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Strong Rupee - Reason for ITES Companies to go Europe!

A common joke in Hyderabad these days as the intense Indian summer sets in is which is higher - the Rupee vs. USD exchange rate or the temperature. Both are hovering around 40, with unfortunately the temperature out performing often at above 40°C.

The Indian Rupee (INR) as fallen a full 10% since the beginning of the year (from Rs. 44.11 to Rs. 40.93 at the time of this writing). This has some severe implications on the ITES industry as most earnings of Indian ITES companies are in USD. The currency rate adjustment primarily means that the worth of those earnings has just fallen by 10%.

The trend in fall of USD is predicted to continue to about Rs. 35.00, although this might happen in a progression over the remainder of the year. This would be a full 25% in fall of value of USD earnings for ITES companies that have long focused on the US market.

Having campaigned actively to Indian software companies to increase investments in European market development, I find this a paradigm shift in the way Indian companies would view the global software market hereafter. Unlike the US market, continental Europe is a remakably difficult to penetrate. It often takes full-blown market development campaigns for several months before being accepted in the market as a credible supplier. Companies have been reluctant to make these investments though, since their expectation has been for the European customer to come looking for them in India and hand them contracts on a silver plate. Only a very few have accepted the reality in Europe that serious market development strategies and campaigns are needed here to establish presence, win customer confidence, revise delivery processes and develop competences needed to be successful here.

The weaker USD might compel Indian companies to more seriously consider market development investments in Europe. This would be an ideal risk-mitigation strategy to have earnings in EURO so that truly global positioning is achieved and business can be sustained through global macro-economic upheavels.


Subhash said…
Hi Ashant,

I agree with you. However, how do you get the message acroos to Indian Software houses. Most of them do not contribute to the idea 'no risk no fun'.

Ashant said…
Dear Subhash,

Indeed, that's the stance. Other than the global players like Wipro, Satyam, Infosys and TCS, the whole SME sector seems to be fully ignoring the risks of not diversifying and benefits of organized business development in Europe.

In my personal conversations with SME CEO's, I also got the impression that there is a sense of denial about realities of European business. People seem to assume that the _only_ thing that prevents them for capturing EU business is the language barrier, where as we all know there is much more to it than covering the language aspect.

CEO's also seem to be in denial of the fact that New European software companies are a real threat and eventually the European customer will have not much choice but to walk into the hands of Indian suppliers out of dire cost necessity. This, while Eastern Europe is already enjoying the best rewards of offshore outsourcing.

I think what we need is a "mover" in the Indian supplier market. This might be delivered:

# When SME's start noting European revenues of global players and wake up to the reality of doing it right

# The dollar indeed drops to Rs. 35 level, and USD business actually seems unlucrative to both buyers & sellers.

Short of the above, the SME market will be really slow.