Push for contracts in Indian rupee add to pressure on $18-billion BPO industry

Nov 11 2013, 09:16 IST
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Clients of BPO firms are now pushing for contracts in Indian rupee rather than the US dollar. Clients of BPO firms are now pushing for contracts in Indian rupee rather than the US dollar.
SummaryBPO industry, battling margin pressure and diminishing cost arbitrage, is set to take a further hit.

The health of India’s $18-billion business process outsourcing (BPO) industry, which is battling margin pressure and diminishing cost arbitrage, is set to take a further hit as clients are now pushing for contracts in Indian rupee rather than the US dollar. The trend, if it gains traction, is likely to skew the topline of BPO firms which have been enjoying the benefits of earning in dollars while most of the expenses were in rupee.

In addition, clients are opting for multiple contracts to other geographies, reducing the deal size outsourced to the Indian BPO companies, while wage inflation and increased cost of operation are acting as spoilsport for the sector. “We are now seeing clients going for BPO contracts in rupee so benefit of foreign exchange goes to the clients than the BPO vendors. Average project size has also come down. In the current environment, it is not easy to get bigger projects as clients are outsourcing in smaller chunks and negotiating harder on contract price,” said Sanjoy Sen, senior director at consulting firm Deloitte Touche Tohmatsu India.

Leading pure-play, BPO players in India have indicated a tougher business climate in their largest markets with clients taking longer to finalise spends. The NYSE-listed BPO firm Genpact, which has majority of its employees based in India, lowered its FY13 revenue outlook to $2.12-$2.13 billion from its earlier projection of $2.15-$2.20 billion on account of lower-than-expected revenue, while announcing the September-quarter results last week.

Similarly, the New York-headquartered BPO firm ExlService Holdings, which has a large presence in India, lowered its guidance for 2013 to $473-$478 million from $475-$483 million expected earlier due to the rupee depreciation and its year-to-date results.

Based on current visibility into client spend, BPO major WNS also revised its revenue outlook for FY13 to $464 million and $476 million from $462 million and $478 million, while announcing its July-September earnings.

Pradeep Udhas, partner and head - IT-ITeS, KPMG India, said that he is not surprised with customers opting for rupee contracts as BPO companies have more than 90% of their human resources based in India unlike the IT services firms. The biggest draw of the Indian BPO firms has always been lower costs and could always provide the talent pool. However, these firms realise that they cannot be just an India-centric player and they need to expand globally.

This expansion would entail costs and would be in foreign currency. “For the

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