The drastic devaluation of the Indian rupee over the summer has made offshore support significantly cheaper for both Indian pure plays as well as multinationals delivering out of India. At times like these, both service providers and service buyers look for tactical opportunities in existing offshore contracts. As service providers are seeing an immediate opportunity to improve margins, global clients purchasing offshore services may be curious about negotiating payment in local currency. But be careful not to react impulsively. Consider these Top 5 suggestions:
1. Resist paying in local currency. Buyers of offshore services should not play up the currency decline or be tempted to pay for services in local currency. The rupee has shown that it can bounce back, ultimately increasing service prices. A weak rupee can also mean increased inflation in India, in which case a service provider may not have the room to lower prices in a negotiation.
2. Track the promised improvements. Typically, price variations are built into contracts to capture the effect of continuous improvements in an operation. With a devalued rupee, the pressure to proactively and continuously improve the operation diminishes. Don’t rely solely on price variation. Carefully measure any promised improvements in services through key performance indicators and track them to progress.
3. Create a mechanism to adjust prices. To deal with currency swings throughout the duration of the contract, be sure to add a mechanism that (at least) annually adjusts sustained currency fluctuations outside a given bandwidth.
4. Ask for benefits instead. Was it ever difficult for your service provider to provide ad-hoc consulting? Were you waiting for a budget to create a “proof-of-concept” for an idea? Do you want to implement a pilot using your service provider’s assets? Instead of haggling over daily rate reductions, ask for such one-time services. This can be a win/win solution, since it offers you a benefit and is a unique event for the provider – one that does not affect costs for the duration of the contract as a rate reduction might.
5. Push back on price increases. If you are in the midst of negotiating an offshore outsourcing contract, study the financial terms. Now is a good time to push back on the cost-of-living adjustment increases that are planned over the duration of the contract.
ISG works with companies to address the multiple dimensions of managing an offshore service provider. A solid outsourcing contract ensures that all these dimensions are leveraged while creating a partnership in the process. Contact us to discuss shaping an outsourcing contract for your operation.About the author
Prashant works with enterprises to shape their operating models for a digital journey and brings 20 years of expertise in all aspects of applications and platforms, from designing transformations through the whole sourcing lifecycle. Prashant’s experience spans a range of industries, including Financial Services, Telecom and Media, Automotive and Utilities, and a range of geographies, including Europe, the Americas and India. Recently, he helped a Fortune 100 automotive giant consolidate its next-generation sourcing for applications, executing digital transformations right up to application management. He has also structured and run a digital transformation strategy and multi-project execution for a large logistics firm in the Nordics and set up a captive offshoring unit for agile product development in India for one of the world’s largest publicly-listed European entertainment companies.