TCS, Infosys, Wipro margins to fall as US outsourcing customers like Walmart, Home Depot, cut rates

[OhioChick]

TCS, Infosys, Wipro margins to fall as US outsourcing customers like Walmart, Home Depot, Cisco, Ericson cut rates

11 Jul, 2011, 07.03AM IST, Pankaj Mishra,ET Bureau

BANGALORE: After years of scorching profitable growth, Indian tech firms are being asked by top outsourcing customers to reduce rates for back office and software work by up to 15%, threatening to erode their high profit margins. While new business from customers seeking to give away noncore IT work will continue to grow at 20-30 %, company officials , customers and outsourcing consultants say this growth is coming at lower rates.

As America's top outsourcing customers aim to restore profits amid rising oil prices and weak consumer demand, they are asking Indian tech firms to do more with less - billing rates for back office, software development and maintenance projects are already down by up to 15%. Over the past few months US retailers Walmart and Home Depot , apart from Cisco , Ericsson and insurance firm AIG , have cut rates that could see profit margins for TCS , Infosys, Wipro and others fall by 1-3 % this quarter. "There are no holy cows in the business now - even Accenture and Infosys are thinking twice before letting a large, lucrative project go to rivals offering lower rates," said the CEO of a big India-based outsourcing firm.

Unlike in the past, when a fraction of rising salary and other operational costs were passed on to customers , clients are now refusing to share any burden citing low demand in their own businesses. Indian IT firms' 'pyramid model' - wherein lowcost , fresh engineering graduates are pumped into the system every year to deliver projects at nearly 30% profit margin - is under pressure as salaries rise. "We're seeing everything from 0-20 % depending on scope, age of deal, industry, etc.

The older the original rates, the more likely you are to see a large percentage drop - some rates that have not been negotiated since before 2008, for example, could see double-digit reductions," said Esteban Herrera, COO of US-based HfS Research , which advises customers on outsourcing. These rate cuts are happening for commoditised maintenance kind of projects, and there are still certain projects that are immune to such price cuts.

More: http://economictimes.indiatimes.com/tech/ites/tcs-infosys-wipro-margins-to-fall-as-us-outsourcing-customers-like-walmart-home-depot-cisco-ericson-cut-rates/articleshow/9180107.cms

:nopity:

[BeFree]

1. Wow. It just occured to me

Anonymous may largely be all the laid off Indians who having had a taste of the good life and being laid off for the less expensive, are seeking revenge.

[ChromeFoundry]

2. Couldn't be..

Anonymous code actually works. It does what it's supposed to do.

:rofl:

[BeFree]

3. Touche'

[Skittles]

4. LOLOL

they'll be TOAST if they are held accountable for actual QUALITY :rofl: