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Effect of Stronger Rupee vs Dollar

 
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Will this change the IT landscape in India? What do you guys think?
 
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Originally posted by Jothi Shankar Kumar Sankararaj:
Will this change the IT landscape in India? What do you guys think?



The latest I checked $1 = 40Rs, How does that make the rupee even remotely strong, it can only be considered as less weak.

Will consider replying to the post when/if we the currencies get to equal terms.
 
Joe San
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I don't know if you are aware of the exchange rates last year. It was around 45 for a dollar compared to 40 a dollar this year means a drop in the profit rates for IT companies that are heavily dependent on the US market. So to offset this, the companies may resort to any means to maximize their profits...so from this context, I just wanted to know what will be the side effects to IT landscape in India?
 
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I have seen optimistic replies like 'Yes India should not have to depend on maintenance projects alone. We should develop our own product.' etc etc and the other side of the story is that jobs will move out of here to other cheaper markets.

The reality of why we have many maintenance projects in India is that developers come cheap here and the company will not take up projects where more than 10% of the budget (approximately. Need not be true for all cases) is spent on salaries/other expenses. Furthermore one need not know the bigger picture of a system to maintain a system. That is not to say that a bigger picture is not necessary. In most cases a developer just changes a page or two and a java file or two and the request is over. Enhancements that span more than 30 days will better test a developer's design and approach to the problem. We have a system right now where web developers understand a few struts tags and a few snippets here and there. After a few years they mutate into managers whether or not they have management skills. Very few companies in our industry groom employees into a strong technical line.

When it comes to development projects I can see very few that have succeeded thus far in the Indian IT industry. Success stories are few and far between. I dont think I can pin point the reason for this. I think it is a combination of the need for better architects, better developers and for the most part better management. I have seen cases where estimates have been reduced from 1000 days to 100 days just to impress a client and cases where additional features are suggested by management when the core features themselves do not work. To survive in development is going to be hard. I dont see that happening. I could be wrong, but going by the history of it, it looks like a safe bet to say that it is not going to work out.

The quality of our work force is also decreasing. Companies are ready to shell out good cash to get fresh people out of college who have a 50% consistent record in their academics. 50% ! These are the same people that will end up supporting applications and making them. The worst part of it is that as the company grows bigger it will be harder to manage the whole lot and this could lead to good developers leaving because they are frustrated with lack of good recognition / compensation.

If the dollar rate drops significantly any further I can see another bubble coming along. If the rupee becomes stronger every year it means less profits for companies that depend on client's located in the US. It will probably go downhill from there
 
Devesh H Rao
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Originally posted by Jothi Shankar Kumar Sankararaj:
I don't know if you are aware of the exchange rates last year. It was around 45 for a dollar compared to 40 a dollar this year means a drop in the profit rates for IT companies that are heavily dependent on the US market. So to offset this, the companies may resort to any means to maximize their profits...so from this context, I just wanted to know what will be the side effects to IT landscape in India?



And if you knew the exchange rates were 48 Rs at one point in time with the US market exposure being more, so now we have a differential of a 20% change in the exchange rates and IT industry growing at it own pace.

Try explaining to me how is that possible if economics was as simple as a direct corelation between exchange rates and industries.

India had a booming textile industry once which collapsed with the cheap textiles from the industralized world, it did so coz the industry did not see it coming and failed to adapt, if the indian it industry adapts they survive else they go bust.

Why US exchange rates, take oil for example. India is more dependent on Oil than US exchange rates. once upon a time $40 gave jitters but take the case now. Oil's around $70 and the industries have more spunk to absorb the shock because there is more fundamental strength. The same is case with IT... companies which are fundamentaly strong will grow stronger while any run of the mill IT company may well wind up.
 
Joe San
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John,

Did you mean by your post the work force in the us?? "The quality of our work force is also decreasing. "
 
Joe San
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Originally posted by Devesh H Rao,

India had a booming textile industry once which collapsed with the cheap textiles from the industralized world, it did so coz the industry did not see it coming and failed to adapt, if the indian it industry adapts they survive else they go bust.



So how are they going to adapt?? They surely will not compromise on the profit margins...What other ways will this be taken care of so that they increase their profits constantly due to stronger rupee...
 
Joe San
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I just want to know the real scenario because I belong to the Indian IT industry and I would like to get a projection on how things might shape up in the future. Also this topic looks interesting...
 
Devesh H Rao
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Originally posted by Jothi Shankar Kumar Sankararaj:



So how are they going to adapt?? They surely will not compromise on the profit margins......




Thats an assumption being made which may not be entirely true in the long run. Measures like working on weekends or cost cutting are or work in the short term. Companies which have good management know these measures are short term and do not pay off. The company diversifies or changes the business model. search for TCS and bioinformatics and molecule patents if you want an example of IT thinking out of the box.
 
Joe San
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For now lets keep it to programming in Java. Let's not think out of the box...As a Java programmer, I would like to foresee where I would stand in India after 5 to 10 years from now.
 
Devesh H Rao
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Originally posted by Jothi Shankar Kumar Sankararaj:
For now lets keep it to programming in Java. Let's not think out of the box...As a Java programmer, I would like to foresee where I would stand in India after 5 to 10 years from now.



Thats the problem, when you tie yourself to technology and not knowledge, you are dead the moment technology changes.

Frankly speaking, has it ever crossed your mind that its all about continous self development if we want to maintain relevance in the world and it applies to the industry as well.

and as far as where do you stand in india in 5-10 years would depend on what you do today and what you do everyday for the next 5-10 years.
 
Devesh H Rao
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Originally posted by Jothi Shankar Kumar Sankararaj:
As a Java programmer,



Learn to be a programmer not a java programmer.
 
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I would like to foresee where I would stand [...] after 5 to 10 years from now.


Don't we all
 
Joe San
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I guess you are not understanding what I really wanted to know. If you read "Times of India", there was a news today that said "IT recruitments are slowing down in India" and the reason they cite is the Rupee vs the Dollar game. So if this is going to continue what would happen to the Indian IT landscape???

As far as technology goes, everyone will definitely want to know the latest happenings...I'm very desperate in that. I've already switched from a different domain to this IT because of the reason that the opportunities are wide open. Such news when read or heard makes me think again why I came into this line...I don't regret or whatever but it brings in a sense of fear. That's all it.
 
Devesh H Rao
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Originally posted by Jothi Shankar Kumar Sankararaj:
I guess you are not understanding what I really wanted to know. If you read "Times of India", there was a news today that said "IT recruitments are slowing down in India" and the reason they cite is the Rupee vs the Dollar game. So if this is going to continue what would happen to the Indian IT landscape???

As far as technology goes, everyone will definitely want to know the latest happenings...I'm very desperate in that. I've already switched from a different domain to this IT because of the reason that the opportunities are wide open. Such news when read or heard makes me think again why I came into this line...I don't regret or whatever but it brings in a sense of fear. That's all it.



Fear is understandable and in some cases desirable atleast it makes you realize that we cannot take things for granted. In fact if I take your case itself I do not know which domain you were in previously but if you were good in that domain and you are good with logical/technical skills required in IT you actually are at an advantage in companies which provide IT services/solutions for the domain which you were related to previously to a person who is just good technically.

As far as you thinking why you came into something, it only means you made the decision for the wrong reasons.
 
Deepak Bala
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Originally posted by Jothi Shankar Kumar Sankararaj:
John,

Did you mean by your post the work force in the us?? "The quality of our work force is also decreasing. "



No, my reference is to the Indian IT workforce.

search for TCS and bioinformatics and molecule patents if you want an example of IT thinking out of the box.



It is to be seen how successful this venture is. It is not quite clear how the entire project operates when they are to deliver a molecule instead of code. So it raises the question 'Are we really talking about software here ?' in relation to the TCS bio project.

Thats the problem, when you tie yourself to technology and not knowledge, you are dead the moment technology changes.



That is true. If java dies in 5 years and .NET or ruby rules, we must learn these technologies and how to design them.

If you read "Times of India", there was a news today



Dont let a little newspaper article scare you. There are 2 concerns here.

1. Concern that IT will move out of India
2. Concern that java will move out of IT

Both can be addressed well if you learn something new everyday. Keep learning and dont stop. If option 1 happens (not 100% of course), other companies will still want you for your skill and they can rope you into their country. If option 2 happens you will still know some other language and you can survive. Remember that java will not disappear in a day. It will take several years before it fades out. Several.

I've already switched from a different domain to this IT because of the reason that the opportunities are wide open. Such news when read or heard makes me think again why I came into this line...



If you keep learning you need not fear anything.
 
Joe San
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John,

quote riginally posted by Jothi Shankar Kumar Sankararaj:
John,

Did you mean by your post the work force in the us?? "The quality of our work force is also decreasing. "



No, my reference is to the Indian IT workforce.



How did you conclude this?
 
Joe San
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I guess we all deviated the topic here. Just imagine I run a IT company that brings in 100 dollars = 4000 Rs a day for me and I gain 50 dollars = 2000 Rs in profit apart from paying my employees and the running cost. Now when the rupee heads stronger, for the 100 dollars that I get now, I'll just get 3000 Rs and still I'd pay 2000 Rs for salary and running cost but my profit margin is just 1000 Rs which from a company's stand point is bad. So what will companies do in such scenarios and what if this gets worsened???
 
Ulf Dittmer
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Originally posted by Jothi Shankar Kumar Sankararaj:
So what will companies do in such scenarios and what if this gets worsened???



They diversify their revenue sources. If only half the income were in USD, then it's unlikely the company would go under no matter how low the USD sank.

Or they try to get expenses down, but since the biggest chunk of those are likely to be salaries, that carries its own set of problems.

EADS/Airbus is one of the biggest examples: expense are in EUR for the most part, while income is largely in USD. Bad combination.
 
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So what will companies do in such scenarios and what if this gets worsened???



They will have to come up with something different. A different business model that will still rake in profits. They might try to get more clients from other countries. Most innovative ideas will help the company survive I guess

How did you conclude this?



Have a look

2005
http://inhome.rediff.com/money/2005/dec/30vision.htm
http://offshore-outsourcing.org.uk/oftimes/Pages/2005/offshore_news335.html

2006
Ramadorai - CEO of TCS talks to NDTV about IT skills shortage



One way of solving this is to improve the education standard. That is a far off bet since the current education system is not very flexible.

The other way is to decrease standards to address the problem immediately, which is what is happening. The joining requirements for me was somewhere between 70 - 80% in academics. This has dropped to 50 - 60% to rake in more people. The pass mark being 45% you can imagine the type of entry criteria there. Furthermore a software company will hire you regardless of what degree you major in. Mind you that the degree that you have and your academics have nothing to do with how you perform at your job. However the decrease in standards is very clear. People who do not know the difference between RAM memory and computer speed are hired as software engineers in the hope that the company's initial internal training (if it has one) will somehow transform them. Not all candidates are good learners and only some make good in the end to support a maintenance project.

The view of the industry right now is that anyone is a software engineer. They want to hire you, train you and a lot is expected of you. In most cases no one specifically trains you for that project. No one can do justice to the work they do when all they know is bits and pieces of what they are doing. There is a big difference between what IT is and what the IT industry is. In the Indian context at least, I love IT but the IT industry sucks. The industry is largely made up of companies that maintain applications written by some one else and an unstable workforce holds it together. Unstable because they are less competent than they used to be and are changing jobs more frequently.

Your fear here is that these companies may lose out once the rupee loses ground. Do not focus on the company or the industry or the technology that you know. Focus on yourself and the technology; that is booming; that you dont know. That is how you can ensure your survival and competence. Also ask yourself if you like IT. IT can change very fast and job opportunities might not always be this good. Your market value is directly proportional to your ever updated competence in different technologies
[ October 05, 2007: Message edited by: John Meyers ]
 
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Originally posted by Jothi Shankar Kumar Sankararaj:
So what will companies do in such scenarios and what if this gets worsened???



I'm not a finance wiz, but there are ways to work around. Companies might need to resort to hedging wherein companies might transfer the currency risk to party who are ready to take position in that particular currency. Google out to know more over currency hedging. Another option is to concentrate on countries other than US. Additionally , Indian IT should start tapping the local market needs as well. Returns may not be that lucrative, but it's high time we start catering to domestic market. It has big huge potential.
Other than these, RBI can also play a role if it feels things are going way too fast and out of hand. They may come up with resorts which can stop strong FII money coming to India and strengthening rupee ...

In short, don't worry much over things which are beyond your control- better concentrate on sharpening skills so as to be prepared for any untoward situation.
 
Deepak Bala
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They diversify their revenue sources. If only half the income were in USD, then it's unlikely the company would go under no matter how low the USD sank.



Agreed if the other half can cover the expenses and make profit

Or they try to get expenses down, but since the biggest chunk of those are likely to be salaries, that carries its own set of problems.



Yep ! For example - Indians took a salary hit when the bubble burst, assuming they still had a job
 
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I think we'd see slowdown slowly

The raises are going to get affected, besides this most companies these days offer variable component in the salary package and the variable component depends on your performance as well as company's performance. As profits get lower, the variable component actually paid to the employees would get lower.

I am already facing this problem and my pay has been affected badly!

I think it should affect most companies - the biggies like Infosys might be protected because they never went over the top with salary hikes when the software industry was booming. Thus their profit margins are still high enough to continue slightly slow but steady growth that they foresee & promise to their employees. However, I won't be surprised if companies start laying off few people if USD falls below 35 INR.
 
Varun Khanna
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On a side note- This topic looks more suitable for "Job Discussion" forum than for "Meaningless Drivel" ...
 
Joe San
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"However, I won't be surprised if companies start laying off few people if USD falls below 35 INR."

This looks a bit painful.
 
Deepak Bala
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Originally posted by Varun Khanna:
On a side note- This topic looks more suitable for "Job Discussion" forum than for "Meaningless Drivel" ...



Thats what I thought too. Bordering on it I think.

This looks a bit painful.



Jothi, stop worrying about the future. Your future is in your hands. No amount of rupee Vs dollar war or bubble burst can affect you if you stay focussed and sharp.
 
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Oh relax, nothing will happen. Ruby will gain some more in the coming few days but after that it will go back to wherever it came from or wherever you guys want it to go.
Its not going to have an effect on all those java jobs out there.
[ October 05, 2007: Message edited by: Chunnard Singh ]
 
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Should I go for opensource as economy might go down?Python,mysql.I can create trivia websites to sell them to some shop keepers and keep afloat myself.
 
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Don't be an Engineer of steam locomotives, there is no future in it.

The US once made and sold nearly all the TVs and stereos in the world. Now they make none.

While Java is cool, I've used at least 20 languages professionally over the past 35 years. Java is not the last cool language that will be used.

Do what you love, you will make money at it. And what "it" is will change.
 
Joe San
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So to add on...today's paper "Times of India" listed the top 10 richest in India and it also said that among this top 10, was one of the IT giant and this one IT giant is the one among this 10 to have faced a decline in wealth and again the reason the quote is because of this $ vs Rs game.
 
Devesh H Rao
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Originally posted by Jothi Shankar Kumar Sankararaj:
So to add on...today's paper "Times of India" listed the top 10 richest in India and it also said that among this top 10, was one of the IT giant and this one IT giant is the one among this 10 to have faced a decline in wealth and again the reason the quote is because of this $ vs Rs game.



Jothi,

If you tried reading the article, you would understand that the wealth shown was calculated based on the market capitilization of the shares held by these individuals in companies owned by them and the share market price of the same. Now if the share price of a company goes down, the persons calculated net worth goes down as well. The wealth has nothing to do with the $=Rs issue, it has to do with the share price.

And, there have been posts in this thread trying to explain the plain logic that good work corresponds to security. If you are confident about what you do, and about your abilities and are passionate about what you do, you will face the ups and downs you will not be affected in the long run.

If you are in this domain for quick gains and coz someone told you IT was "IN" so you jumped in then you are asking for trouble and no amount of any explaination is going to prove otherwise.

I hope you are the former.

Cherio.....
 
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Not overlooking the discussion so far or anything, but is it a case of Rupee getting stronger, or is it actually Dollar thats getting weaker?

Now I know nothing at all about how money markets work, but what can RBI do to keep Rupee cheaper, other than reducing the interest rate, may be? Does this work like a normal market? Can they make Rupee cheaper by pumping a few hundred billions of it into the market - basic supply vs demand thing? And if RBI want to do that, would they not need to acquire it in the first place, and that kinda defeats the purpose, right?
 
Ashok Mash
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Also, while the appreciating INR could bring down the net profit sums down, wouldn't it be worth more? As in, wouldn't that profit give Indian companies the key power to invest, expand and compete against the wealthy MNCs? Indian companies traditionally held the advantage of cheaper human resources, which I believe will continue to stay that way, unless the rupee vs dollar ratio changes dramatically of course!

Just thinking out loud!
[ October 08, 2007: Message edited by: Ashok Mash ]
 
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but what can RBI do to keep Rupee cheaper

Buy more and more $
 
Ashok Mash
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Originally posted by Sameer Jamal:
but what can RBI do to keep Rupee cheaper

Buy more and more $



Well, I guess that partly answers my question, but not fully. How would RBI pay for it? Would they pay for it by taking rupee out of the market, or do they release some other sort of wealth to buy dollars? Gold? Bonds?
 
Manish Hatwalne
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What sort of measurements companies like TCS take to reduce effect of such effect? What can be done here for hedging? I am also facing similar problems...
 
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Water flows from high to low, unless there is some barrier to prevent it. When levels are equalized, the water stops flowing.

The only reason an hour of labor in America had been valued at ten hours of Indian labor is that, once upon a time, labor in India was comparatively not very useful due to India's remoteness from foreign markets. This remoteness from markets was partly physically, and partly due to politics (it doesn't pay to create wealth in places where it is easily taken by others).

With changes in politics and MASSIVE improvement in communications technology, India is no longer so remote. This is like the breaking of a water dam -- you get a mad rush of flowing waters until levels are no longer so disparate. Likewise, we saw a mad rush of flowing capital.

As Indian labor becomes more useful to the world, monetary exchange rates (and salaries) will shift to reflect the fact.

You cannot expect that when equilibrium is reached Indian workers will still be paid 10% of what western workers earn -- unless you restore the trade barriers, in which case those strengthened barriers will reduce the demand for Indian labor. If the reduced barriers result in Indian labor being as much as, say, half as desirable as labor closer to home, then salaries and exchange rates (in both countries) will continue shifting until Indian programmers earn half as much as western programmers.

If America's economy declines to the degree that Indian labor becomes MORE valuable to employers than American labor, then salaries and exchange rates will reflect that, too.
 
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Originally posted by Ashok Mash:
Not overlooking the discussion so far or anything, but is it a case of Rupee getting stronger, or is it actually Dollar thats getting weaker?


Its more like Dollar getting weaker. Rupee won only 3.4% against Euro between 09.02.2007 and today. In any case the Dollar has lost in the last year against a lot of currencies (for ex. Euro and chilean peso).
I think its quite healthy, because US has such a high trading deficit. Devaluation of the $ helps US-locals against importers and US-exporters against local competitors. US-consumers have to pay higher Dollar-prices for goods from India or Europe. Peanuts butter and US-books are getting cheaper for Indians and Europeans.

According to a currency site in german Rupee lost only against Australian and Canadian Dollar, no changes against polish sloty, neusealandian Dollar and won against all other currencies.
[ October 09, 2007: Message edited by: Axel Janssen ]
 
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Originally posted by Ashok Mash:
Not overlooking the discussion so far or anything, but is it a case of Rupee getting stronger, or is it actually Dollar thats getting weaker?

Now I know nothing at all about how money markets work, but what can RBI do to keep Rupee cheaper, other than reducing the interest rate, may be? Does this work like a normal market? Can they make Rupee cheaper by pumping a few hundred billions of it into the market - basic supply vs demand thing? And if RBI want to do that, would they not need to acquire it in the first place, and that kinda defeats the purpose, right?



Rupee is rising as well as dollar is falling. So in short, both are doing their part. Rupee rise is primarily due to demand for Rupee. Foreign investors are pouring money in Indian markets and in-turn Rupee is getting more in demand. With the kind of growth Indian economy is witnessing, FII are making money by Rising markets and additionally by rising Rupee. Every investment made in march'07 has earned them additional 15% only due to Rupee rise. RBI can get this thing in control by keeping interest rates down, also at times they tend to purchase dollars to surge-up $$ demand.
My 2 cents, although I must add there must be many other methods/ logic to above as well
 
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Originally posted by Ashok Mash:


Well, I guess that partly answers my question, but not fully. How would RBI pay for it? Would they pay for it by taking rupee out of the market, or do they release some other sort of wealth to buy dollars? Gold? Bonds?



RBI as various internal channels to spend. Things such as Government bonds, stock etc. has been used to purchase $$. However it's all limited and they can look onto government to assist, google out for "Market Stabilisation Scheme (MSS)" to get some idea.
[ October 10, 2007: Message edited by: Varun Khanna ]
 
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