Low Cost IT & Price Hike!

News from Business Line - India, Sept. 29

After being content without a price hike for more than a year, software companies are now seeking a price increase with clients even as discretionary spend is going up.

A senior official at Cognizant Technology Solutions confirmed that it is getting price increase, while an official at Tata Consultancy Services said rate increase could happen before the year-end.

“Pricing has clearly stabilized. We are now talking to clients about price increases and we are getting price increases. They are not big increases but clearly it is heading in a positive direction,” CFO, Cognizant. He said the company was talking with many of its clients about costs going up and making a pitch for price increases. One of the reasons why clients are open to discussions today is because they are giving wage increases to their own employees. This makes the discussion much easier. Having such a discussion was tough for years, when CIOs were not giving their own staff wage increases.

The industry overall has been quite disciplined on pricing even during the economic downturn. “Yes, there was some volume rebates but compared to what it could have been it is pretty mild. The reason for this is that pricing in this sector is fairly transparent,”.

CFO-TCS, said at this point the company did not get any price increase. “We may start seeing price increases only at the end of this calendar year, Prices are not declining. We do not disclose the onsite and offshore rates. If the pricing power comes back, this will go up,” .

Mr Partha Iyengar, VP-Gartner India, the price hike will be two-three per cent to begin with and possibly settling around five per cent by next year. “This is a completely anecdotal assessment. I believe we will start seeing rates go up, starting with some of the high demand areas such as SAP, Oracle and Business Intelligence by next quarter, and rates across-the-board will start going up mid-way through the calendar 2011.”

The rates have steadied over the past two quarters. Service providers are starting to ‘make noises' about the need for an increase in rates and clients are bracing themselves for it.

- What I am amzed at, on one hand we know that Low cost IT will be the way forward. How do we get pricing ledership along with quality ledership is the drive. On the otehr hand I see this news and hence pressure on all service providers to ask for price hike. Does it make sense?
I think Tier 1 Indian software compnies (service providers) should look at reducing prices by at least 5% year on year for next three years.

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