Mid-tier IT companies feeling the heat of rising Rupee

Weekly news updates on trends and happenings in the Indian Outsourcing Industry

This week too, the rising rupee made headlines. The strong Rupee has led to declining margins in the outsourcing industry. Experts feel that this is only a temporary phase and introducing new business models could be a possible solution. Som Mittal has been named the NASSCOM chief.

Chillibreeze Business Research Team

Mid-tier IT companies feeling the heat of rising Rupee

These are turbulent times for India’s small-to-mid-sized IT companies faced with immediate concerns of appreciating rupee and rising input costs like wages & infrastructure.

Despite the relative buoyancy in the market, with no major signs of a US slowdown or the IT services market contracting, the mid-tier and small IT companies are seeing their margins declining, especially with the rupee appreciating against the dollar.

Outgoing Nasscom president Kiran Karnik agreed that it was very challenging times for the mid and small companies and competition is expected to increase in the future.

The traditional business model of the IT services industry with the revenues in dollars and costs in rupees has seen the gap narrowing and this is unlikely to see any reversal in the near future. The industry has also been witnessing a 12-15% rise in wages annually, which makes things tougher.

However, the current situation also gives an opportunity for these companies to come out with newer business model which can beat this cycle.

Even the question of hedging is a double-edged sword for these companies as there is huge risk associated with it. Any wrong call in the forex market can result in a loss which these companies cannot afford to take, unlike large players like TCS, Infosys, Wipro and Satyam.

8 October 2007
Source: The Economic Times

BPOs to witness higher attrition rates in 2 years: ASSOCHAM

Industry body ASSOCHAM has said that the BPO sector in the country is likely to face a manpower shortage of 30-40% over the next two years with an increasing number of youth opting for careers in aviation, retail and hospitality segments. The BPO sector is facing an attrition rate of 25-30%, which is expected to increase to 30-40% by 2009.

Apart from inclination towards aviation, retail and hospitality, insecurity in BPO jobs and stringent working conditions would also contribute to the expected manpower shortage in the near future, Assocham said in a statement.

“Factors such as attractive and definite pay package with incentives and working conditions seem to be more moderate and regulated in areas of aviation, hospitality, retail and animation,” said ASSOCHAM president Venugopal Dhoot. Due to stiff competition, BPOs have cut their operative costs which has impacted salary packages and facilities offered to the employees.

8 October 2007
Source: The Economic Times

Nasscom plans to recruit 20,000 youths from North East

National Association of Software and Service Companies (NASSCOM) with assistance from the Department of North Eastern Region (DONER) would recruit 20,000 youths from the eight states in the North East, including Sikkim, NASSCOM sources said on Sunday.

The initiative for the recruitment drive was being done with the help of DONER so that young talents from the region could join India's booming IT sector and business process outsourcing, sources in NASSCOM, the apex body of Indian IT and service companies, said here today.

Nasscom sources said 8,000 would be recruited from Assam followed by 3,500 from Tripura, 2000 in Nagaland, 1,500 each from Mizoram, Meghalaya and Arunachal Pradesh and 1000 each from Manipur and Sikkim.

7 October 2007
Source: The Economic Times

IT won't be a blockbuster show this quarter

Higher wage bills (on account salary hikes and new employee additions) and lower employee utilization rate are expected to pull down the average net profit growth of frontline IT companies in the second quarter (July-September).

According to estimates by key brokerage houses, average quarterly net profit of the top five IT companies is expected to be 1.7% lower compared with the previous quarter (April-June). This, despite the fact that quarterly revenues have risen at an average 3% during the period under consideration.

While the growing strength of the rupee has been scaring away prospective investors in IT companies, analysts point out that the rupee has little to do with the sluggish performance of these companies during the latest quarter. While the rupee breached the psychological 40-mark to the dollar last month, it did not rise much in second quarter compared with the previous quarter. Consequently, companies that had entered into forward transactions as a hedge against the rising rupee did not gain much from these transactions. That has also contributed to the slackness in their bottom lines.

Moving forward, the strength of the rupee and the slowing down of the US economy will remain the two major challenges for the sector. “Indian IT companies have a huge exposure to the banking, financial services, insurance (BFSI) vertical. The subprime crisis may affect the discretionary spending which accounts for 20% of the total IT spend by clients,” says Sushil Finance analyst Parikshit Kandpal.

However, he sees this as a temporary shock as a slowdown in the US could prompt more companies there to increase outsourcing to India in a bid to cut costs. IT shares have underperformed during the recent rally as investors expect margins to be under pressure because of strengthening rupee. These shares have been on a downtrend since March this year as the dollar began to weaken against the rupee.

6 October 2007
Source: The Economic Times

Coming soon, healthcare norms for BPO staff

Health minister Anbumani Ramadoss said on Friday that his ministry would soon issue health-related guidelines for people working in the IT-BPO industry to save this sector as “young kids in these industries are dying at 24 years of heart attack and diabetes”.

“They (BPO workers) don’t have any physical activity,” Mr. Ramadoss said, adding that a Chennai-based skin specialist had told him that in some of these companies, employees have even complained of skin problems due to stress and being in close confines in air-conditioned offices. The healthcare policy for the ITeS sector is expected to be finalized at a national conference in Bangalore in October end after discussions with the industry.

6 October 2007
Source: The Economic Times

Convergys to double India headcount

Outsourcing firm Convergys plans to double its India headcount of over 12,000 people in three to five years. The customer care, HR and billing services firm also plans to start catering to the India market next year.

The Cincinnati-headquartered firm, which has eight contact centers in India, plans to expand into tier II cities.
Convergys also plans to increase the non-voice component of work, including financial services and healthcare services outsourcing, from 5% to 20-25% as it doubles its workforce in the country. “The industry is moving from mere transactions to services like financial services, engineering and healthcare services. We are in the early stages of that shift,” said Convergys human resources senior VP Clark Handy.

With the rupee continuing to appreciate, the company plans to begin servicing the India market in a bid to offset the impact of currency fluctuations.

6 October 2007
Source: The Economic Times

NIIT partners Singapore co, bags Govt deal

NIIT has bagged about a multi million-dollar project by partnering with Singapore's Defence Science and Technology Agency (DSTA). As a part of this association, DSTA will be outsourcing development and maintenance support of the Singapore Government's one-stop e-procurement portal, GeBiz to NIIT Technologies. NIIT has been in Singapore over the last ten years and has been working with DSTA since 2000.

Declining to comment on the revenue model, the CEO, NIIT, Mr. Arvind Thakur said, "The contract has two parts. One is the licensing fee for the sale of intellectual property. The other component will be based on customization of the software and the number of users availing the platform."

At present, around 150 government agencies, representing around 15,000 users, upload their quotation requests and tenders on GeBIZ, while 20,000 suppliers use GeBIZ to submit their bids online and undertake transactions with various Government entities. The fully electronic process is expected to save lot of time and cost.

5 October 2007
Source: The Business Line

Som Mittal named Masco President

Som Mittal was on Wednesday appointed the President of National Association of Software and Services Companies (Nasscom). Mittal, who is the head of services business of Hewlett Packard for Asia Pacific and Japan, will succeed Kiran Karnik and will assume office from January 2008.

Nasscom Chairman Lakshmi Narayanan said Mittal's extensive experience in the IT industry will be of great value to the sector.

3 October 2007
Source: Financial Express

Outsourcing market remains strong

Notwithstanding the continued gains posted by Rupee vis-à-vis the American currency in the past few months, the urge to offshore work to India remains strong.

Asserting this in an interaction with The Hindu, Shiva Ramani, Co-Founder and Chief Executive Officer (CEO), Cybernet-SlashSupport (CSS), said "the macro picture of wanting to offshore to India is still there."

At the moment, cost benefits for India still remained. However, those moving away from pure cost arbitrage to value arbitrage would be the ones who would survive in the long run, he pointed out.

2 October 2007
Source: The Hindu

3i offers citizen service centers

The city-based 3i Infotech has been selected by the Haryana Government for establishing the e-Disha Ekal Seva Kendra Project, which involves setting up over 322 citizen service centers in Haryana. The centers will serve as a single window service delivery channel for Government services. In order to roll out the project, 3i Infotech will collaborate with Haryana State Electronics Development Corporation, the state’s nodal agency. The company will set up centers in Gurgaon, Faridabad, Rewari, Mahendergarh and Mewat districts, said a company release. Village-level entrepreneurs, who will be selected by 3i Infotech, will operate the e-Disha Ekal Seva Kendras. Based on a franchisee business model, the project also aims to encourage employment in the State. A wide range of G2C services and value-added customer services will be made available through the seva kendras, the company release added.The 3i Infotech scrip was up by 1.62 per cent to Rs 150.2 on the BSE today.

2 October 2007
Source: The Business Line