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Why the recession isn't driving outsourcing prices down

The common perception is that IT outsourcing prices are heading south this year, to the benefit of customers everywhere who are clamoring to cut costs in this economic environment. But hold off on the Hallelujah chorus. Here's why you may actually pay more to--and get lower quality from--IT services providers today.
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There has been much discussion about the global economic recession's impact on the price of IT outsourcing services. The consensus has been that buyers keen to cut costs coupled with decreasing demand for IT services would drive prices down across the outsourcing market -welcome news for IT executives under pressure to slash their budgets while maintaining quality.

Indeed, according to a report from outsourcing consultancy EquaTerra, 76 percent of outsourcing service providers said that pricing pressure had increased during the first quarter-a jump of more than 30 percent from the previous quarter and last year. And while customer pricing pressure does not necessarily equal provider price slashing, Garter had predicted that IT services would decline in price anywhere from five to 20 percent, depending on the type of work, over the next year.

Gartner vice president and research director William Maurer notes that while 2009 pricing analysis is just beginning, those predicted percentages are on target thus far.

But outsourcing experts say the price decreases aren't necessarily a direct result of the recession, nor are they happening industry-wide. In some cases, prices aren't falling at all; customers are just paying for fewer or lower quality services.

"Making a blanket assessment of falling pricing levels is generally inaccurate and misleading," says David Brown, EquaTerra's managing director of financial architecture. "Prices have, in general, declined, but it's very situational to specific service providers and specific buyers."

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More about: Gartner, IBM
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