Indian outsourcing firms have had a major impact on the industry, especially on pricing, but also in some areas of innovation. Yet when it comes to negotiating with their potential clients, they are struggling to keep pace with providers from North America and Europe.
IACCM recently undertook a survey 'Negotiating with IT Service & Outsourcing Providers', which gathered comparative data on the largest providers. Three of these are from India, seven from Europe and the remainder from North America. Each region has distinct characteristics, though with some blurring between common law and civil law jurisdictions.
Most IT service and outsourcing providers appreciate the critical role that negotiation plays not only in winning business, but in ensuring that it is good business. However, our latest study reveals a growing divide in this appreciation and also in the way that negotiation is being handled. The twelve suppliers included in the study fall into three distinct groups:
- The collaborators: a group that appreciates the importance of working closely with their customers to agree shared goals and objectives and to establish terms and conditions which support likely success. These firms focus increasingly on internal enablement and empowerment and are more likely to be based in Europe (though one US provider has entered this group and a second is on the margin).
- The adversaries: a group that continues to see negotiation as a battle over risk allocation and operates with relatively rigid policies and principles. Some of these firms struggle because they have few 'standard' offerings and therefore each contract is intrinsically more risky; others are influenced by the more litigious – and legally-driven – culture of North American business.
- The opportunists: a group that focuses on 'win first, worry later'. Contract terms are rarely allowed to be a barrier and resources applied to contract negotiation are limited. These firms are either very easy to do business with (they say yes to almost anything), or very difficult, because detailed answers are hard to extract. While Indian providers tend to be in this group, it is also typical of finance-led organizations which have entered the market to take advantage of public sector outsourcing.
In many ways, these variations reflect the behavior of potential customers. The sophisticated buyer increasingly understands that value is not the same as the lowest price and that cultural alignment is important. Others try to drive performance through adversarial negotiations and unbalanced risk allocation, often using a third party as their interface to the supplier. And there are, of course, the commodity buyers – those for whom getting services cheaper is the core objective.
Indian providers appear to do well in winning and performing on relatively standardized business. Their low labor costs are increasingly supplemented by efficient use of technology to deliver better pricing and reliable performance. But in situations demanding a greater appreciation of customer needs and a more adaptive capability to deliver innovation, the survey suggests that they do not inspire confidence.