IT vendors face severe pricing pressure

Indian vendors are witnessing pricing pressure anywhere between 10-12 percent – Forrester

 

Indian IT firms are under pressure to cut high profit margins as cross border customers bargain hard to slash prices.  Customers struggling to stay afloat in the weak market have intensified price negotiations with IT vendors, seeking greater discounts.

 

"Such conversations do happen," said S.D. Shibulal, Chief Operating Officer, Infosys Technologies, admitting that clients do negotiate pricing of contracts linked to vendors' profitability.  Large Indian vendors have traditionally enjoyed higher profit margins than their global counterparts such as IBM and Accenture, as they deliver bulk of their services from low-cost, offshore destinations.

 

For quarter-ended March 2009, Infosys had an operating margin of 29.51 percent, while TCS had 23.7 percent. IBM for March quarter had an OPM of 13.61 percent, while Accenture for quarter-ended February had 11.97 percent.  "Our margins are a result of our model, the way we run our operations, the global delivery model, and the way in which the bench is managed, the much disciplined expense management and also the result of innovation," Shibulal said, adding "we have always enjoyed premium and we will continue to enjoy that.

 

Lack of deals in the marketplace has created intense competition among the vendors thereby resulting in pricing pressure, said Sudin Apte, head of Forrester Research in India. Also clients do seek higher discounts as the vendors earn high margins.  The Indian vendors are witnessing pricing pressure anywhere between 10-12 percent, Apte said. Infosys, which has projected a decline in its dollar earnings for the year-ahead, has factored in a pricing decline of 5.7-6 percent in its forecast.

 

Source: The Hindu Business Line