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'IT service providers raising embedded prices'
By siliconindia
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Saturday, 29 March 2008, 02:31 IST
New Delhi: Indian IT service providers are injecting price hikes through measures such as increase in the hours charged and placing currency fluctuation risks on clients to maintain margins, which have been reeling under the stress of rising cost and rupee appreciation, says Forrester Research, reported Business Line.
"As costs in India rise and the rupee appreciates against the dollar, the pound and the Euro, Indian service providers are struggling to maintain profit margins. While the hourly rates have gone up only slightly, important price increases are often embedded elsewhere," Forrester's recent report 'Understanding Indian Providers' Margin Defense Tactics' said.
"Unlike the past when Indian providers often charged a set number of hours per week, regardless of the number of hours their billable staff worked, they are now beginning to either increase the number of hours charged on a weekly basis or simply charge for the actual total hours that staff are working," the report said.
According to the report, while providers were trying to present their rates as being relatively stable, clients may see big annual increases masquerading as 'cost of living adjustments.'
"Recent competitive bid situations highlight the fact that there has been a larger increase in on-site rates and extreme variability in these rates. In a competitive bid situation, Forrester has seen them range from $55 per hour to $100 per hour for the same service. Providers are trying to put some of their cost increases into this rate category, which seems to be scrutinized much less than the offshore rates. However, onsite staff is a significant expense ? even if the client's engagement uses only 80 percent offshore and 20 percent onsite ratio, the bulk of actual spend is for the much more expensive on-site resources," the report added.