IT companies typically tap subcontractors to fulfil projects with specific skillsets
With a slowdown in IT demand across key markets such as US and Europe, top tier IT players have tried to rein in subcontractor cost as a lever to maintain and improve margins. In FY25, the subcontractor costs as a percentage of revenue hit a seven-year low for three top IT majors TCS, Wipro and HCL Tech. For Infosys, it hit a 4-year low.
TCS reported subcontractors cost at ₹11,046 crore in FY25, representing a 26 per cent y-o-y decline. This translated to a sharp fall in the subcontracting cost as a per cent of revenue from 6.2 per cent in FY24 to 4.3 per cent in FY25. This was as high as 9.2 per cent of revenue in FY23. HCL Tech, which reported its earnings on Tuesday, also saw a decline in subcontractor cost as a percentage of revenue from 14.7 per cent in FY24 to 13 per cent in FY25. For Wipro, this went down from 11.5 per cent in FY24 to 11.2 per cent in FY25, hitting a seven-year low.
Specific skillsets
IT companies typically tap subcontractors (or contract staff) to fulfil projects with specific skillsets that may not be readily available internally with their teams. This expense generally trends down in the slowdown phase as IT services firms look to manage margins by lowering costs in the absence of revenue growth. The subcontracting cost goes towards both Indian and onsite contract staff and experts note that in the US, the specialists often prefer to work on gig basis.
“A decline in subcontractor costs often signals subdued overall demand. Subcontractor costs often dip during a slowdown, as IT services firms shift their focus to building onsite teams through direct, on-payroll hires — a more cost-effective and strategic alternative to high-cost subcontracting,” Gaurav Vasu, founder of research firm UnearthInsight said. “With ongoing market uncertainty in the US and Europe, local talent may also be hesitant to take on short-term contracts,” he added.
Prashant Shukla,Vice President, Everest Group, said that this also signals rising preference for offshoring. “The maturity of the onshore centres opened by the service providers over past several years also ease pressure of having higher subcon costs,” he added.
Niche expertise
“IT companies use subcontractors to gain access to niche expertise, address quick-burst skill needs and scale up discretionary programs. Given that discretionary programs are drying up, companies are maximizing every margin lever, be it increasing utilization rate, reducing sub-contractor usage, controlling travel costs, reducing discretionary G&A, and optimizing pyramids,” Ramkumar Ramamoorthy, Partner at tech growth advisory firm, Catalincs, said.
Industry trackers also note that IT majors’ focus on margins may be preventing them from chasing bold bets.
“Subcontracting gives the company access to specialised skills that may not be available in-house. So, by being conservative, they may also be losing out on chasing new-age work that comes in short-term periods,” a former IT industry executive said.
Published on April 22, 2025
Anurag Dhole is a seasoned journalist and content writer with a passion for delivering timely, accurate, and engaging stories. With over 8 years of experience in digital media, she covers a wide range of topics—from breaking news and politics to business insights and cultural trends. Jane's writing style blends clarity with depth, aiming to inform and inspire readers in a fast-paced media landscape. When she’s not chasing stories, she’s likely reading investigative features or exploring local cafés for her next writing spot.
- ANURAG DHOLEhttps://indiatadkha.com/author/bitlancetechhubgmail-com/
- ANURAG DHOLEhttps://indiatadkha.com/author/bitlancetechhubgmail-com/
- ANURAG DHOLEhttps://indiatadkha.com/author/bitlancetechhubgmail-com/
- ANURAG DHOLEhttps://indiatadkha.com/author/bitlancetechhubgmail-com/
