The impact of rising wages on the economics of offshore has remained a much-debated issue for quite some time now. The latest being Indian wages on the Rise: Is Outsourcing to the Country, India maintainable. To many they feel that there is no danger to the offshoring opportunity to India in near future because of rising wages.
However, of late, it is not the wage hike that is bothering the Indian IT firms. They are far more concerned about something else; the fast appreciating value of Rupee against the US dollar, which is affecting their margins. Majority of the IT firms in India do business largely with the U.S and a strengthening rupee hits does has its impact on their margins. The stock market already signaled by pushing the IT stocks down, even though a stronger rupee has been greeted overall because it is expected to bring down inflation.
There were all sorts of stories doing the round that rupee rise could hit IT revenues and hurt exports. Some of these reports have also quoted executives seeking active intervention by Reserve Bank of India (RBI), to "tame the rise of the rupee".
But experts believe that the RBI cannot do much to arrest the rise of Indian rupee even if it wants to, since it's the weakening of the dollar that has lead to this situation and not the other way round.
What the above finding means is that people who should be really worrying about this development are not the Indian outsourcing service provider but the US outsourcing buyers. And if the situation remains unchanged, the US companies will be left with very little choice, as they cannot move out to other location, because the situation is no different as other currencies have become equally stronger compare to US dollar.
If this is likely to happen then the price of offshore service will go up. And unlike wage hike and attrition, the companies literally will have nothing much to do at their disposal.