INDIAN IT FIRMS HOPE TO HOLD PRICE LEVELS STEADY, UNLIKE 2001

By Vishwanath Kulkarni, BangaloreMint

Indian software vendors such as Infosys Technologies Ltd, Wipro Ltd and MindTree Consulting Ltd say they expect to maintain prices for customers in the US, the largest market for IT services, where a potential economic slowdown looms large. These vendors say they are more mature now than during the 2001 meltdown, when firms lowered prices to retain or win customers. Also, they expect to turn more aggressive in acquiring skills and assets, which may come cheap when, and if, the slowdown unfolds. “We would like to be more cautious with our pricing strategy this time,” says K.R. Lakshminarayana, chief financial officer of Wipro Technologies. So far this year, neither Indian IT vendors nor their US customers have admitted to any slowdown.

Uncertainty, however, looms large and it is widely perceived that pricing could come under pressure as 2008 IT budgets are expected to stay flat. Forrester Research last week declared that IT spending in the US next year would only grow by 5% compared with 8% it had forecast. A clearer picture is expected to emerge over the next two to three months. During the 2001 slowdown, Indian vendors, under pressure to sustain growth, experienced a steep fall in prices as customers used the situation to negotiate hard. “Hopefully, as an industry, we will not fall prey to the pricing pressure,” Lakshminarayana said. “We don’t want to lock ourselves into bad contracts with customers this time.” Typically, slowdowns have lasted for a few quarters, but “the rebound is in the form of huge volume growth.

During good times, prices went up by 3-4% per annum, but we saw a decline of 10-12% in 2001. Volume is easier thing to catch up than price,” adds Lakshminarayana. In a bid to sustain its growth, Wipro has been focusing on verticals and geographies that were less immune to a slowdown such as the non-financial services sector in Europe and manufacturing sector in the US. Sabyasachi Satyaprasad, director-research at neoIT, an offshore advisory firm, said he also didn’t foresee a steep price cut like the one witnessed in 2001. This is primarily because the industry has seen a sequential price increase over the past five to six quarters. The 3-9% year-on-year price increase is not sustainable. “Pricing may stay flat, while pressures for reduction could mount,” he said.