General Motors' U-turn catches IT companies off guard

General Motors (GM), the world's second largest auto maker, is taking a U-turn on outsourcing. At the receiving end could be information technology vendors such as Tata Consultancy Services, Wipro, Mphasis, HP (EDS) and Capgemini.

The company, which outsources 90 per cent of its IT requirement, is planning to slash this to merely 10 per cent over the next three years.

Analysts, however, said the impact on Indian IT companies would be marginal as the maximum exposure Indian players might have to GM should not be more than $100 million.

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"For Wipro, it should be a $50-million account, and for TCS, GM is not even among the top 10 clients," said an analyst tracking the company.

When contacted, TCS did not comment on client-specific details. Wipro declined to comment, as the company is in the silent period before it announces is first-quarter results.

Some Indian IT vendors which have a relationship with GM confirmed the company had sent emails informing about the IT consolidation exercise it was undergoing.

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Industry experts and advisory firms Business Standard spoke to agreed GM's plan was radical and the timing to achieve the target in three years was ambitious. But, a majority said the development did not mean an end to outsourcing.

While insourcing is not a big trend yet, analysts say there might be similar instances as the US government has become more protectionist and offers tax breaks to encourage this trend.

As of now, insourcing is not a big threat to the Indian IT industry as industry surveys show 79 per cent of executives surveyed say they plan to outsource while only four per cent prefer insourcing.

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The newly appointed CIO of GM, Randy Mott in an interview to InformationWeek, a technology magazine in the US, said other than in-sourcing, his IT transformation initiative within the company included consolidating data centres and applications, centralising IT planning and execution, and getting a better grip on GM's customer and production data.

IT analyst Sandeep Muthangi at India Infoline said while that was a concern for Indian IT vendors, such initiatives required large investments. That indicated IT budgets were clearly not under pressure, as indicated by large Indian companies, he said.

Besides, analysts are also questioning the timing of GM's announcement as the US gets into election mode.

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"GM has gone through tough times in the last five-six years, at least. That has taken a toll on its IT maturity. It is clearly lagging in several basic initiatives that firms like GE did a few years ago, such as app rationalisation, measuring the business value of IT, etc.

What they need to do is not follow sequentially what they missed or are lagging, but leverage new technologies (cloud, SaaS, Big Data, for example) and leap-frog to the next level," said Sudin Apte, research director & CEO, Offshore Insights.

"This flies in the face of what the IT teams at organisations globally are doing. CIOs globally are trying to see how IT costs can be variablised. The odds of success are against the company's strategy. This will mean a massive shift in terms of setting up skill-sets internally. This could also mean an increase in costs," said Partha Iyengar, VP and distinguished analyst, Gartner.