The Weak Dollar: What, Me Worry?

It’s quarterly earnings time in India and investors have been waiting with baited breath to find out how badly the weaker U.S. dollar had battered the leading IT services providers.

So far, so good. Infosys, the second-largest outsourcing company on the subcontinent, said its operating margins had actually improved and annual revenue will grow by up to 35 percent for the fiscal year. Experts expected mid-market Indian firms to suffer more from the currency situation, given their thinner profit margins. But iGate Global reported that its profits for the quarter grew 127 percent over last year during the same period. (For more results, see “Outsourcers Thrive Despite Weaker Dollar.”) Announcements of quarterly results will continue through next week.

Meanwhile, as the New York Times noted yesterday, officials in Washington have been largely mum as the dollar has neared record lows against several global currencies, because a weaker dollar has its upside. American exports are cheaper, and therefore more attractive.

So… the dollar continues its decline. No biggie?

Not exactly. Especially getting back to the topic of currency risk and outsourcing to India.

No one expected Indian vendors to suddenly hit the skids. And the reporting of strong revenue numbers out of Bangalore this quarter doesn’t mean everything is status quo — for Indian vendors or their customers. IGate, for example, said it was able to manage the impact of the rupee’s appreciation vis-ŕ-vis the U.S. dollar through a combination of currency hedging and cost cutting, including moving more work to India where the margins are higher. Infosys and iGate both said they negotiated better (read: higher) prices from customers. And according to the IDC News Service report, Indian outsourcers are capping their HR costs by hiring more employees from universities rather than industry.

So, fewer people managing your outsourced work onsite, higher prices, less experienced workers. Nothing to worry about, right?

(For those who are still concerned, check out “The Rupee’s Rise, the Dollar’s Demise and You: Managing Currency Risk in Offshore Outsourcing.”)