India has always been an attractive destination for offshoring - reasons being availability of skilled manpower (English speaking workforce), strong business ties with US, etc. In addition the lower rupee value against the US dollar is one of the crucial factors that make India an ideal place for outsourcing.
But a sudden steep rise in the rupee value during early 2007 didn't seem to go well with some industries including the outsourcing community. The value of the dollar incessantly went down and touched Rs. 39.25 in October 2007, before bouncing back to currently being around Rs. 43 - thus bringing a respite to the industry.
Due to the upswing of the rupee value business outsourcing enterprises' bottomlines started eroding fast. The industry initially got edgy, but remained poised - thinking that currency fluctuation is an aberration. People from the industry are of the opinion that the Indian market is growing mature enough to bear the impact of the currency fluctuation.
There have been some cases where BPOs started looking for alternative viable offshore locations and a few also went ahead with some relocation plans. But, according to Anwer Bagdadi, senior VP and CTO of CFC India Services, such cases are sporadic and don't reflect the general sentiments of the outsourcing community. He believes the rupee-dollar value fluctuation doesn't have much impact on outsourcing the business overall and India will continue to be the favorable destination for outsourcing activities.
"In fact, the rupee appreciation is an opportunity to work on new product models," he asserts.
Sampath Shetty, VP (Permanent Staffing) of TeamLease, states, "The outsourcing industry in India hasn't faced business opportunity erosion during the dollar depreciation phase, but was constrained by the narrowing of business margins."
However, erosion in profit margins coupled with the US economy slowdown brought everyone on their toes, making companies work out on new business models, considering factors prevalent in today's business environment. The pricing challenges were taken on with implementing measures like rationalization and optimization of productivity of manpower along with an optimum use of infrastructure. "Organizations in order to mitigate business exigency diversified their portfolio, structured their prospective deals, and some moved up the value chain in their service offerings to their clients," says Shetty.
The outsourcing of business is inextricably linked with the overseas clients' behaviors. Hence, the rupee appreciation influenced clients to consider options of diverting business to other parts of the emerging economies considering unfavorable business environment in Indian shores.
"The business 'take on' by Indian BPO slowed down, as the rupee appreciation directly impacted the bottom line. But there has been no change really in the attitude of overseas clients," says Deepak Malik, senior VP of InfoVision Group.
Neeraj Bhargava, CEO, WNS Global Services contends that during the economic downturn, measures are taken (especially by USA) to cut down discretionary spending. But BPO is more of core operations rather than optional.
The outsourcing industry feels that the only rupee-dollar value fluctuation can't hamper the outsourcing business. However, it also believes that this scenario would get better only after next 18 months, owing to the number of factors currently shadowing the economic growth worldwide like global economic recession, stock markets downturn, rising crude oil prices, etc.
In general, the industry sentiment is positive and is expected to recover soon from the economic slowdown. It wants to grab the opportunity to explore new business models and avenues for business growth.
"At this point, we see enough momentum in new business from existing and new clients to counter such reductions in client transaction volumes," says Bhargava.
Currency Hedging
The depreciation of the Indian currency augurs well with the industry, but due to the rupee appreciation companies opt for hedging currency movements. According to Bagdadi, the sudden dip in Indian currency value would bring losses to IT and BPO companies who have hedged their money in the currency market anticipating more decline of dollar value.
What is in Store?
NASSCOM-McKinsey report states that the Indian IT-BPO sector has the potential to generate export revenues of approximately USD 60 billion by 2010 on the back of advantages like abundant talent supply, strong cost-advantage, government support, and a scalable high-quality infrastructure.
According to Malik, the prospects of Indian outsourcing business is extremely optimistic. "The Indian (domestic) outsourcing business segment is growing at 50% annually and the international outsourcing is still expected to grow at 20%. With the recession, the US-based companies will need to outsource more to remain more profitable," he reasons.
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Strong Rupee. Weak Dollar
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