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How to protect yourself against the crashing US dollar


Siddharth Sethi

February 14, 2008

Most IT companies in India, InfoBeans included, are facing the problem of the rising Indian rupee. The over reliance on the US market, (not that it is any body’s fault, it is just the largest market) has resulted in many IT companies facing increasing pressures on their margins.

InfoBeans has also faced increasing pressure on the rising rupee front. We have faced and are facing similar issues that everyone else is facing. The purpose of this post is to share what we are doing and in turn try to see if there are any thoughts from the readers.

Here are some of the steps that we have take to tackle the rising rupee.

  • Increase productivity -does not look like there is a better solution than this. Of course this required effort and there is no magic wand to just increase productivity. However there are certain areas that we can look at which increase revenues without increasing cost. Here is an example. We have alternate Saturdays off and work on the other Saturdays. However our clients never got billed for those Saturdays that we worked – and they knew that. So we talked to our clients and gave them two options – either we stop working on those Saturdays or they start paying for the hours worked on those days. Surprisingly, everyone agreed to pay for the hours worked on Saturdays. That meant an immediate increase in revenue to the tune of about 10%! Revenue potential that we unlocked straight off the bat. OK – maybe this is not increase in productivity but better billing. However the point is that without extra effort you are creating a win win situation. That to me is increase in productivity.
  • Increase your billing rates – Easier said than done. And this is not about just going and telling your client that you will start charging more from tomorrow. It is more about communication. How you put your case in front of your client. That is what made it was a little easier for us. We were proactive in informing our clients about the macroeconomic situation. Our account management team did a really good job on this. We kept preparing our clients for a rate increase and gave them solid reasons. Since our relationships are built on trust, we always got a positive hearing from our clients. Most of them agreed for a rate increase either immediately or within a short time frame. It is better to give them a short time frame so it does not give them a shock and allows them to plan their budgets.
  • Hedge your money – We have been successful in hedging against the rising rupee. The hedging helped us save on each inward remittance from our clients. Has proved to be in effective tool. We probably saved about 0.75 – 1% on each transaction. Having a stable client base also helps. It enables you to forecast the amount of money coming in and therefore hedge with peace.
  • Bill in a different currency – I know many companies are trying to charge in Indian rupees. However, we have not been too successful in that. Honestly we have not tried too hard doing that either. I know, however, some companies that have started doing that. One question that needs to be tackled from the client here is – why should I (the client) bear all the risk of the rising rupee? You should be able to answer that convincingly. The other question you would need to ask yourself is – if and when the rupee stops appreciating, and starts depreciating again, would you change your billing currency? That would be a little inconsistent. Consistency pays off in the long run. I would recommend going this route only if you are supremely confident that you will continue to bill in rupees moving forward.
  • Diversify your geographical market – This is a good long term proposition for any company in any industry. It does not make sense to continue to rely on just one geographic market specially in conditions of turmoil. Start small and start venturing out into different geographies. Remember the time when you first started off in the US market? Apply the same tactics. Get small projects first, hoping to convert them into larger ones later. At InfoBeans, we are trying to venture out into new markets. We are already working in the UK and hope to expand to the rest of Europe pretty soon – starting with Germany. The US meltdown gives us a good opportunity to try and pan out to the rest of the world.

I hope all or some of the points above would help you start thinking strategically to how to tackle the rising Indian rupee. Any comments are most welcome.

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