IT outsourcing services prices coming down

Prices of IT services in outsourcing could to shrink by 5-20 percent during Q2-Q4/2009 – a trend that will continue into the following year. Analysts at market-watcher Gartner say that IT outsourcing prices are likely to decrease during the next two years due to the economic climate, IT budget constraints, and general market dynamics.

Gartner said that this fall in prices will occur due to increasing competition in the market between traditional and new providers, as more providers compete aggressively to keep revenue growth on target while ensuring margins. Cost-focused buying motivations will be a key factor behind the reductions for IT infrastructure outsourcing services from 2009 to 2010, with a great variability based on each single deal.

Many clients are reporting intense discussion with their vendors and renegotiation of contracts for terms and conditions, Service Level Agreements (SLAs), fees, volumes, and low-cost offshore delivery locations, Gartner suggests. To estimate the agreement on the potential price impact, Gartner analysts started from measures (price points, benchmarks) of the price reductions associated with the last recessionary period (2001 to 2003), and added current trends and current price/cost measures.Then, a panel of analysts agreed on the reported price trends for 2009 and 2010 in North America and Europe.

The Gartner analysts next calculated the percentages based on the economic pressure or recession, and other applicable trends, including industrialization of services, clients' SLA/T&C renegotiations, and offshore service dynamics.

According to Gartner vice president and distinguished analyst Claudio Da Rold, Indian offshore providers have been coming under "significant pressure" for pricing reductions because of the Mumbai terrorist attack, the scandal at Satyam, rupee exchange rate fluctuations, and continued wage inflation and attrition levels.

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