Falling Dollar Endangers Offshore IT Services TCO

The last twelve months witnessed record high variations in the dollar-to-rupee conversion as the US dollar fell against most currencies including the Indian rupee. In the quarter ending June 30, 2007 the dollar saw more than a 7% fall, resulting in a dramatic drop in Indian providers' revenue realization in rupee terms. Given that 60% to 80% of income is in dollars and more than 50% of providers' costs are incurred in rupees, offshore providers are struggling to find ways to cope — including asking clients to bail them out by increasing billing rates or, in some cases, renegotiating master services agreements. Instead of outright rejecting pleas to increase rates, sourcing and vendor management professionals should listen closely to their suppliers in order to understand their plan for handling the fluctuation. As part of these conversations about rates, Forrester recommends that clients be wary of providers' possible intent to dilute skill-level and quality in order to cut costs.