IT vendors facing pricing pressure

Today’s Business Line has a news item titled “Mid-size IT cos face greater pricing pressure“.

The report highlights the challenges faced by small/mid-size offshore IT service providers and how odds are stacked against them while competing with large full service players. These challenges include – increasing pricing pressure, risky client concentration, rising sales costs, poor winning ratio of new deals and unfavorable position in vendor consolidation.

Well, here is my take. Pricing pressure is prevalent in this economy for every vendor- small or large. If the services offered are mundane with no niche skills or value-add services involved, it would be tough for vendors to resist the downward pricing negotiations.

On the rising sales cost, the vendor scrutiny is getting tighter and sales cycles are getting longer. On top of this, more effort and time is needed to be spent on customer relationship management to better retain existing and/or to win new business. These factors would obviously add to the sales costs.

Vendor consolidation may not always work against the small vendors. In cases where the small vendor has the specific niche skills and leader in the specific service line, the vendor consolidation may even favor the small vendors in those service lines. Low-entry barrier services and bottom of the value-chain services are commoditized. In the commoditized services the small vendors may not have any differentiators to distinguish them from the large full service players and would be at the losing end.

I see this as a clear warning bell for all the service providers. Service provides will do well to heed to these red flags by Creating expertise in niche areas, Adding innovative solutions, Investing in IP creation, Moving up the value chain and Stepping-up the entry and exit barriers. Are the service providers listening?

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1 Response to “IT vendors facing pricing pressure”


  1. 1 Natarajan February 9, 2009 at 5:55 pm

    Dan,
    it is nice to see all your great experience in blog format.
    Keep doing good job.

    -Natarajan


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© Dhandapani Ammasai, 2011. Unauthorized use and/or duplication of this material without express and written permission from this blog’s author is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given with appropriate and specific direction to the original content.

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