In their attempt to replicate the low-cost offshore delivery model, they now offer offshore work at prices that only Indian firms could offer a few years ago.
BANGALORE: Indian software players are seeing better prices to move work offshore, but in the low-cost, volume-driven game, the new competition on the country’s turf is from global IT rivals Accenture and IBM.
The two global computer service majors have scaled up their India presence significantly in the last few years. In their attempt to replicate the low-cost offshore delivery model, they now offer offshore work at prices that only Indian firms could offer a few years ago.
IBM, which committed itself to an investment of over $6 billion in India early this year, employs over 43,000 people in the country, while Accenture has a headcount of 19,000.
“Are we able to price competitively against Indian vendors? The answer is a categorical ‘yes’. We have sufficient footprint in India and other low cost centres,” Kris Wadia, partner, global delivery network, Accenture told DNA Money.
He said Accenture had built capabilities in application services and maintenance in India, hitherto the cash cow work for local firms, which are slowly moving to higher-end work and earning a premium.
Analysts say the confidence of customers has increased, enabling major Indian vendors to bag offshoring deals of over $50 million, while seeing 3-5% increase in prices. Average rate charged by Indian vendors for offshore work is around $25 per hour while it is about $150 per hour for onsite work.
Multinational vendors are competing on rates for offshoring work through a combination of high-end consulting and volume-driven pricing strategy.
“With the scale that IBM and Accenture have built in India, they are getting competitive in pricing. They can bring their price down as investor expectations are less, a return of 10% margins than an Indian vendor, where the expectations are higher at 20%,” Siddharth Pai, partner and managing director of sourcing advisory firm TPI India said.
IBM was not categorical on its pricing strategy, but said it was focussed on delivering client outcomes beyond cost efficiencies both in the commoditised services space and in the high-value transformation services arena.
Tata Consultancy Services last week said contract renewals were happening at 3-5% more than average prices, while Infosys has seen price increases at 3-4% for deal renewals of existing clients.
“They can’t quote lower prices beyond a point,” TCS CEO S Ramadorai said, when asked about its global rivals pricing offshore work lower than Indian companies.
“Despite the talk that Indian vendors would be supplanted by global majors, tier one Indian vendors continue to take business from legacy service providers, and to demonstrate tremendous power in creating value,”
Forrester Research vice-president Stephanie Moore said in a report released on Thursday.
Forrester said Indian firms would continue to grow - not just because they are a lower-cost option, but because they have caused a ‘fundamental’ and ‘structural’ change in the service provider-client relationship.
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