets like North America and Europe.

Analysts said hiring onsite as a risk mitigation strategy would likely continue.

The pandemic has shown that companies that have a more geographically diverse team have been able to move work around more quickly, especially during the ongoing second Covid-19 wave.

“The higher offshoring will continue. I expect it to go from the average 70-30 ratio of work being offshore to as high as 85-90%,” said Pareekh Jain, founder of Pareekh Consulting.

“However, companies will need some balance as having onshore operations also helped attract talent because of the career mobility that it offered,” he said.

The volume of work done offshore at

has increased from 72.4% in March 2020 to 75.7% at the end of March 2021.

Similarly, at L&T Infotech it has increased from 78.5% to 82.1% over the same period.

Most companies have seen demand accelerate as customers invested in digital transformation projects. Almost all of them intend to hire significantly more people this year.

“Clients in the US and UK are now more focused on digitisation and on reducing costs; offshoring by the service providers is an easier way of getting access to cheaper talent,” said Aniket Pande, lead analyst – IT and telecom, at brokerage firm Prabhudhas Lilladher.

The pandemic-related travel bans, combined with restrictions on H-1B visa holders entering the United States in the past year, have also accelerated the deployment of more resources offshore.

“There is acceleration of demand, and coupled with the inability of people to travel, most of the work is being done offshore,” said Sunil Sapre, chief financial officer, Persistent Systems.

Sapre expects this trend to accelerate this year and also result in higher attrition at tech firms. “Offshoring will help the industry to manage margins, but there will be pressure to manage attrition,” he said.

Utilisation ratios of IT services providers have also been increasing.

All of these have resulted in higher profitability numbers for services companies in the past fiscal year.

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