IT firms seek higher volume of work from clients amid price discount demand

As an outcome of such price negotiation, industry watchers said vendor consolidation has started to happen in the marketplace as clients are shifting projects from smaller players to larger firms
Amid Covid-19 crisis, clients and IT services firms are engaged in intense negotiation on pricing front. According to sources in the know, while clients are asking for 10-30 per cent pricing discount, IT firms are demanding higher volume of works to compensate for the revenue losses in the short term.

“Number of requests coming for deduction in billing rate is less in number for us but some clients are approaching us, saying that they have cash flow problem and can we change the payment schedule. (In turn), we are asking the client that whether it can bundle some other (related) works and give more business to us. This approach is beneficial for both of us,” said Keshab Panda, CEO of L&T Technology Services (LTTS).

The export-driven IT services industry is going through tough times as many clients have been forced to close their establishments globally as part of the containment measures to check the spread of the novel coronavirus disease. Especially sectors such as travel and hospitality, aviation, retail, automotive, and manufacturing are in trouble due to halting of operations. This has led to delays in renewals of new projects to cancellations of ongoing outsourcing projects.

Estimates suggest that around $6 billion worth of deals up for renewal have been deferred owing to the pandemic in the past two months. Such situation has also created cash-flow troubles for many enterprises globally, which have started to seek delayed payment term from IT vendors. "While most companies are reducing price, bigger firms are asking for higher volume to compensate for the loss,” said Pareekh Jain, an IT outsourcing advisor and founder of Pareekh Consulting.

As an outcome of such price negotiation, industry watchers said that vendor consolidations has started to happen in the market place as clients are shifting projects from smaller players to larger firms. “Vendor consolidation is certainly happening. We have got calls from customers to take over work that was previously done by smaller vendors. We are even getting offers from clients to take over their captive centres," Panda of LTTS said.
Sources in the know said most vendor consolidation is happening in travel and hospitality, and automotive sectors.

During the post-earnings analyst calls, the management of large IT services firms, including Tata Consultancy Services, Infosys, Wipro, and HCL Technologies, have highlighted the pricing pressure seen in the market, but also showed optimism to gain market share on the back of shifting of projects from smaller to larger firms.

Even subsidiaries of global technology firms have said many new deals were coming their way during the past two months.
"Certainly, customers are coming to us and we are responding to that. But, it is hard to say whether there is vendor consolidation or not," Vikas Arora, vice-president (cloud and cognitive software and services) of IBM India & South Asia, told Business Standard.

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