Appreciation in Indian Rupee will affect Outsourcing to India

Implications: Outsourcing is the trend of the hour. It is mostly done to take advantage of wages cost arbritage. This processes is possible because disparity in values of different country currencies. Appreciation of Indian Rupee against US Dollar by an unprecedented percentage of 12%, has threatend the exporter in India. The profit margin for exporter to retailer has been completely eaten up by this appreciation. The fastest growing industry - IT & IT enabled services are also affected by the same, their profit margin has come down from 30% to 18 to 20%. IT organizations are thinking of introducing a six day week, increase daily billable hours and also change the resource loading by putting higher percentage of low cost employees. The last measure will affect the delivery quality.

Analysis:  Appreciation of Indian Rupee will eat into profit made by the IT services organizations in India. Indian IT organizations are making profit in the range of 30% to 35%. The appreciation o Indian Rupee by 12% has taken up some of the earler mentioned profit. IT services organizations are trying to remain profitable in the same range by either imposing extra working hours to employees or by changing the resource loading ratios of experienced versus inexperienced engineers. Both these measures will result in high attrition and low quality of delivery. The attractions of using India as a low cost center will gradually cease to exist.