The coffee chain is tapping artificial intelligence to develop in-house alternatives to systems by Microsoft and IBM that track inventory and manage equipment, Bloomberg News reported last week, after reviewing an internal presentation. According to the article, the Seattle-based company has been working for several years to replace Oracle’s point-of-sale system.

This will be disturbing news in Bengaluru and Hyderabad: Maintaining these very technologies for large multinationals like Starbucks is the bread and butter for the 6 million coders employed by India’s outsourcing industry.

The AI adoption craze is looming over what’s promising to be another lackluster earnings season for IT services exporters. Last week, Tata Consultancy Services Ltd., the biggest among them, reported 0.4% growth in revenue over the previous three months after stripping out currency fluctuations, the slowest expansion in a year. While the company has shed 3% of its workforce in the past year to about 594,000, the spending on third-party specialist contractors to bridge the firm’s own skills gaps ate into revenue. Net profit margin shrank.

At smaller rival HCL Technologies Ltd., sales in the three months to June slipped 0.5% quarter-on-quarter after holding exchange rates constant. The management kept its annual revenue growth guidance of 1% to 4% unchanged, but it still ended up shrinking its employee base by nearly 3,300 people — the sharpest contraction in close to two years. For HCL Tech, too, a rise in subcontractor costs mitigated the wage savings.

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For 25 years, India’s software services firms have locked global corporate clients into lucrative contracts to implement and maintain packaged software. Before the arrival of AI tools, it wouldn’t have been cost-effective for a firm like Starbucks, whose business is beverage, to take an IBM system out of its shrink wrap and map it to every piece of kitchen equipment, maintenance schedules, and local technicians across a labyrinthine network of 40,000-plus stores globally. That’s the kind of stuff around which Indian IT vendors have built a $250 billion exports powerhouse.
Similarly, making sure that a multinational can safely add a new local payment method — or correctly reflect a discount or tax change — has been a lucrative annuity for Indian programmers. They specialize in testing for various scenarios that could make the cash registers go down even for a minute. Largely hidden from public view, they keep global supply chains working 24×7 by managing the data pipelines that sync third-party inventory tools with an enterprise’s own resource planning software.To be sure, these long-term, multimillion-dollar orders haven’t completely dried up. TCS shares jumped Monday after the company disclosed that it would be expanding the role it has played in managing the infrastructure and applications for ABB. The new mandate is to design and run the Zurich-based engineering giant’s network as a modern, AI-driven service. HCL Technologies recently won a 5.5-year, $1.14 billion contract to build an AI-driven operating model for a large European engineering and manufacturing conglomerate it didn’t name.

Still, the pricing of large outsourcing deals in the age of AI remains under a question mark. After all, clients will fully expect their suppliers to use fewer humans — and more AI — to keep their tech infrastructure running smoothly. Accordingly, they will pay them less than before.

As for customers embedding artificial intelligence in their own workflows, they’ll probably pay the upfront cost of gathering the unstructured data scattered around their firms and labeling everything correctly. But after a quarter or two, AI agents will use the cleaned-up data to write their own code. The annuity business will have a slow fade, with lumpy AI-related work helping to mask the decline for some time.

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Worse, as clients like Starbucks open their own direct engineering hubs in places like Bengaluru and Nashville — using AI to let small, in-house teams do the work of large code-writing armies — the middleman’s markup becomes an obvious target for cost-cutters.

While the stock market is still giving a thumbs up to any order wins, the NSE IT Index finished June 10% lower than five years ago. Even during the worst of the Global Financial Crisis, pessimism didn’t run this deep. Maybe the gloom is overdone, and US clients will eventually curb their enthusiasm for AI. They may come to realize that even as their token budgets go through the roof, their corporate data and workflows are slipping out of their control and going to frontier AI labs.

However, it’s also possible that investors have read the tea leaves right, and it’s the outsourcing firms that are yet to wake up and smell the coffee.

China’s economic growth slowed sharply between the start of April and end of June as weak demand domestically and the impact of the Iran war on oil prices overshadowed the country’s strong exports.

Official gross domestic product (GDP) figures showed that the world’s second largest economy grew in the second quarter of the year by 4.3%, below Beijing’s annual target.

The announcement comes a day after government data showed that China’s exports jumped by 27% in June compared to a year earlier.

In March, China cut the target to a range of 4.5%-5%, its lowest economic expansion goal since 1991 – a move some analysts say gives officials more flexibility in managing the economy.

The figures mark the first full quarter of GDP data since the start of the Iran war on 28 February and comes after a rise of 5% in the first quarter.

Separate data released on Wednesday highlighted the economic challenges Beijing is facing at home – including a long-running property market slump and weak consumer spending.

New home prices contracted again, although the 0.1% fall in June was at a slightly slower pace than the previous month.

But retail sales rose by 1% in June, improving from a 0.6% decrease in May.

Customs data for June, which was released on Tuesday, showed that China’s tech exports were boosted by soaring global demand for semiconductors to power artificial intelligence (AI) data centres.

Surging demand for Chinese electric vehicles (EVs) also gave a major boost to China’s exports – with monthly car exports topping one million for the first time.

A group of 26 Meta employees sued the tech giant over accusations that it used AI-powered software to choose people for mass layoffs, disproportionately targeting workers with disabilities or those who took medical, parental or family leave.

The lawsuit, filed in federal court in Oakland, California, on Monday, alleges that the company relied on factors such as internal AI systems, keystroke and activity-monitoring data, AI token-usage dashboards and algorithmically assisted performance rankings when making job cuts earlier this year.

Many of these factors “by design, cannot be accumulated by an employee who is on protected medical or family leave, or whose output is reduced by a disability,” the lawsuit reads, adding that the company did not factor in protected leave when taking employees’ scores into account and “did not pause the system for the individualized, leave- and accommodation-neutral review that the law requires.”

The plaintiffs are among the 8,000 employees, or about 10% of its workforce, who Meta said in May would be impacted by layoffs, and they were told their jobs would be eliminated starting July 22.

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A group of 26 Meta employees sued the tech giant alleging it used AI-powered software to choose people for mass layoffs. (David Paul Morris/Bloomberg via Getty Images / Getty Images)

They claim that Meta violated state and federal laws — including the Family and Medical Leave Act, the Americans with Disabilities Act, the Pregnancy Discrimination Act and the Pregnant Workers Fairness Act — that prohibit discrimination or retaliation against workers who take medical leave, have disabilities or are pregnant.

The workers also say the company failed to test its AI systems for bias, which they allege violated newly adopted laws in California and New York City.

The plaintiffs, who come from six states, including California and New York, as well as Washington, D.C., are seeking a preliminary ruling from the court to block Meta from completing the layoffs while they pursue their claims in private arbitration.

The employees argue that Meta’s agreements require employees to arbitrate workplace disputes individually, but do not apply to requests for temporary relief.

The plaintiffs are among the 8,000 employees, or about 10% of its workforce, that Meta said in May would be impacted by layoffs. (Photo Illustration by Onur Dogman/SOPA Images/LightRocket via Getty Images / Getty Images)

They said the lawsuit asks just to preserve the status quo and keep them employed pending arbitration.

“Once these terminations are finalized, the harm to Plaintiffs cannot be undone by money damages alone,” the lawsuit reads, citing the loss of employer-subsidized health coverage during pregnancy, postpartum recovery and active medical treatment.

Meta has pushed back on the allegations outlined in the lawsuit, saying that it does not use AI when determining who to cut from its workforce.

“These claims lack merit and are not based on facts. Workforce management and organizational decisions were and are made by people, not AI,” a Meta spokesperson told Fox Business.

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Meta said that it does not use AI when determining who to cut from its workforce. (Arda Kucukkaya/Anadolu via Getty Images / Getty Images)

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About half of the plaintiffs had taken leave for caregiving or pregnancy-related reasons.

Eight employees are women who had taken maternity or pregnancy-related leave, four are men who had taken parental leave and one is a woman who had taken leave to take care of a family member and later bereavement leave.

The plaintiffs argued that Meta’s “algorithmically assisted selection process, by systematically recording such absences as reduced performance, falls more heavily on women than on men” because women disproportionately take pregnancy and caregiving leave.