The year 2011 has been one of the worst years for the Indian rupee. The rupee has virtually crashed, posting the biggest annual loss since 2008. From 44.81 on December 31, 2010, the rupee depreciated to 53.11 against the American dollar on December 30, 2011. This is a huge loss in the rupee value — close to 16 per cent drop against the dollar. For the IT (information technology) industry, too, the rupee slide can prove a big challenge in the days to come.
The IT industry is already facing myriad concerns which have, of late, made the global environment tough for the Indian IT, ITeS (IT-enabled services), outsourcing and call centre outfits.
Can the Indian IT juggernaut ride the headwinds and the volatility in the global economy? As they ring in a new year, these companies have to ponder a lot and calculate the collateral damage to their business arising out of assorted negative implications of events in 2011. Surely, the men and boys in the industry will be identified sooner than later by the way the leadership of these companies navigate the global headwinds.
A unique angle
“I think the global foreign exchange fluctuations are having a unique angle. The appreciating yen against the dollar is making more Japanese pack their bags and travel. A stronger Australian dollar against the Singapore currency is forcing reverse traffic from Australia to Singapore for shopping. Indians are wary of travel now with the dollar and the pound sterling at such high numbers,” points out a CEO of an IT infrastructure management company, who shuffles around the globe regularly. “The year 2012 will produce pronounced woes due to this imbalance even to the IT industry,” he argues.
A spate of not-so-encouraging initiatives — the subtle visa curbs imposed by the U.S., the rising anger within America against outsourcing work and the move by law-makers to slip through a bill that penalises companies that move jobs outside the U.S. — have all made for an inclement global environment for the Indian software industry. With the elections round the corner in the U.S., things appear to be going tough for the software firms.
To add to their discomfiture, the U.S. has accorded the most favoured nation status to Colombia, which is doing every bit to attract BPO (business process outsourcing) work. “There will be an added impact of the recent free trade agreements (FTA) that improve upon the WTO's General Agreement on Trade in Services, especially in Colombia,'' sources point out.
The U.S. is trying hard to promote telecom trade with Colombia. “The FTA will allow Colombian companies to provide services at a higher quality. Colombia now has the MFN status along with other Andean nations. Higher levels of intellectual property protection will also be implemented that will be applicable to every kind of services, but particularly on the IT side and some BPO services,'' they add. All these bound to have a dampening effect on the Indian companies.
Coming as it does against this anti-outsourcing sentiment, the big slide in the rupee may force the IT industry to re-work its game plan. Sources aver that there could be a bit of rebalancing. As a consequence, the ‘Indian outsourcers' could end up creating more U.S. jobs to address the sentiment. One has to wait and watch as to what cost implications would this have on the Indian companies. As the Indian firms are turning to be global players, they could not possibly brush aside global concerns.
Given the emerging tough environment, which is getting tougher by the day, the domestic software industry may even think of efforts to insulate themselves against all kinds of adverse factors. “Most customers are hurting themselves.'' They could soon start a campaign for renegotiating, feels a top functionary of an IT company. Let us say customer `A' pays Indian vendor `A' $ 4,000 per man month. Let us also assume that the rate at the time of signing the contract was Rs. 45 per dollar. When the rate goes to Rs.50, the customer would like to peg it to $ 3,500 per man month. “Today, we have a flat rate. Now, savvy customers are asking for a table where they take a rolling average of the last three months' conversion price and peg the per person rate based on that three month average,'' points out a top IT source. Is it feasible? A definite answer will depend on the ability of the Indian companies to bargain. One thing, however, is sure at the moment. The domestic IT firms are headed for a `heady' few quarters.