In the three years to 2017, IT consulting prices have been growing marginally at an estimated annualized rate of 0.9%. Price growth can be attributed to increases in demand and suppliers’ operating costs. However, rapid supplier entry into the market has kept the IT consulting market fragmented and competitive, which has kept recent price growth in check. Buyers have also benefited from low price volatility, which enables buyers to better budget for their expenses and effectively time their purchases.
In the past three years, businesses have increasingly incorporated new computer technologies, including online services, into their business processes. The percentage of services conducted online has been rising, requiring implementation of new technologies to securely provide online services to customers. Meanwhile, corporate profit has fallen slightly in the three years to 2017 but remains notably higher than prerecession levels, allowing companies to continue investing in developing their IT infrastructure, which has led to a rise in private investment in computers and computer software. As companies have become more reliant on computers and invested more money into computer equipment, buyers have had greater need for IT consultants to help develop their IT infrastructures and troubleshoot issues. These trends have boosted demand for IT consultants and, in turn, elevated the pricing power of IT consulting suppliers.
Growing operational costs have also encouraged price inflation. Suppliers’ professional service, marketing, rent and utilities, and other overhead costs have grown in the three years to 2017. In response to growing operating costs, suppliers have raised prices to protect their profit margins.
Fortunately for buyers, an influx of new operators in the market has increased the number of suppliers available to choose from. Although a high level of technical knowledge is crucial, new suppliers face low barriers to entry. As such, new suppliers have been able to enter the market nearly in line with rising demand. This trend has kept supply deficits to a minimum and the market highly competitive. As a result, price growth has been tempered.
In the three years to 2020, service prices are projected to rise at an annualized rate of 1.1%. During this period demand and input costs are expected to continue rising and encourage suppliers to raise their prices. Fortunately for buyers, competition will remain high as a flood of new suppliers enters the market. Buyers will also continue to benefit from low price volatility, which will enable them to effectively budget for expenses and strategically time their purchases. Prices will grow marginally with low volatility, so buyers can take their time making purchases without the risk of sudden spikes. However, buyers may want to enter into a contract sooner rather than later to take advantage of slightly lower current prices.
Demand for services is forecast to grow in the next three years, stemming primarily from increases in corporate profit, private investment in computers and software and the percentage of services conducted online. These trends will incentivize businesses to develop their IT infrastructures, increasing their reliance on computer technologies. In turn, businesses will increasingly seek IT consultants to assist with the design and development of IT systems. As demand rises, suppliers will gain pricing power.
Suppliers’ operational costs are also projected to rise. Heading into 2020, suppliers are projected to pay more for professional services, such as legal counsel and accounting services. As costs rise, suppliers will be able to raise prices.
ProcurementIQ anticipates that the IT consulting market will remain highly fragmented in the years to 2020. Low barriers to entry will allow suppliers to enter the market as demand rises. New supplier entry is, in turn, expected to keep the market highly competitive, forcing suppliers to curb price growth. Because price growth is expected to be sluggish, buyers will retain most of their leverage throughout this period.