Rising rupee hits outsourcing

Tata Consultancy Services is planning to increase the share of its work handled in India to cut costs as the country’s information technology outsourcing companies scurry to adjust to an appreciating rupee.

The outsourcing sector, one of India’s biggest export earners, has suffered as its local currency has risen nearly 10 per cent against the dollar this year, its fastest rise in many years.

S Padmanabhan, executive vice-president for global human resources at TCS, said the company was aiming to increase the portion of its revenue generated in India compared with high-cost markets like the US because “if you shift work, your margin improves”.

“Even one percentage point can make a difference there,” he said in an interview with the Financial Times.

TCS, India’s biggest computer services company, earns 45 per cent of its revenue from work done overseas, mostly in developed markets near its clients’ offices, and the remainder from India.

Any move by India’s outsourcing sector to increase the amount of work shifted to the country will prove controversial as US senators recently launched a renewed attack on an industry they accuse of stealing American jobs.

But Indian outsourcers will have little choice but to undertake this and other measures, such as continuing to expand their operations in other low-cost countries, if they are to maintain their margins. The companies make most of their revenue in dollars, pounds and euros but incur most of their expenses in rupees.

Satyam Computer Services, India’s fourth largest IT outsourcer, on Friday reported its slowest quarterly profit increase in more than three years because of the stronger rupee.

Earlier, Infosys Technologies, India’s number two computer services company, announced it was lowering its full-year earnings forecasts for the first time as it battled the rise of the rupee, which has strengthened against most major currencies.

Mr Padmanabhan said TCS aimed to shift one percentage point of its revenue generation a year to India, representing about $43m in sales or the equivalent of 1,000 Indian jobs.

However, while margins are higher for work done in India, headline billing rates are much lower, so the company will have to generate additional contracts to cover the loss of revenue from work shifted to India.

TCS is also countering the stronger rupee by increasing the mix of non-engineering graduates in its workforce, as they tend to command lower salaries than engineering graduates.

Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don't copy articles from FT.com and redistribute by email or post to the web.