Strategic CIO // Executive Insights & Innovation
Commentary
10/18/2007
09:28 AM
Bob Evans
Bob Evans
Commentary
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Two Pricing Puzzles: The Risk Of The Rising Rupee, And Free Cyberexorcisms

What's the right price for an IT service? Based on some overnight news releases, this question is vexing IT service companies around the globe. For rapidly growing Indian service companies, the issue is how to continue making a profit on U.S. contracts while the Indian rupee surges in value against the dollar. Meanwhile, two U.S. cybersecurity firms have decided that the key is to give their services away -- well, at least for a day.

What's the right price for an IT service? Based on some overnight news releases, this question is vexing IT service companies around the globe. For rapidly growing Indian service companies, the issue is how to continue making a profit on U.S. contracts while the Indian rupee surges in value against the dollar. Meanwhile, two U.S. cybersecurity firms have decided that the key is to give their services away -- well, at least for a day.Let us first deal with the cyberexorcists: "CyberDefender will exorcise your computer demons with free tech support this Halloween," says a news release from the security-software company. The company goes on to say that it "is giving away a free day of tech support to anyone who calls" its 877 number, with services covering a range of security-related problems. It makes one wonder: Will callers have a ghost of a chance of getting through? Will the internal techies be terrified at the endless zombies they'll unearth? Will this strategy turn into more of a trick than a treat for customers?

Moving on to the loftier plane of global currency fluctuations, IT consultancy and research firm Butler Group says the rupee's 12% rise against the dollar in the past year will make it difficult for service providers such as Wipro, Tata Consultancy Services, HCL, and others to sustain acceptable profit levels without raising prices. Acknowledging the importance of the low prices Indian service companies have traditionally offered, Butler analyst Alan Rodger said that if those firms need to raise prices due to the weakening value of the dollar relative to the rupee, "some businesses [might] question the financial advantages."

"However, the vast majority of outsourcing contracts between western countries and India are in, for example, U.S. dollars or U.K. pounds, therefore it will be the India-based providers that will suffer the immediate effects of this situation, rather than the customer organisations. This is understandably one of the reasons that has made India a popular outsourcing destination in the past -- the ability to protect against the rising cost of the rupee."

Rodger predicted that because many Indian service firms have demonstrated over time the ability to deliver solid business value even as customers' needs have shifted, many customers in the U.S. and U.K. would stick with them even if prices were increased.

"However, even if prices should rise marginally when these contracts are up for renewal, it should be remembered that the quality of the talent available in India remains extremely high and the infrastructure improves on an almost daily basis, and for many these and other factors will continue to make India an attractive place to continue to do business with."

It was all so simple back when the old bromide of "charge what the market will bear" held steady. The problem is that in today's highly dynamic global economy, what the market will bear changes constantly. Accordingly, we'll continue to keep an eye on pricing here at CIOs Uncensored.

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