A rooftop
dealer who fixes expensive and exclusive rooftops for houses
in Manhattan, New York be worried about the stock market falls
in Asia. What's the connection? As unconnected as it seems,
the individual identified that his market was for the wealthy,
and his wealthy clients are exposed to international markets.
And, the expensive rooftop is almost the first item that
they'll cut in their budget, if they're feeling the pressure
of drop in international markets.
It's such an
integrated world! When we say "world is flat" - it's flatter
than it has ever been, and continuing to get flatter.
If international currency vagaries affect people in
the US, what happens to the offshore outsourcing firms in
India, whose sole business is dependent on the international
currency and the differences in currencies thereof? How about
the outsourcing companies that have anywhere between 60-99%
business revenues coming from the USA? On the other hand,
Indian economy is strengthening on a quarterly basis and the
Rupee is becoming stronger on a daily basis.
Dollar is
weaker than it has been in the past several years - and it
continues to slide against major international currencies.
There are recession fears in US. The report on GDP on January
30, 2008 talked about an annualized growth of 0.6% during the
last quarter of 2007- while it's not negative as yet, there
are fears that it's only a question of time before it goes
negative.
In
this scenario, wages are not staying flat. In the effort to
make the world flatter, the Indian software engineers demand
salaries that are increasingly looking like the wages in the
USA. While you can say that it is rightfully so, there's no
telling how that will affect the macro-economics of doing
business in India.
Some points that Indian outsourcing
companies can consider to tackle this problem:
* Lots
of companies are establishing centers around the world -
chasing the lower cost paradigms available in the emerging
outsourcing destinations. But, those destinations lack the
mass and maturity of Indian IT outsourcing industry. It can be
overcome by shifting some of the mature processes and
experienced people from India to those centers. Of course,
some companies are also attempting to acquire local companies
- to give them a management team that knows the rules of the
local business landscape.
* One increasing trend is
also for the outsourcing companies to expand the operations in
the USA - by shifting more and more engineers from India to
the USA. Traditionally, Indian companies have had a huge
portion of revenues come from "onsite" operations - and last
3-4 years saw the trend of decreasing the onsite presence and
increasing offshore presence. Now, in the next few years, the
reverse will start happening, as it's providing a natural
hedge on the currency - you earn in Dollars, and your expenses
are in Dollars, and hence the currency fluctuations does not
affect profitability. While this may not be openly
communicated, it's suspected that this will start and continue
to be the trend.
* Gartner predicts global outsourcing
spend to increase from 408 in 2007 to 441 billion in 2008.
Outsourcing as a business model is still vibrant and it works.
There can't be sudden reversals. An increasing number of
outsourcing companies view scale of operations, operational
efficiency and process improvements as key growth parameters
as opposed to just pure wage and currency parity. The work on
IT in the world has not depleted, and hence the demand for IT
work will be stable at least for the next 20 years. It's like
fuel. We need it, and the consumption is very unlikely to
reduce as much because of increased prices. So, outsourcing
companies are also increasing their contract prices to counter
the effects of wage and currency factors.
The demand
for IT is so huge, and on the talent supply side, there is no
country that can match India easily! But, there is a
perception that Indian software engineers in outsourcing
companies have very low average age and hence can hardly
command a premium in pricing, while salary costs are
increasing. Lots of companies are countering this by improving
their training effectiveness and bringing industry and
academia closer to ensure higher preparedness in the new job
entrant.
* Another factor is also increasing
opportunities worldwide. All outsourcing companies, including
the biggies like Infosys and TCS are reducing their dependency
on the US markets. Today, Infosys has only 60% plus and TCS
has only 48% business dependent on the USA. As a matter of
fact, even a number of US based companies are increasing their
revenues from emerging markets like India, China and Africa.
So, it fits very well in this scenario of increasing
opportunities in the developing world as well as in Europe and
other developed world destinations. Obviously, the
macro-economics is going to shift the advantage to companies
operating in the local land.
* Popularly called as
buffet approach, companies are moving away from long-term
contracts to smaller contracts.
While this
double-whammy of reduced dollar value and increased rupee
costs may paint a bleak picture, the outsourcing companies in
India are smart enough to take care of the challenges. And,
the inherent strength of Indian software engineers will buck
any of these trends and come out strong. After all, tough
times don't last. Tough people and tough companies do!
Enterpriser.in's Advisory Board
aims to dwell with industry issues and information.
Abhishek M.Gupta and the other panelists will guide in
contouring the content on the website
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