Outsourcing Price War: Infosys, Wipro under pressure to drop prices to retain...
Release time:2017-03-24

Outsourcing Price War: Infosys, Wipro under pressure to drop prices to retain...

Outsourcing Price War: Infosys, Wipro under pressure to drop prices to retain clients like Amex, Home Depot

Top software service exporters are under pressure to drop prices to retain contracts with marquee customers such as American Express and Home Depot that are up for renewal this year, according to executives and experts involved in the contract negotiations.

Rates have fallen by double digits for some of the biggest customer accounts in the past six months, with companies such as Infosys and Wipro sacrificing profit margins to gain market share and incremental revenue from these key accounts, they said. Retaining strategic outsourcing contracts - that generate at least $100 million annually - is crucial to top IT firms such as TCS, Infosys and Wipro for them to be to mine such accounts that could increase in scope over the years.

"We're definitely feeling the heat in some of our key accounts - and there's no way we can afford to lose a top customer since gaining new logos to make up for the shortfall is not an option," said a Wipro executive, who requested anonymity.

An executive at another top IT firm, also declining to be identified, said as traditional businesses have become commoditised, no company could afford to charge a premium.

"Top customers are more aware now of the changing dynamics in the market and are taking the opportunity to negotiate multi-million dollar contracts at lower prices," this person said.

Experts tracking the contract negotiations said prices could drop further over the next 3-4 quarters.

"It's become a dog-eat-dog business more than ever," said Phil Fersht, chief executive of outsourcing advisory firm HfS Research. "There is a clear downward pressure on all IT services pricing. We estimate this is a 3% price decrease per FTE (full time equivalent) per deal, on average, over the last 6 months."

TCS, Cognizant and Infosys declined to comment for the story.

Infosys, TCS and Wipro are increasingly automating commoditized businesses like infrastructure management to improve margins but are forced to pass on a majority of the benefits to key customers such as Bank of America and Citigroup.

"We are seeing big price movement, some of it betting on increased maturity of autonomics. TCS, Wipro and Infosys have all signaled their move away from (automation company) IPSoft and towards internally developed autonomics solutions. I assume that this will give them more pricing flexibility than they were getting with third-party software," said Bill Huber, a former IBM executive and managing director at outsourcing advisory firm Alsbridge.

For Infosys and Wipro, which have lagged average industry growth rates over the past three to four years, gaining market share at the cost of margins seems to be their best option in the near term to revive double-digit growth rates.