Despite Efforts Indian IT Firms Struggle to Hike Billing Rates
Date: Tuesday , June 01, 2010
The domestic information technology (IT) firms are grappling with several market pressures like wage inflation, subdued demand, rupee appreciation, and others. Amidst these strains tech vendors in India are in a row with their customers to dilute margin impacts from market forces by pushing up the billing rate by 10 to 15 percent, which is not easy.
Companies like Sonata Software and Infosys Technologies are having a tough time to convince customers to pay higher prices besides the prevailing optimism among the tech vendors and the improved guidance. “At Infosys, we're trying (to hike prices) but it's not working. The world economy is not like India's. Some Western economies may have come out of the trough, but still there is no growth. We are not really in a high-demand market yet," says Subhash Dhar, Senior vice-president and Head of the communications service providers (CSP) business unit.
Dhar pinpoints that uncertainty continues to plague the global economy. Most companies in the West set aside opex and capex spends for IT, just like they do for R&D. Last year, they utilized the opex budget, but capex was left untouched. When this capex is released, demand for IT services will go up and that could push up prices. As per Gartner data, financial services companies in North America spend the most on IT with an allocation of close to 8 percent of their total revenue, while airlines spend the least at 1.95 percent. Communication firms set aside six percent, construction five percent, healthcare four percent, and retail 2.5 percent. Experts feel that if at all any upswing in pricing occurs, it will not happen any time soon. Chandramouli C S, Director-advisory services, Zinnov Management Consulting says, “Rate revision by IT customers will not happen before 12-18 months.” According to him, till then, cost pressures would be taken care by increasing the scale of operations.