IT offshoring rises as large, multi-year deals spur trend

The proportion of work done offshore has risen for Indian software companies over the past year, spurred by large transformation contracts and multi-year deals that allow more of software services to be executed at locations far removed from client premises.

Domestic technology services providers of all sizes — large firms such as Infosys, and Wipro, and mid-tier ones including Mindtree and L&T Infotech — have witnessed the trend.

In the quarter ended June 2021, Infosys reported an offshore ratio of 75.9% as against 72% a year earlier.

Wipro said its offshore contribution was 54% in the June quarter as against 50% in the corresponding, year-earlier period. Consequently, the quarter saw its onsite ratio declining to 46% from 50% a year earlier. The quarter ended March saw the offshore figure at 54.5%

Analysts said most domestic technology services firms now have a higher offshore ratio and have benefited from the pandemic-triggered rise in offshoring in the last four quarters.

‘Clear shift’

“Higher offshoring has been clearly helping tech firms in expanding profitability,” said an analyst at Emkay Global Financial Services. “The offshore business operates at higher gross margins and as the mix shifts towards offshoring, it supports [higher] margins,” the analyst added.

Confirming a clear shift towards offshoring, Dayapatra Nevatia, executive director and chief operating officer, Mindtree, said work done offshore by the firm had increased by more than 300 basis points in the last one year. “This is because of our growing focus on large transformational programmes as well as multi-year deals, which allow more work to be done offshore,” he said. “The trend has been further aided by greater openness to strategic IT partnerships, specifically in Europe, along with remote and distributed work models,” he added.

Sanjay Jalona, CEO & MD, L&T Infotech (LTI), said the pandemic had expanded the perimeter of what could be done remotely.

“At 17%, LTI has one of the lowest onsite ratios, and even as we create jobs globally, we expect this trend to continue,” he said. “The resilient tech industry has proved that it is possible to strategise, execute and deliver efficiently through this model,” Mr. Jalona added.

However, other industry sources preferred to wait before terming this a trend. How the momentum for remote working pans out as the pandemic ebbs and people return to offices is a key factor, they said.