Pressure of pricing

By Fakir Balaji

It"s a reality byte for Infosys and Wipro, the big tickets of the Indian software sector. If tech meltdown in the wake of the dotcom bust and telecom crunch made them grapple with competition, continued global recession has forced them to buckle under pricing pressure for retaining their margins and market share.

After an extended honeymoon with boom times ending by the turn of the century, the cyclical slowdown in the US economy and a series of events from 9/11 to Iraq war have unsettled the Indian software industry, separating the men from the boys.

Having built their global brand equity with domain expertise and low-cost but high skilled techies, Infosys and Wipro had been ramping up their operations with a heady mix of onsite and offshore projects to provide best value to their customers.

Sensing the desperation of the Indian IT bellwethers in holding on to their market shares, their customers, especially in the US, have started calling the shots on billing rates with an ultimatum of sorts: "take it or leave it."

As rightly pointed out by Wipro czar Azim Premji, Indian software firms have to come to terms with the harsh realities of lower billing rates, margin pressures, and growing expectations of their clients who have become demanding due to reduced tech spending.

With three-figure growth rates in gross and net revenues becoming a thing of past, the Indian software sector is forced to operate in a challenging environment, what with global players like Accenture, EDS, IBM, and a host of others setting shop in India to reap the same cost advantage in outsourcing and service offerings.

It is no wonder Premji admitted that customers were demanding value for the price they pay. To survive and sustain, Infosys and Wipro are left with no choice but create that value either by raising to their customers expectations or by lowering the billing rates.

In short, as in the case of old economy, particularly in the fast-moving consumer goods sector, a tech customer has also become the king. What’s more, they demand higher value for lower price so that they can have the cake and eat it too!

Unlike in the case of the Nasdaq-listed Infosys, which continues to sit pretty on cash reserves of Rs 16 billion, the NYSE-listed Wipro, has been quick on scripting a long-term organic growth with three strategic acquisitions over the year so that it could not only offer end-to-end solutions to its demanding customers, but hold them under its umbrella with a vanilla service offerings in vertical segments.

What does the future hold? While outsourcing will continue to grow and expand as global IT customers will only stand to benefit from India s low pricing and unique skills, peer players like Infosys and Wipro will be forced to hard sell their wares (read cutting edge technologies) for retaining a grip in their respective turf.

It is three years now since the Indian IT industry has been reeling under global tech meltdown. The much-awaited revival continues to elude as unforeseen events and glorious uncertainties in a global village dash all hopes of a turn around periodically.

With war clouds in West Asia melting away, the massive reconstruction in Iraq, lower oil prices, and huge spending by the Pentagon are expected to kick-start the US economy, leading to greater investment in old and new economies.

(The author is a freelance journalist. Views expressed here are those of the author and do not reflect that of CIOL. He can be contacted at rainbow@now-india.net.in)