Record Fall in Indian Rupee: Implications for Indian Outsourcing Industry?

Outsourcing to India

Outsourcing to India (Photo credit: markhillary)

Yesterday, I reblogged a Reuters‘ article entitled “Indian rupee sags to record low despite government steps“.

Traditionally, when currencies fall the cost of imports rises but it becomes easier for exporters to World markets. In recent years, one of India’s biggest growth industries has been the outsourcing industry. Outsourcing basically sell services overseas, so it’s an export; so Indian outsourcing will benefit from the lower Rupee?

India’s outsourcing industry has run into difficulties in recent years. Costs have risen on the back of inflation and World markets have continued to question service levels, so there has been a trend from offshoring to the likes of India to nearshoring or indeed reshoring services back to developed countries. Also China has been going head-to-head with India to secure a share of the global outsourcing market and China could well be the eventual winner.

So is the lower Rupee good for Indian outsourcing?

The answer is probably not. Contracts are for long time periods, possibly priced in US Dollars and may well preclude foreign buyers from benefiting from the lower Rupee rate; so this will cause buyers to question further the effective offering of the Indian outsourcing sector focusing on the negatives.

Let me turn this to an open question:

Will Indian outsourced service providers benefit from the lower Rupee?

Any thoughts?

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5 responses

  1. Pingback: Indian Outsourcing Sector: How should Western industry react to record fall in I. Rupee? – John Gelmini « Dr Alf's Blog

  2. Dr Alf has raised some very important issues in this latest post about the fall of the Indian rupee and the implications for the Indian outsourcing/offshoring industry.

    Beyond that of course there are implications for Western organisations and companies considering outsourcing and offshoring to India either for the first time or as an ongoing exercise.
    In many cases they need to either think about different locations,blended solutions, nearshoring, reshoring or eliminating the need for outsourcing /offshoring altogether.

    To determine what is best for them they must either gain or employ the necessary expertise in house, which may be a costly addition to the payroll,or seek expert advice from outsourcing and transformation practitioners who are supplier agnostic and have international business mindsets derived from living and working overseas.

    The Fall of the Indian Rupee/Wider Implications For India
    ——————————————————————————
    The fall in the Indian rupee reflects lack of confidence in the ability of the Indian economy to maintain its previous levels of high growth and the disturbing results of a survey which revealed that Indian businessmen detested having to deal with each other so much that they would rather deal with practically anyone else.

    India currently has 60% of the global BPO/IT related outsourcing market and a similar percentage for call centre offshoring and software development, although some of the software development takes place in offshore subsidiaries using blended solutions and local labour.

    India is becoming less attractive to organisations considering outsourcing because of:

    –Perceived difficulties with Westerners understanding English spoken very quickly by someone with a strong regional Indian accent

    –Issues around data protection which apply in the UK,the US and in Europe but not in India as yet.
    Thus exposing Western companies like the banks,fund management houses and software houses which use Indian outsourcers to unquantifiable contingent liabilities from litigeous customers in both the b2b and b2c space,in those instances where critical data has “escaped” and caused the customer financial loss.
    Many Western companies seem to imagine that by outsourcing/offshoring work to India,they can absolve themselves of liability when things go wrong.

    They do not understand the concept of vicarious liability as created by the original Carbolic Smokeball case from the 1800,s and the Clapham Omnibus case which was successfully defended because the bus company in the firing line was able to prove that their bus driver had disobeyed written instructions,had deviated from his set route and whilst so doing had caused an accident whilst attempting to poach customers from the rival bus company.

    With the additional requirement for UK companies to have credible risk programmes in place and for Directors to be held personally accountable for risk under the 2006 Turnbull Report which came about after the Hatfield and Potters Bar train disasters,the benefits which may have once flowed from offshoring to India must be weighed against the risk to Directors of being struck off or bankrupted by huge lawsuits.

    America has a culture of both risk mitigation and of very high legal settlements against companies which allow risks to cause people harm so companies considering offshoring to India have to do their calculations with the mind of an actuary.

    There, errant Directors can be and are often sent to prison because the public mood is ,since the banking crisis,Enron,Worldcom and Lehman Brothers,very unforgiving.

    Europe has lower cost litigation than America but companies there must weigh the risks with great care.

    –Risks harder to spot at a distance and in the internet age
    Employees in a country 1000,s of miles away and working whilst their Western clients are asleep,can,in the absence of constant webcam surveillance plus 24/7 monitoring by relays of security specialists engage in malpractice without being seen.

    Furthermore they can get criminals,hackers and foreign governments to hack in independently,steal the data on an industrial scale for money and yet appear clean as a whistle.

    –Many of the larger Indian outsourcing firms have become blase and only want contracts of at least £1.5 million gbp,priced in US dollars which fulfil detailed profitability criteria.
    Smaller clients are simply turned away,so for those prospective Western companies the fall in the Indian rupee is irrelevant.

    The Rise of China as an Offshoring Location for Software Development and BPO/IT Related Work
    ————————————————————————————————
    —————————-
    The Chinese currently hold 20% of this global marketplace compared with India,s 60% leaving the remaining 20% to everyone else.

    They have a credible plan which I saw with my own eyes during a business trip to the 2011 IIOM conference in Wuxi,Southern China which I attended as a featured speaker on salesforce optimisation and BPO/Outsourcing sales/marketing, to close the gap by 2020 and overtake India thereafter.
    They are doing this by:

    –Training graduates in relevant disciplines using Carnegie Mellon instructors who only speak in America English using state of the art facilities in Chinese business parks which are replacing old smokestack industry factories

    –Training 650 million people (1/2 the population),to learn English

    –Sending their brightest graduates to America,the UK and Europe and getting them to live with local families and get culturally immersed to the point where they know how we think and operate

    –Buying up Western companies at distressed prices and increasing shareholdings in them whilst splitting out those functions and processes which can be outsourced back to China

    –Investing money in companies in countries which could /are becoming low cost outsourcing centres(eg Bangladesh,the subject of a KPMG Report),Vietnam,Malaysia etc and then repatriating the profits back to China

    –Being prepared to take on many of the smaller contracts that Indian outsourcing firms turn away

    –Developing websites and actually creating overseas operations in America ,UK and Europe but centralizing the web and software development either in China or in countries in whose companies they have a controlling interest

    What Should Western Companies Do
    ————————————————–
    They must ,in the light of these developments,broaden their outlook to cover the possibilities and make better decisions about outsourcing, whether to do so, where to do so and how to do so.

    If they lack the knowledge or the time to obtain it then they must find and be prepared to invest in relevant expertise.

    This from experienced and capable implementation consultants and interim managers working directly and in some cases remotely to solve these issues.

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