Info-tech

IT firms under pressure as shift to digital pushes up demand for talent, staff cost

KV Kurmanath Hyderabad | Updated on July 28, 2021

As face-to-face meetings up as firms gear for project renewals and seek new projects, there is scope for increase in pricing

Bharani K Aroll, Chief Executive Officer of IT solutions company Infopeers with 200 employees, is currently in the United States to talk to his clients.

“I’m going to meet a few of my customers, CXOs of their companies, in the next few days to discuss the ongoing projects, and initiate talks with prospective customers,” he told BusinessLine over phone.

After a hiatus of nearly 15 months, IT firms have seen a revival in meetings with clients, which holds the key in clinching new deals. “All these months, the IT firms have interacted with clients over phone or over virtual platforms. But what you need is direct one-on-one meetings to discuss issues in detail,” he said.

As they gear up for project renewals and seeking new projects, the IT firms see a scope for increase in pricing.

With cost of employees going up significantly and demand for digital technologies shooting up, the IT firms see there is a good reason for them to ask for a better pricing from their clients.

Niranjan Chintam, Chairman and Whole-time Director, Kellton Tech, says international discussions are happening within the organisatins and across the organisations on the issue. “The market conditions are crazy going by the increments that the companies are giving,” he said.

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“We have not reached that point yet but we may be close to that point. The demand for services and talent is growing significantly, while we witness shortages in supply,” he said.

Persistent Systems Chief Financial Officer Sunil Sapre echoes the view. “Earlier digital transformation was a kind of discretionary option. Post pandemic, it is not discretionary. Organisations across verticals need it to open a new revenue channel,” he said.

“They have benefited from the work done on this front from offshore. The clients would appreciate (on the need for increasing billing price) to get quality manpower,” he said.

The industry admits that there is a pricing pressure in terms of the ability to attract talent. Top executives admit to the fact there is a pressure on the margins and there is a need for an increase in pricing.

Opportunity

Mohit Jain, an IT research analyst with market research firm Anand Rathi, felt that there is an opportunity (for price increase) in new contracts or assignments.

“Midcap companies are talking about it being used as a lever for margins,” he observed.

Most of the companies, according to him, are talking about steady pricing environment for two reasons. “Contracts are driven by MSAs (master service agreements) and it is usually difficult to revise that for short term spikes,” he felt.

“Repeat business is high with business relationships running for years. Competitive intensity is still high and growth rates are uneven,” he said.

Replying to a question, during an earning call, on whether the company was pushing for a price increase, Tata Consultancy Services (TCS) Chief Executive Officer Rajesh Gopinathan said the company’s pricing strategy was built on fairly long-term relationships with customers, and “is not very volatile to specific demand trends”.

Published on July 28, 2021

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