In a reversal of trend, major firms are now looking to move back their information technology functions in-house or what is termed as in-sourcing, from their earlier stance of outsourcing to low-cost providers in India.
Firms such as auto major General Motors, Target, Zynga, Nordea and AstraZeneca have looked to build their own information technology team.
“There has been shift towards in-sourcing by U.S. firms over the past three years in the manufacturing sector and also in specific areas of high intellectual property value in companies. The desire has been to keep vital IP and know-how within the company,” said Mary E. Shacklett, President, Transworld Data, a technology analytics, market research and consulting firm.
British-Swedish pharma major AstraZeneca is looking to bring down its IT outsourcing to 30 per cent in the next three years from 70 per cent now. It works with eight vendors, out of those HCL Technologies mainly handles infrastructure, while Cognizant, Infosys and Accenture do application development and maintenance.
The company’s global IT budget is roughly $1.3 billion, which it aims to halve in the coming years. “In-sourcing is a silent trend. Companies like General Motors are on it for the last three years. This is unlike the earlier outsourcing trend, which had people shouting from rooftops. So, nobody is talking about ‘in-sourcing,’ at least not yet,” David Smoley, Chief Information Officer, AstraZeneca, said. The firm has launched is own captive arm in Chennai which will handle in-house IT work and support its 51,500 employees worldwide.
In 2012, General Motors Chief Information Officer Rondy Mott embarked on a plan to bring back its IT work inwards. At that time, 90 per cent of General Motor’s IT services where provided by Helwett-Packard/EDS, IBM, Capgemini and Wipro and only 10 per cent was in- house. The plan is to reverse this ratio in three years. Mr. Mott is of the view that GM cannot be creative or fast enough with outsourced IT.
When contacted, a GM spokesperson said, “All we can confirm at this point is that GM IT’s in-sourcing strategy is on track”.
AstraZeneca’s Mr. Smoley said that one of the reasons why his firm looked at in-sourcing was to take control from an IT prospective and to improve efficiency in terms of faster delivery of drugs.
Research firm Gartner said it was seeing a fundamental shift in the approach to digital business causing organizations to rethink their approaches to sourcing. “The threat many Indian providers will face is from the shift happening from labour to technology arbitrage. How quickly Indian providers can change gears to grab the opportunity and move forward even if that means constructive destruction of some of the existing business models could define future success,” D.D. Mishra, research director at Gartner, said.
“The shift to captives represents a long-term commitment to offshore-based services. Overall, companies in Europe and the U.S. are looking to perform more work offshore in India, not less. Captives are not a threat for vendors, but, in the short-term, can cannibalize a vendor’s business,” said Peter Schumacher, President and Chief Executive of Germany-based consulting firm Value Leadership Group Inc. “Offshore services firms with strategic vendor status, and those that are organizationally agile and collaborative, are likely to be least impacted – some may even benefit.”