A Global Pricing War in the IT Industry
Accenture Fires First Salvo In Pricing War With Indian Firms reads the headline of a recent story published in Financial Express. The global technology giant has agreed to go "toe to toe" with the top tier outsourcing firms from India.
My first reaction to this is shock. How could Accenture even make such a claim?
Part of it rests on how they plan to match up. The strategy is to charge lower than offshore companies for lower cost work, and higher for higher cost work. Accenture already has a force of 8000 offshore. It plans to increase this to 25000 within the next three years.
It is common knowledge that offshore companies work with thick margins. This is made even more clear when negotiations begin. Asking a second or third tier company for a price quote and the response will usually be $15-20/hr. Apply the slightest bit of resistance, and the prices will drop 40% or more
The labor markets in India are not as developed as they are in the United States. Additionally, the technology is experiencing a rapid growth spurt. As a result, it is not uncommon to find a wide fluctuation in the compensation of engineers across the country.
How will this big game play out? It's hard to tell who will win. However, smart companies will act quickly in developing new software products. The cost of development is decreasing quickly, while our dependence on technology is increasing. The real winners will be consumers and the clever companies that serve them.
related stories, by category:
