Indian outsourcing companies forced into price cuts

After years of seeing a buoyant services market, India’s top players are suffering.

According to the Economic Times, back office and software work is hardest hit, where potential clients want to see prices knocked down by around 15 percent.

American companies are driving the trend with customers such as Walmart, Home Depot, Ericsson and AIG all trimming rates and giving work to competitors, who offer deals better than the big Indian companies.

There is a domino effect on top Indian outsourcers such as Wipro and TCS, which will see their profits fall by around one to three percent this quarter as a result.

The Indian outsourcing market has also been hit by companies moving their operations back to their own countries.

Only last week, Santander decided to fly its call centres away from India. The PR reason given is that there were too many complaints about services

Others will follow suit as prices in India continue to climb.

The price of outsourcing in India has risen for a number of reasons. Firstly, it is to combat the rising costs of staff salaries, which according to Esteban Herrera, chief operations officer of US-based HfS Research, have risen by 10 to 15 percent over the past few years. He added that salaries of engineers with three to six months experience had also risen by 40-50 percent compared to the pre-recession 2008 levels.

Other companies are also adding on “extras” in a bid to recover lower price quotes.

It’s not all doom and gloom if Gartner’s predictions are to be believed. Back in April this year, analysts said that the business process outsourcing (BPO) market in India will continue to boom well into 2014.

The sector, which saw a 28.6 percent increase from 2009 and managed $1.139 billion in 2010, will be driven primarily by increasing volumes in existing BPO engagements, clients expanding the scope of existing BPO relationships, and a number of new BPO deals.

It added that the market will grow by $1.69 billion market by 2012 and increase to $2.47 billion by 2014.