3 min read.Updated: 14 May 2013, 05:37 PM ISTAnirban Sen
Bank joins firms such as GM, AmEx in bid to fight criticism in US and in response to rising costs in India
Bangalore: Bank of America Corp., the second largest US lender by assets, has started to shift a small part of the projects it had awarded to India’s software companies to local firms or its own centres to ward off political backlash against jobs being outsourced to India.
Bank of America, which has given contracts worth millions of dollars to companies such as Tata Consultancy Services Ltd (TCS) and Infosys Ltd—India’s top two software exporters—as well as Accenture Plc, will bring back some of its information technology (IT) projects to service providers in the US or to their own centres, according to at least two people familiar with the development, who requested anonymity.
The move comes at a time when North American and European clients of India’s $108 billion IT industry are cutting spending on technology because of economic headwinds. For the year ended 31 March, Indian software exports revenue grew by 10.2%—the slowest since the Lehman Brothers collapse in 2008 triggered a global financial meltdown.
The Charlotte, North Carolina-based bank joins the ranks of other large American corporations, including General Motors Co. and American Express Co., that have recently moved projects back to their own centres. The companies are sending jobs back to US to fight criticism over outsourcing in the US and in response to rising labour and infrastructure costs in India.
American Express, which has resumed most of its projects with Indian vendors, had temporarily halted outsourcing projects to software vendors in India last year, due to disruptions caused in its US operations by Hurricane Sandy.
“There’s a growing feeling that not all work should be moved offshore. Many companies are starting to believe that not all work should be going to a talent factory," said one of the people mentioned above.
Some of the projects are being sent to centres owned by the companies in India.
“Some banks have really well-run captives (in India), with a cost base that is way lower than third parties. They have a much stronger ability to drive productivity in house than through third parties. They’re doing it incrementally, but to great effect," said the same person.
Bank of America did not respond to emails seeking comment last week and on Monday. India’s top IT firms, including TCS and Infosys, declined to comment, citing client confidentiality.
Last year, General Motors, which had contracts worth billions of dollars with Indian and multinational service providers, announced that nearly 90% of its IT works would be done by in-house staff in three-five years. American Express had also temporarily halted projects to software vendors in India last year.
In 2002, Bank of America first signed outsourcing agreements with TCS, Infosys and Accenture, according to data provided by outsourcing advisory firm Everest Group. The company also signed contracts with Aon-Hewitt and Hewlett-Packard Co. owned Electronic Data Systems in 2004.
To be sure, this move is not a sign that large clients such as Bank of America and American Express are bringing back their entire IT operations back in-house, like General Motors did last year.
“They (clients) are not going to bring everything or big chunks back, but it will be a small part that they’re going to bring in-house," said Ben Trowbridge, chief executive of outsourcing advisory firm Alsbridge Inc.
He declined to comment on whether Bank of America was bringing projects back in-house, but noted that Bank of America was one that had heavily advertised on hiring more people for their IT operations in the US.
“Offshore outsourcing is becoming more expensive as the cost of labour in countries like India continues to rise. Also, attrition and movement between companies continues to happen and is growing," said Debashish Sinha, chief marketing officer at Systems In Motion, a US-based software services provider. “Overall cost of offshoring has gone up…what companies are seeing is a structural shift in the way IT gets delivered with a lot of the infrastructure moving to the cloud."
Banks and financial services companies are also cutting spending on IT, which experts feel might hurt future revenue growth prospects for Indian companies. “Companies like GM, Procter and Gamble, Bank of America, AmEx—they’re not moving everything, they’re starting to move more of it though," said the first person, who requested anonymity.