Indian IT companies running for cover to Europe and cutting cost left and right to survive as US Dollar fetches less Rupees
Harish Baliga
Oct. 7, 2007

We told you again and again that these Indian IT companies could never compete if Indian Rupees is fairly valued against US Dollar. Free trade is great only if fair value in currency is maintained. The IT companies in India that live of American resources are now running for cover to Europe and cutting costs like never before.

Infosys, TCS and Wipro are increasing its exposure to Europe. They are trying to cut costs left and right. But let us explain you why these companies will be wiped out over time.

The wage inflation among Indian IT professionals is the highest in the world. International software companies operating in India like IBM, Microsoft and SAP are far more desirable places to work that body shopping Indian IT companies. Young software developers are demanding higher wages and they want to work on real software projects – not fixing legacy systems that American do not want to perform.

The shortage of ‘quality’ talent is very high in India because most of real good software and engineering talent leave the country after completing their undergraduate (BS) level education in India.

The European economy is actually more affected by the sub prime mortgage problem in America than the American companies. This is because the European economies are smaller and their boat easily rock when any storm comes. As Europe goes into recession, the Euro will fetch less – much less.

Rupees will continue to strengthen till it reaches $1 to Rs. 25. America will require some parity in currency valuation.

Eventually these Indian IT companies will lose their currency related advantage. Once you take that out, these companies are really badly managed. The main shareholders are traders. They treat software as trading people and their effort and make money on hourly wage difference between amount received from the clients and amount paid to the young Indian talent. The business model is that gouging commodities. How long can that continue in a free world where things are wired and information flows freely?

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