Indian BPO firms have made little progress with contracts that come with currency-protection clauses as customers abroad have mostly refused to share the risk, experts said.
While Indian exporters have historically gained because of the dollar?s rise against the rupee, the Indian IT-BPO industry had started factoring in foreign exchange fluctuations in contracts since 2008. The rupee?s appreciation since 2007 ? in November 2007 its value touched Rs 39 to a dollar ? chipped away the industry?s profit margins. Currency volatility continues to remain a headwind and in recent times, the euro is witnessing a downslide.
?It is very difficult to negotiate with customers on foreign exchange fluctuations. They also don’t understand forex rates and how it moves unless or at least until their treasury steps in. It is very difficult to convince somebody to share the risk,? said Vikram Talwar, executive chairman of the Board at EXL.
The firm has an unusually high adoption rate ? 60% of its contracts have currency protection built into it. ?These contracts are getting built much faster from our perspective. The reason is our company was set up by bankers and we understand forex issues. It takes a lot of time to educate the client,? he added.
The forex clause typically factors in a buffer of 10% fluctuation either way. ?It is a neutral zone where nobody gets affected or has an appetite to absorb it. If it goes to the extremes, and if I am gaining, I will pass on that advantage to the client. But if the client gains, he will pass on that advantage and prices will be adjusted,? Milind Godbole, president (APAC) at Aditya Birla Minacs said.
BPO firms such as Genpact, WNS, 24/7 Customer, Aditya Birla Minacs, and Caliber Point, among others, include the forex clause in their contract with various degrees of success.
However, executives from many of these firms said the clause is mostly dropped during negotiations when the customers points to their discomfort ? or when Indian firms think the clause may stop the contract discussion from going forward.
?Not everybody is willing to discuss. Some customers say they are not comfortable. The danger is that if the currency moves the other way, you have to pay back,? Keshav R Murugesh, group CEO of WNS, said. CEO of Caliber Point RU Srinivas said the currency protection is easier said than done. ?You can?t tell the customer heads I win, tails you lose. But some customers, depending on the quality of the relationship, might agree to take a re-look at pricing if the forex goes beyond a certain band,? he said.
He added his firm discusses the clause every time a contract comes up for renewal but it is never easy to implement.
Forex built into contracts is part and parcel of many export-oriented industries but was never adopted by the IT industry. But with long-term contracts now being signed, it is becoming a part of the negotiations, Nasscom president Som Mittal said.