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Indian IT firms hike 5 percent in pricing for outsourced contracts

By SiliconIndia | Tuesday, 22 March 2011, 04:14 Hrs | 2 Comments

Indian IT firms hike 5 percent in pricing for outsourced contracts

Bangalore : Ever since the wave of Lehman crisis hit the market, companies have not seen an increase in their pricing. Various projects were shelved and recession showed its impact on the world market. This crisis did not leave any space for the companies to be volatile with their pricing. But today the present scenario of Indian economy is different and hence it can take the risks of restructuring the industry and pricing. Rising inflation, wages and attrition are some of the reasons for driving up billing rates for outsourcing contracts.

Driven by higher salary costs and improved business environment Tata Consultancy Services (TCS), Infosys, Wipro and HCL are beginning to see an uptick of up to 5 percent in pricing. Companies like Citibank, JPMorgan, Telstra, Wal-Mart and American Express have come up to 1-3percent higher rates as compared to what it was three years ago in relation to the larger contracts outsourced by customers.

The Indian IT players have always followed the per employee, per hour billing model. The pricing was decided on the basis of number of hours contributed by each employee involved in the project. Last three years, pricing has been a complicated issue for the IT firms.

Today the outsourcing clients have also been taking India's high inflation into account to give price increase. IT contracts will come with a clause that allows for fluctuations in pricing. A report released by CLSA, a brokerage firm said that with 4-6 percent revenues in any year from new business, it should add 40-50 basis points year-on-year to portfolio pricing. Hence next financial year would be able to get a 1.5-2 percent year-on-year pricing increase.

The last few years Indian IT players have been trying to move to a non-linear one where pricing is outcome based or fixed. This will help companies to provide more and more high - end services and dictate better prices.

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