Infosys and Wipro are in trouble as US rethinks its outsourcing strategy

India’s biggest export for last few decades has been in the its IT sector. The country’s reputed firms like Infosys and Wipro have gone global as the US-based corporate have always relied on them. But now, things seem to have taken a wrong turn when a few corporates, including Lowe's, are planning to bring back software projects to themselves. This would negatively impact Indian IT industry as the home-grown software exporters might lose some million dollars of business.

"We traditionally have used a lot of third parties in Bangalore. And part of our Bangalore play is to insource back our capabilities into our GIC (global in-house centre) in Bangalore," Paul D Ramsay, Lowe's chief information officer, recently told The Economic Times. Ramsay added that their strategy is to in source core capability, core functionality in the US as well as in Bangalore. And he knows it well that this process would affect the vendor companies in India.

He said Lowe's is changing its strategy around third parties and vendors. Now, the firm will work with fewer third-party vendors and partners who will focus on some niche activities.

Spending more than a billion dollars annually on IT, Lowe's has outsourcing contracts with Infosys, Wipro and the US-based Cognizant.

However, Ramsay declined to comment on specific vendor companies that Lowe's works with. "I also think some of the promises around outsourcing have not truly been realised. We all have our outsourcing stories of initiatives that went well and those that did not go so well," Ramsay told the financial daily.

"I think there are a lot of strategic advantages to insourcing, around talent, around focus that I think you struggle against sometimes from an outsourced situation. A lot of the outsourcing activity is very much commoditised. In the same way, that there is no money in selling hardware anymore," he added.

India’ s largest software firms are hoping that if this strategy of the US corporates fails, they can renew their understanding to start a fresh business. A recent survey suggested that global IT spending is expected to drop by as much as 5.5% this year. Moreover the concerns regarding China’s slowdown triggering a global meltdown has made the US corporate more concerned.

In a year in which global IT spending is expected to drop by as much as 5.5%, according to technology researcher Gartner, and amid rising concerns of a slowdown in China triggering a global meltdown, customers cutting back on bread-and-butter outsourcing is the last thing India's $146-billion IT industry needs.

Lowe's is not the sole company rethinking its outsourcing strategy. According to executives familiar with discussions, Indian firms' top outsourcing customers such as AIG, AstraZeneca and Deutsche Bank have also insourced some of their software development projects into their captive centres in India.

However experts say, the retaining clientele of the IT companies, which include Citigroup, General Electric and Bank of America, are still spending hundreds of millions of dollars on outsourcing to India.