Sourcewww.domain-b.com

The rising Indian rupee will challenge India-based outsourcing providers’ maintenance and renewal of Western contracts says Alan Rodger, research analyst with IT research and advisory organisation Butler Group

“…. It will be a challenge for the likes of Wipro, Tata Consultancy Services, HCL, et al to minimise the impact of the rising rupee and maintain and renew their outsourcing contracts with western organisations….”

It was reported last week that the Indian Rupee had strengthened further so that now $1 was worth just Rs39.32 (making UK£1 worth approximately Rs80.4). The rupee has risen around 12 per cent against the US dollar in the last 12 months. The expectation is that the outsourcing providers based in India, which service organisations in the west, will be worst affected.

Alan Rodger, research analyst with, acknowledges the Rupee is going from strength to strength will present a challenge to India-based outsourcing providers when it comes to the renewal of contracts with western companies.

However, the high quality of service and talented workforce available in India, together with the continued improvements to the infrastructure will, continue to stand India in good stead.

This rise in the rupee against the US dollar is expected to continue for some time to come, barring any political crisis or natural disaster, according to the Indian press. NASSCOM, the public body that represents outsourcing organisations based in India, forecast that the Indian technology sector would rise by 27 per cent in the financial year 2006-2007, but in fact it rose 30 per cent, to $40 billion. During the financial year 2007-2008 NASSCOM has forecasted a rise of between 24 per cent and 27 per cent, equivalent to a staggering $50 billion of revenue.

According to research earlier this year by CLSA, it was identified that the IT industry in India employs some 1.6 million people directly, with a further 6 million in related industries.

The industry itself contributes some 5.2 per cent to India’s GDP, and it is estimated that between 20 per cent and 25 per cent of India’s GDP expansion in the next three - four years will come from the IT industry in India. Approximately 75 per cent of the country’s software industry is exports, and it is this huge figure that will be impacted the most by the rise of the rupee against the dollar.

This will bring into stark relief the reasons that many organisations use third-party providers for IT and Business Process Outsourcing (BPO) services based in India. Cost should never be the only reason for outsourcing any services, but it is of course a major contributor to any decision to deliver from overseas, and a rise in prices of this nature may make some businesses question the financial advantages.

However, the vast majority of outsourcing contracts between western countries and India are in, for example, US dollars or UK pounds, therefore it will be the India-based providers that will suffer the immediate effects of this situation, rather than the customer organisations. This is understandably one of the reasons that has made India a popular outsourcing destination in the past - the ability to protect against the rising cost of the rupee.

It will be a challenge for the likes of Wipro, Tata Consultancy Services, HCL, et al to minimise the impact of the rising rupee and maintain and renew their outsourcing contracts with western organisations.

However, even if prices should rise marginally when these contracts are up for renewal, it should be remembered that the quality of the talent available in India remains extremely high and the infrastructure improves on an almost daily basis, and for many these and other factors will continue to make India an attractive place to continue to do business with.

Source:sify.com

In what could come as a welcome relief to finance and human resources chiefs and not-so-good news for the employees, wage inflation, which was threatening to blunt the competitive edge of India Inc, is now showing signs of easing.

“This year, we are not noticing the kind of wage pressures we had last year. The wages are stabilising and wage increase will not be of the order of the 12-15 per cent (this year’s hike). It will be much less,” S Padmanabhan, executive director, HR, Tata Consultancy Services, said.

TCS is India’s largest private sector employer with over a lakh employees on its roll. A skyrocketing local economy, coupled with the fact that the talent supply pipeline hasn’t really broadened over the last 3-4 years, has led to wage hikes that are many times what can be expected in matured markets. TCS paid 12-15 per cent wage increase this year for its offshore employees and 3-5 per cent for onsite.

Industries like IT were finding their margins coming under pressure with an increasing staff cost on one hand and a strengthening rupee on the other. Now with indications of a stable wage regime, pressure on margins is likely to ease a little.

TCS plans to hire a mind numbing 35,000 employees this fiscal. At 2 per cent of its revenues, TCS’ training budget is not insignificant and the management doesn’t it change much over the next few years. TCS has, under Ignite project, begun to hire science graduates and train them to become software engineers.

The first batch of 500 graduates have finished their training and joined the company. TCS hopes to train a total of 2,000 this year and 3,000 next year under Ignite.

It is planning to set up training centres in Gandhinagar, Bhubaneswar, and Chandigarh. “We are also planning to set up training centres in Morocco and Egypt to tap the French speaking talent base,” S Ramadorai, CEO and MD, said.