Jessica Davison "Offshoring Fortunes Fluctuating" & "Offshoring in Reverse"

Kenney, Brad. "Offshoring in Reverse." Industry Week Vol. 256. Issue 10. Oct 2007 41-42. 9 Nov 2007 .

Murray, James. "Offshoring Fortunes Fluctuating." IT Week. 7 May 2007 19. 9 Nov 2007 .

I chose two related articles in order to look at the influence of currency fluctuations on IT firms. Specifically, these articles examined the business model of Indian IT firms and how recent U.S. currency fluctuations have the potential to change Indian IT firms’ business models. These changes may lead to dramatic changes for U.S. firms as well.

“Offshoring in Reverse” discussed that Indian IT firms are starting to hire U.S. firms in order to capture more U.S. market share. This additional investment is worth it to these firms to gain market share. “Offshoring fortunes fluctuating” pointed out that one of the major reasons for this change is the weakening dollar and the relative appreciation of the Indian rupee. As of May 2007, the rupee had increased in value by 10% relative to the dollar; the most dramatic improvement ever. The article stated that if the trend continued, U.S. firms would likely pay the price because Indian firms would increase their prices in order to maintain their 25% profit margins.

These articles also discussed that since most of Indian firm’s expenses are in rupees, but now those expenses are increasing since the rupee is appreciating; the additional expense of hiring U.S. IT professionals is declining for these Indian firms. To me this demonstrated the important role that foreign exchange markets play in business. Prior to the weakening dollar, the reason that Indian firms were able to be so profitable was because the rupee was valued so low, so expenses were less; yet the Indian firms were billing in dollars which were worth substantially more. I never really thought about how Indian IT firms were so profitable because only the lower labor costs are what are publicized.

I thought these two articles were extremely interesting. Lately on the news it seems that every day the dollar is weakening in value. Although it is fairly obvious that this has tremendous implications for the U.S., I did not ever think about the connection to IT. In this respect, I thought these articles were interesting because it now appears that Indian IT firms that are used by U.S. companies are now hiring more and more U.S. IT professionals. It seems to me that if the U.S. companies were more aware of this trend, they might shy away from outsourcing this function to the middle man (in this case the Indian firms) and just hire U.S. IT professionals directly. However, either way this trend seems to present a good opportunity for U.S. IT professionals since they are now being sought after instead of being replaced by other less expensive professionals from abroad.

I also thought that these articles were interesting because both discussed that this trend is not just important for the U.S. but for other countries as well. One example given was the importance this has for the U.K. and Europe. Since the value of the pound and Euro are still strong, Indian IT prices have not risen; however, European countries have noticed the trend that is emerging in the U.S. and is on alert for future currency fluctuations that could affect them directly.

It also struck me as very interesting that the Indian IT firms were not willing to cut into their bottom lines even though this industry averages a 25% profit margin in India. It made me wonder if these companies are basing their business model off of past trends of U.S. companies. I kept thinking about Exxon Mobil’s profits last year – the highest ever despite record oil prices. Perhaps the Indian IT firms have observed that record profitability can still be realized even when the costs are passed on to customers.