The Hindu Business Line : Levelling out

Regional differences in the relative daily rates that IT consulting service vendors charge to clients have started to diminish — with some exceptions.

THE regional differences in the relative daily rates that IT consulting service vendors charge to clients across North America, Western Europe, and the Asia-Pacific have started to diminish, although Japan, the UK, China and India offer notable exceptions to this global picture.

According to the latest report by global research firm Forrester, the IT consulting prices across all layers of the horizontal service stack have reached a record low as a result of continuously low demand and overcapacity on the supply side witnessed over the last two years.

"At the same time, the growing significance of the global economy in services markets means that regional differences in the relative daily rates that service vendors charge to clients across North America, Western Europe,and the Asia-Pacific have started to diminish," it said.

Stating that clients were more receptive to offshoring and the related price cuts that providers could offer on projects, Forrester said while rates continue to differ by region and provider type, the actual differences between particular countries are generally in the range of +/- 15 per cent.

"There are some notable exceptions to this global picture and to the rate normalisation phenomenon," it said, adding that the UK and Japan led the pack in terms of premium prices for consultants.

Senior consultants in these two countries can charge rates up to 30 per cent higher than those in the next closest markets — the US, France, and Germany, it pointed out.

On the other end of the spectrum, clients in India and China benefit from offshore rates. "Not surprisingly, clients in India and China pay 15 per cent to 20 per cent of the price charged to clients in developed countries. In these markets, however, specific skills gaps mean that providers sometimes rely on consultants from North America or Europe, resulting in the client accepting a premium charge," it said.

The Korean market is slowly starting to open-up to foreign competition, although the Government still sets pricing standards for IT services, it said. "Contracts must list the numbers of consultants at each level and their associated day rates. Two Japanese Independent Software Vendors (ISVs) also told us that their project pricing is not scoped by the consultants, but by an internal division," Forrester said.

It said that historically, language sensitivity in countries like France meant that clients insisted on onshore delivery; service providers would previously include travel and expenses (T&E) costs in the contract price, as most projects were delivered on or nearshore. "Now, for specific projects where skilled consultants are rare, their home base is not important, and clients accept that they will have to pay T&E on top of the negotiated contract price. This phenomenon is no longer only seen in Europe," it added.

Clients in North America tend to pay for the `brand'. In the new contract models being developed, service providers offered to share client risk for the right incentive. Both the providers and the clients that Forrester spoke with said that this recognition of risk and the need to `trust' the provider increased exponentially with the size of the project — or in the case of business intelligence and data warehousing, with the security and sensitivity of the data. Clients, then, turned most readily to established names like Accenture and IBM.

Forrester,which recently interviewed 361 users of systems integration services and 16 providers of systems integration services across the US, Asia-Pacific, and Western Europe said that while the daily rates for technical consultants at director level could touch up to Euro 3000 in Japan, the same in case of the UK was just below Euro 2,500, while for India and China is was far less than Euro 500.

moumita@thehindu.co.in

Picture by H. Vibhu

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