Some of India’s top technology companies are slashing prices for marque clients, raising fears of irrational pricing becoming the norm in traditional outsourcing deals as clients shift to newer technologies such as cloud computing.

Top executives including the chief executives of Infosys, Wipro and US-based have acknowledged that the deep price cuts being offered to select customers such as General Electric and Citigroup are cause for concern.

Experts said the latest pricing war is a result of the large-scale shifts happening across India’s $146-billion IT services industry, as more clients ditch traditional servers in favour of cloud computing and opt for pay-per-use models.

Cognizant president Gordon Coburn said on a conference call with investors that the company had come across “irrational pricing” by some IT firms and was not concerned by it.

“These spots of irrational pricing (are) consistent with what we have seen historically in the market, as there have been big technology shifts. And some players are having trouble with that shift, and therefore act irrationally in their core market,” he said.

Overall pricing, though, remained stable as only companies largely dependent on traditional businesses were resorting to deep discounts, Coburn said. “We believe this is a short-term phenomenon… Often, when you see these sorts of unrealistic assumptions about productivity built into bids, what you see is players shore up their profitability by cutting corners. And historically this has resulted in unhappy clients.”

The real concern, analysts Viju George and Amit Sharma of JPMorgan India said, was if the core of traditional IT business was evaporating quicker than expected and whether newer digital businesses could make up for that shortfall.

 “The real worry this time around is whether the traditional core behaves like a melting iceberg pulling down overall growth while we wait for the full digital opportunity to unfold (including broader system integration) with a lag,” George and Sharma said in a November 6 report. Companies that are more exposed to traditional businesses such as application development and maintenance and infrastructure management are more at risk, they said.

On recent earnings calls, the CEOs of Infosys and Wipro also called out concerns over pricing wars and said that the number of large deals in the traditional outsourcing market were evaporating fast.

Infosys CEO Vishal Sikka said on the company’s latest post-earnings conference call that the “pricing environment for traditional services continues to see downward pressure.”

Wipro CEO TK Kurien, on a conference call with analysts after the company’s latest quarterly results, said, “We continue to see strong competition around large deals, and there’s clearly pressure on pricing with respect to new deals. The deal sizes are getting smaller and the number of multi-hundred million dollar deals have clearly reduced in the marketplace.”

Source: ToI

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