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Strengthening Rupee and its impact on Indian IT industry

Rambo Prasad
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Joined: Feb 23, 2006
Posts: 628
Came across this article

http://www.rediff.com/money/2007/jul/25bpo1.htm

I believe the effect will be more visible in the Services company rather than in Product development companies

Many people go for heavy loans with the belief that the 15-25% pay hikes are perpetual..What would be the impact on property prices in IT cities like Bangalore...?

If Rupee strengthens further to 35 - 36 levels will there be layoffs...?Is the party over...


Helping hands are much better than the praying lips
Varun Khanna
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Joined: May 30, 2002
Posts: 1400
Just 7-8% fall in Rupee and supposedly the powerhouse of world IT, India, getting panicked? Does this tells anything about the health of Indian IT?
Up to 25-30% decline in top IT exporter companies stock price in last quarter, why? No business decline, no external factor change, just some decline in rupee sent IT biggies tumbling?
There's much more to fear about than this. Reliance communication talking to US software exporters to get it's software needs done. Why there's no trust in nation's own IT biggies ability?
Unless we start doing quality work and producing innovation, we just can't survive. Today it can be dollar, tomorrow it can be Euro. We just cant keep looking at other nation's currency to get a job for ourselves. To get a secure job, we need to produce. Simple!
[ July 25, 2007: Message edited by: Varun Khanna ]

- Varun
srishal singh
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Joined: May 11, 2007
Posts: 33
I share the same concern..
I guess we need to wait to see the outcome.
Chetan Parekh
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Joined: Sep 16, 2004
Posts: 3636
India, China And Exchange Rates
Further rupee appreciation will be like cutting the nose to spite the face.


My blood is tested +ve for Java.
Arjunkumar Shastry
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Joined: Feb 28, 2005
Posts: 986
Originally posted by Rambo Prasad:

If Rupee strengthens further to 35 - 36 levels will there be layoffs...?Is the party over...

I think in next two quarters it will be decided.Varun, I agree with your opinion.But reality is further Rupee appreciation will definitely cause a concern.From RBI site:
Year----- $value
28/08/1998 42.5405
27/07/1999 43.2900
27/07/2000 44.9000
27/07/2001 47.1600
26/07/2002 48.6700
25/07/2003 46.1600
27/07/2004 46.2700
26/07/2005 43.5200
25/08/2006 46.6100
and now its Rs 40.4.Definitely a problem.!Suppose company is working on some project.Its profit is $1 Million.Compared to last year it will earn 6 million Rs less. Still if you see their revenue,its not a big amount.But small/medium sized companies there will be some impact.Rs 60 Lakh is quite a big amount for medium/small comapnies.Its yearly cost of hiring 6 j2EE developers of 5 years experince each.!!
[ July 25, 2007: Message edited by: Arjunkumar Shastry ]

Namma Suvarna Karnataka
Manish Hatwalne
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Joined: Sep 22, 2001
Posts: 2578

USD has dropped by almost 10% as compared to last year. Besides 10% drop corresponds to much higher drop in profits. I am experiecning it myself.

Juust consider this oversimplified example -
Assume that a certain assignment gave me (a company) USD 1000.

With 1 USD = 45 INR, it gave me INR 45000 last year.
Assume that my expenses here are 30000 INR, so my profit is 45000-30000=15000 INR.

Now if 1 USD = 40 INR, it gives me INR 40000.
Assume my expenses are still 30000 INR, so my profit now is 40000-30000=10000 INR.

So a drop of rom 45 to 40, which approx 12% may cause profits to drop by 33%. Also, expenses keep rising with rise in real estate rate, lease rates, higher attrition etc.

As I mentioned in another thread, if USD is dropping; they have to pay higher amount for purchasing services outside. And Indian companies need to negotiate this well, but perhaps they were already charging their clients too much, and they can always find cheaper markets. The price hikes are affected as well, and that will happen. Maybe 15-25% hikes were too high to start with. Next 2 quarters will decide where it is going.
Varun Khanna
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Joined: May 30, 2002
Posts: 1400
Originally posted by Manish Hatwalne:
and they can always find cheaper markets.


Wish we can be bit more than just "cheaper market"! Let's hope tomorrow to be bit different.
High time for biggies to wake up and do something different than copy/ paste, else keep praying for Rupee/ dollar equation forever!
Chetan Parekh
Ranch Hand

Joined: Sep 16, 2004
Posts: 3636
Originally posted by Varun Khanna:


Wish we can be bit more than just "cheaper market"! Let's hope tomorrow to be bit different.
High time for biggies to wake up and do something different than copy/ paste, else keep praying for Rupee/ dollar equation forever!


That's the spirit!!
Manish Hatwalne
Ranch Hand

Joined: Sep 22, 2001
Posts: 2578

Absolutely!!! High time we produced quality products insated of just doing consulting services.

Interestingly, Finnacle of Infosys is widely accepted as "Core Banking" solution in many banks. Hope Indian Software companies will have more quality products to flaunt sooner.

There are several smaller and lesser known companies that are producing excellent products. Whizlab is becoming leader in Certification products as well. With more companies making products for international market should ensure better revunue generation plan for them, and ultimately for Indian software industry.

- Manish
Rambo Prasad
Ranch Hand

Joined: Feb 23, 2006
Posts: 628
Very true ...Indian companies should focus on product development like the way
Irish companies do
Devesh H Rao
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Joined: Feb 09, 2002
Posts: 687

Can�t really expect an elephant to prowl and hunt can we

Ok, the metaphor is a bit extreme but the point I am trying to convey is every person or for that matter entity or industry have certain base skills which is a result of the way the society works, the way people are educated and the natural maturing of a sector.

Just like for getting cheese, milk has to go through the fermentation stage in between, an industry cannot jump ships and transform into an entity 2 steps above on the maturity index.

We know that the Indian IT has been around for last 20 odd years but the reality is, the industry got an impetus around the Y2K years when huge numbers of Indian IT professionals were involved to fix legacy code and data entry stuff and so on, exceptions existed about product companies, an example being the company I work for, it came out with a product way back in 1990�s but which was largely for the Indian market and which did not take off coz the Indian market was not mature enough to invest in an IT product and the companies outside India were not ready to invest in an unknown entity .
So the work largely involved was nothing great to write about and also Indian companies were able to recruit huge numbers of graduates skilled in mathematics and programming skills vis-�-vis understanding the semantics of a language (something which we are on an average good at due to the way our education works). The initial wave was about the numbers getting noticed.

The next wave was the services part where the companies took advantage of the currency differential to take on work and turned huge profits. Again for certain companies the hiring is not about rocket scientists.. Companies needed people skilled enough to work hard and the logical understanding of what is been asked for and to an extent just get that done in the time frame within costs. This is the model on which most of the service companies work on. Again solution and product companies exist even today, they are not in the news coz that sector is still nascent but these companies will be the harbinger of the next phase.

The service companies have ruled the roost for so many years but services are as the name suggest dependent on the service being provided, when the need for that service is done they go out of vogue unless they mature to providing solutions and technology innovations.

Again various threads on job discussion forum paint a very wrong picture about the part of the Indian IT industry which is just not about revenues and number added in a Financial Year. A basic search for product companies on the NASSCOM site would give enough information about the sectors and technologies on which the companies work in.

The industry is as usual on target for the next step, the maturing of the industry to take on work and also force itself to look at the world for work and not just US. This financial year has been a wake up call for companies which have hedged their bets just on US and grown complacent. There is more business out there and more markets, India itself is a huge market and the companies who have worked on hedging the bets have been less hit with the currency fluctuations. The strengthening of Indian rupee is the precursor for companies starting to bill in rupees rather than in dollars, but for that to happen the industry should offer something which no one else does and for that to happen as I noted before, the companies who have been investing in IP would come to the forth. These companies put a premium on talent and skills and people who hang about being armchair critics rather than pursuing upgradation of skills will be left behind.

A solution or a product company requires lesser number of people to generate the same amount of revenue than say a service company, the risks involved are much more, as there are a lot many product companies which go bust as compared to a service company and hence the requirement of skill is of paramount importance for the former, so if you want to catch the train, people you better be on time at the station
Ramesh Choudhary
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Joined: May 10, 2005
Posts: 200
Many of my friends(especially at onshore) were concerned with the rise of rupee. This is a direct consequence of Strengthening Indian Economy. This is something invetiable and would be benificial to the country as a whole. How long do we need to maintain our 'status' in the Western world as 'Attractive economical offshoring destination'?. If that involves us the necessity to change professions at an uncomfortable time, so be it.
[ July 28, 2007: Message edited by: Ramesh Choudhary ]
Devesh H Rao
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Joined: Feb 09, 2002
Posts: 687

Originally posted by Ramesh Choudhary:
How long do we need to maintain our 'status' in the Western world as 'Attractive economical offshoring destination'?.

[ July 28, 2007: Message edited by: Ramesh Choudhary ]


Think Big..... more often than not, you may well achieve it.


Indian IT M&A steps into the big leagues

And Quotes from the article

Analysts have talked about the problems that the rising rupee brings. Here's a positive: It buys a lot more in the United States.



Another thing to notice about this deal, It's not about labor arbitrage. Infocrossing's 900 employees will stay in the US. This is about capabilities. So the deal is yet another example of how the Indians are making the transition from business models based on low-cost labor to models based on putting highly skilled people in the right place for customers
 
Consider Paul's rocket mass heater.
 
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