Its hard to read the newspapers these days without reading about the impact of dollar depreciation on Indian export industry, including IT Services and BPO. Large players like Wipro and TCS have taken the hit (stock markets will tell you that), but have also been able to come up with plans to counter the issue. These include:
- Smart hedging
- Repricing some contracts
- Increasing productivity
- Geographical diversification
Some of these options are really not available to startups in these areas. Wage inflation is further setting back the profitability of these companies. What are startups doing about it? Small-mid sized firms would be worst affected by the rising rupee, because of their inability to deal with the issue. In my opinion, startups need to differentiate and establish the value of their offering more ever before. Additionally, the innovations around platform based services should help delink the revenue and direct cost side of the picture.
Interestingly, the downward trend is a good one for firms bringing in dollars to invest in India. Unfortunately, that means even more downward pressure!
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Krish, I think that problem might have been solved – could you attempt a repost, I’m keen to hear what you had to say there…
– Deepak
Why would start up think about dollars? They should concentrate on differentiating than thinking on dollars. I don’t think hedging would be really an option for a start up to think about to safeguard themselves from depreciating dollars. Hedging would work only for established players. Even established players should think about coming out with products rather than playing games on hedging which won’t add value for them in long term of their business. They could do hedging, but their profit margins and their image as a company could severely get hurt. Big 3 should think about using their cash reserves in an optimal manner by going for acquisitions. They’re doing it. No doubt. Well, coming to start ups, I honestly believe that there is no reason to panic for depreciating dollars. Start ups must think only on innovation, value adding and differentiation than cheap dollar rupee arbitrage. This is definitely not for start up game. If start ups had this mentality then its really sorry state of affairs for them in future course of their business.
Coming back to stock markets, one of the fund manager from JM Mutual doesn’t have single IT scrip in his portfolio. His reason is as simple as that. Subprime! Indian start ups should try to overcome the real problem of identifying the niche rather than depreciating dollars.
I give up…:-(