Indian IT giants target fixed-price projects for profitability
MUMBAI, INDIA — Indian tech giants are turning towards fixed-price contracts to boost profit margins amidst a global reduction in outsourcing budgets, according to a report from The Economic Times.
Industry analysts explained that large service providers could benefit from fixed-price projects due to their profound domain expertise and the potential to maximize cost efficiencies via automation and increased fresher utilization.
They warn, however, that intensifying competition on pricing could constrain margin growth. They also point out that the ability to enhance margins is multifaceted and not purely contingent on the pricing model.
This strategy diverges from traditional time and material deals, which hinge on variable resource deployment. Instead, fixed-price projects offer improved cost control, facilitate automation, and promise stability in profit margins.
Top Indian software firms, Tata Consultancy Services (TCS) and Wipro, have persevered to maintain their margin performance in a relatively static pricing environment, largely due to enhanced utilization. While the rate of deal closures has slowed down, the drive remains strong.
TCS CEO K Krithivasan highlighted that fixed-price projects deliver improved margin control. However, he stressed the importance of adding customer value during the shift from time and material projects to fixed-price contracts.
Meanwhile, WIPRO remains optimistic despite experiencing a decline in its operating margins in Q1. Wipro CFO Jatin Dalal projected an operating margin above 16% in the medium term, with onboarding freshers, automation, and utilization improvements as key supporting pillars.
