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    Reverse Auctions as a Niche Trend


    With the competitive pressures for large firms such as Infosys and Tata Consultancy Services, some outsourcing clients are asking software firms to bid for low-end application development projects and back-office services to reverse auctions. Reverse auctions bring down billing rates by up to 40 percent in some cases and 10-15 percent on average for settled outsourcing customers like General Electric and even some new small to mid-sized outsourcing clients in the Middle East, Europe and US. Also in the reverse auction, peddler of outsourcing services are asked to challenge others for a portion of a software or call centre project, contradictory with the ordinary auction where auctioneer compete to purchase services or goods.

    Outsourcing companies try and outbid together with other seller over the Internet, bringing down the rates quickly during the procedure as this auction uses specialized software advancement. For an instance, clients ask tech firms to bid in the actual time beyond the Internet rather than releasing of request for proposal, assigning an outsourcing consultant and afterwards going through different rounds of choosing an outsourcing vendors. By making an easy way, it help them to save time and completion costs. A sales executive of one of the toptier Indian technology company said that this is not a mainstream trend, and it will never look like it will ever get there.

    For a meantime, because it’s still a niche trend and currency variation will absorb most of the pricing pressures in the promising year. He requested obscurity since he did not want to bothered his clients. Aside from that, he added that when banks and clients like GE put out a quarter of their budget for bidding through reverse auction, after the 2008 Lehman crisis they saw some shades of that trend. Between outsourcing sellers, 75 percent of projects with the overall contract value of over $5 million have some element of reverse auctioning based on the founder CEO of sourcing advisory firm HfS Research. Phil Fersht. He added that he can see sit only expanding in the next several years as far as they have continually supported by many suppliers. As buyers gained many experiences at procuring IT labour for project work, that is more likely commonplace nowadays. According to Partha Iyengar, vice president and regional research director India at Gartner, that this flow is earning visibility due to economic slowdown. He said that applying reverse auction to outsourcing could be too risky for customers as they tend to be less accurate in selecting sellers in this mode. Apart from that, Iyengar added that most consultants are trying to tilt this as a separated tool that bring prices down unusually.

    Not all software firms are eager to enter a battle for projects put under reserved auctions. According to a senior executive at one of the top three Indian tech firms, one of the clients, a US bank continuously working with them with other contracts. They have walked away from three such projects in past six months. Fersht of HfS Research said that from few of these low-cost firms and the clients chose from second-tier providers, they are already visualizing as top-tier providers. Trends like reverse auctions warn profit margins, for India’s over $70 billion IT industry who are trying to cope with economic crisis in the top markets of the Europe and United States. Work-quality of the employees will lessen, margins will reduce if the outsourcing industry continue to ride with the cycle where the lowest common denominator wins, said by Fersht.




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