Margin focus pushes Indian IT firms away from subcontractors
IT companies have slashed their subcontracting costs — or, spending on high-cost temporary workforce — to multi-year lows, driven by increased focus on margins, cost optimisation, and enhancing internal capabilities.
Over the past 12-18 months, as growth in the $250-billion software services industry slowed, players like Tata Consultancy Services (TCS), Infosys, HCLTech, Wipro, and Tech Mahindra have been scaling back low-margin subcontracting, or the practice of employing temporary workers at high costs.
Instead, they are focusing on upskilling existing employees, improving billable utilisation, and leveraging generative AI (GenAI) to meet the demands of increasingly complex projects, industry analysts said.
“Recent analysis shows a strategic shift in managing subcontractor expenses among large IT services firms,” said Krishna Vij, business head – IT staffing at recruitment firm TeamLease Digital. “Many companies have reduced these expenses in recent quarters, focusing on strengthening in-house capabilities and optimising cost efficiency. This trend reflects a broader industry response to market dynamics and a push for improved profitability,” she said.
In FY24, subcontracting costs hit their lowest levels in years: TCS at 6.20% of its revenue (the lowest since FY16), Infosys at 7.70% (lowest since FY21), Wipro at 11.50% (lowest since FY16), and Tech Mahindra at 12.60% (lowest since FY19), according to company data.
Subcontracting costs and employee expenses are shown as two different line items in financial
