According to Sid Pai, partner at TPI, an offshore advisory firm, “Most MNCs have a natural hedge against currency fluctuation as they operate out of several countries. So, to that extent, their risk is spread across a basket of currencies.”
Margins of Indian software and BPO companies have been under pressure as they get most of their income in US dollars but spend significantly in rupee. Says Cognizant president and managing director R Chandrasekaran, “Every 1% appreciation of the Indian rupee negatively impacts Cognizant’s operating margin by approximately 20 bps. Because of Cognizant’s customer-centric business model, it has a stronger onsite presence, resulting in a rupee expenditure that is 30% of its total expenses.”
However, currency appreciation cannot be the only reason to go global. Infosys CFO V Balakrishnan says, “Currency is one of the challenges we have to manage and not the only challenge. We operate globally and need to maintain local presence everywhere to support client requirements.
However, we need to leverage India as no country has got the scale similar to that of India with high quality and at competitive price.” So, while Indian companies may be targeting an increased offshore mix, industry trackers feel that a cost arbitrage-led strategy may have to be tweaked for big-ticket global play.
Indian software companies increasingly compete with MNCs for projects. IT service providers do gain several upsides in terms of big-ticket projects, better billing rates and a diverse employee pool from growing scale in global centres including high-cost ones.
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