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Indian IT companies prepared to go global
By siliconindia
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Saturday, 05 January 2008, 01:15 IST
Bangalore: The Indian IT industry seems to be prepared to look beyond its India centric approach. This is what reflected in the sayings of Wipro founder Azim Premji at the Q2 earnings conference. Premji said that opening a near shore centre in high cost of Atlanta would actually net gains for the company, reported The Economic Times.
The traditional reasons to globalize have been proximity to the customer and a diverse employee mix. Now rupee pole-vault and the race to grab larger ticket size projects may be pushing Indian companies to globalize in a bigger way. Suresh Senapathy, CFO, Wipro says, "Near shore, of course, becomes more favourable than it was nine-months ago. It is excessive rupee appreciation in relation to other currencies in the last nine months that makes the difference."
The rupee appreciation, in the last year, has underscored the stark difference between Indian software services majors such as TCS, Infosys and Wipro, and their MNC counterparts like IBM and Accenture who have large operations in India. The wave of worry that affected Indian IT majors perhaps did not crinkle the forehead of MNCs, the reason being the scale of their global operations.
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 U.S. dollars but spend significantly in rupee.
"Each one percent 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 percent of its total expenses," Says R Chandrasekaran, President and Managing Director, Cognizant.
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."
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.
