CIOs are squeezing their existing and future suppliers for more
value as the devaluation of the pound against the US dollar and the
euro lead to massive increases for computer hardware.
Anson Chuang is CIO for the specialist IT procurement agency
BuyingTeam, which negotiates IT supply contracts for firms such
as British Airways, the British Council, Channel 4 and Universal
Media. He said the devaluation has not affected software and
outsourcing contracts yet, but US-based suppliers were putting
through massive price hikes, blaming currency values for 25% of the
difference from a year ago.
According to the X-Rates.com foreign exchange website, it cost
Brits 50.76p to buy a dollar and 74.71p to buy a euro in January.
Today the figures were 88.42p and 66.89p respectively. This
reflects falls of 32% against the dollar and 18% against the
euro.
Charles Ward, chief operating officer for
Intellect, the suppliers
trade body, said the devaluation would result in winners and
losers. "On the negative side we might see an increase in the price
of IT equipment, if suppliers chose to pass on the increased costs
of importing," he said. It was unlikely to affect prices at the
low-end of the market, he said.
David Roberts, chief executive of the
Corporate IT Forum, said the
very large firms' prices would be affected by their hedging
strategy. "If they are trading in sterling they will have to pay
more, but if they are in receipt of dollars, they may have more
flexibility," he said.
Alan Bowling, chairman of the SAP Users Group, which this year
faced down attempts by the software firm to raise maintenance
pricessaid IT departments had to check their services contracts
with their suppliers. "A home-based contract in UK currency will
likely be unaffected immediately by any currency fluctuations," he
said.
Chuang said he was seeing more suppliers with long term deals to
supply consumables such as desktop computers defaulting on their
contracts. "It depends on the penalty clauses in the contract, but
if they cannot supply (at the agreed price), they will not supply,"
he said.
To protect themselves against currency fluctuations suppliers
were slashing the period for which their quotations were valid.
"The quotes were usually valid for 60 to 90 days," Chuang said,
"now it is from 14 to 45 or 50 days."
CIOs are fighting back by extending the refresh rate of their
hardware from the usual three years to four, said Chuang. They were
not cutting their gross budgets, but they were asking for a lot
more for their money, he added.
His firm was receiving more enquiries than usual, he said. "CIOs
were quite protective about their internal procurement staff, but
they are now turning to anyone who can help them get dramatic
increases in value," he said.
So far the outsourcing sector appeared unaffected by the
devaluation. This was partly because many of them are done in local
currency, with the risk left with the supplier's internal price
transfer system.
IT functions outsourced abroad may face greater economic risk
from currency fluctuations, said SAP Users Group's Bowling. "These
contracts can be similar to a fixed-price mortgage, as depending on
the volatility of the market, users could be in for a nasty shock
at the end of contract term" he said. "The same, of course, applies
to future purchases of software and hardware from outside of the
UK."
Intellect's Ward expected the costs of new off-shore contracts
and renewals to rise, but said long term contracting may negate
this. "Conversely, near-sourcing will become a more attractive
option, although we are yet to see evidence of this on a large
scale," he said.