Dayanand Menashi

How Much Longer Will Indian Outsourcers Offer Cost Advantages?

Sankar,
If you see my equation, it boils down to the fact that the USD will change from Rs 40 to Rs 23 in 10 years.This is based on the fact that USD was Rs 16 in 1990 and Rs 40 by 1998. So actually I am still conservative in my approach.

I considered 10 years experienced professional just as a benchmark.The 3-5 exp folks comparison will also be in a similar line.

D

How Much Longer Will Indian Outsourcers Offer Cost Advantages?

Deepak,
The gist of your reply what I understand is "VALUE ADDITION". I agree with you on that point.It is the oldest business rule that has never changed nor will ever change.In essence, till you bring value addition to your customers they will keep on coming to you.The day you stop it they will go somewhere else.

Till date the Indian consulting companies were bringing the value addition of "LOWER COSTS".But companies like Accenture, previously known as Andersen consulting were established in fifties and developed there expertise in helping the customers in improving their business processes.In fact in those days a consultant was purely hired for those reasons.

<b>FIRST PROJECT BY ARTHUR ANDERSEN :</b> Accenture originated as the consulting division of Arthur Andersen which was founded in 1913 by Arthur Andersen and Clarence DeLany as Andersen, DeLany &amp; Co. Its origin goes back to 1953, when General Electric (GE) asked Arthur Andersen to undertake a feasibility study about payroll processing and manufacturing automation using computers for GE's Appliance Park manufacturing facility near Louisville, Kentucky. Arthur Andersen recommended installation of a UNIVAC I computer and printer, and GE agreed, which is the start of what became the first-ever commercial computer in the United States. Joe Glickauf was Arthur Andersen's project leader for the GE engagement and was responsible for the payroll processing automation, launching the era of data processing. Considered to be the father of computer consulting, Glickauf headed the Arthur Andersen administrative services division for 12 years.

Accenture since its first project fifty years back has mastered the art of improving business processes of its customers , the most important thing to note is that it has taken them decades to master this.The challenge for Indian IT consulting companies is to mirror this achievement in years instead of decades.

<b>WHEN CAN WE SAY INDIAN IT CONSULTING COMPANIES HAVE ACHIEVED THIS THRESHOLD? :</b> The day revenue per employee for Infy or Wipro is same as that of Accenture or HP. We all know its a long way to go....

How Do India's Rising Wages Affect Its IT Outsourcing Companies?

The avg experience has come down, but the company is also becoming more mature in terms of processes , what this means is that the value added by employees to clients is lot more.In other words.

Let us say five years back for a project of $1mn/year (4 onsite resources and 10 offshore resources) the avg experience of offshore team lead was 5 years.Now I am sure it has gone down to 3 years.This means the work done by a five years experienced guy in 2002 is sames as the work done by a 3 years experience guy today. So the wage inflation is justified with the increase in value addition.

Let us take a non IT example : You have hired a fresh typist who can work on 10 documents per day and you pay him $100/day. Let us say in 1 year your office has improved its processes and the fresh typist can work on 12 documents / day. So if you pay him $120/day then even though the wages have increased, but the cost of creating one document has not increased.

This is what I am trying to explain in my article that even though the offshore wages are spiralling but the cost / employee is infact decreasing.

Which IT Outsourcing Company Gives Maximum Return on Covered Calls?

I guess I am getting your point......let me give an example and make sure if this is what you meant.

1. Looking at the put prices for INFY today for Jan-08 strike price of $55, it is $6.50
finance.yahoo.com/q/op...;m=2008-01

2. If I write naked put for 300 shares then I get $1,950 directly.

3. Before Jan-18,2008 I should be ready to buy 300 shares for $55.00 .

MAXIMUM PROFIT : $1,950 by zero investment (ignoring commission costs). This would happen if the share price of INFY remains above $55 for most of the time.

MAXIMUM LOSS : Theorotically I can loose ($16,500 - $1,950) = $14,450. This is if INFY would got to ZERO....:). Which I am pretty sure would not happen.

So practically I might loose some money if INFY let us say goes down to $45.00 by Jan-2008, but there would be a chance to recoup that money if INFY goes up to $48.50 ($55 - $6.5)

Sounds interesting PAL.....do you know if any online broker gives this option.I use Sharebuilder and I dont think they give this option....

Indian Outsourcing Stocks: Beware The Stronger Rupee

Thomas,
Being in IT consulting industry I can exactly understand your point. You know what is the biggest USP of ACN stock......it is that even though they are the world's biggest outsourcing company, outsourcing is less than 50% of its total revenue.Becausue its consulting revenues is more than that of outsourcing.

2006 figures
Consulting revenues - $9.89 bn
outsourcing revenues -$6.75bn

So for any investor that wants to invest in outsourcing business and also want to play safe....there is just one stock.....u know what I am talking about...

Which IT Outsourcing Company Gives Maximum Return on Covered Calls?

Covered calls are usually written when the amount of risk you want take is limited. For naked put or call there is a great amount of chance you can loose all your money.

SCENARIO : If my investment budget is $20,000 then this is what I would do:

1. Put $15,000 in a stock (and write a covered call) that :
i)I know the most about
ii)Its fundamentals are strong and its income is growing at least 20% per year.
iii)Its market cap is at least $5bn

2. $3,000 in a large cap company that pays good dividend.

3. $1,000 in some small cap stock where I am prepared to loose about 50%.

4.Put the rest $1,000 in a naked put or call where I am ready to loose all

Indian Outsourcing Stocks: Beware The Stronger Rupee

Hi Eric,
Good point on strengthening of rupee. I feel even Cognizant will be equally impacted with this because even it has most of their employees in India who are paid in Indian rupees.

And as well all know Cognizant's maximum revenue comes in Dollars. So as rupee strengthens their revenue remains the same but the costs increase, becuase they have to spend more dollars to convest to rupees to pay their employees.

Following is a simple example :

Let us say Cognizant has a project where they are expecting $1mn revenues each quarter. 40 people are working in India in this project.Avg pay for an employee in this project is Rs25,000 / month which is Rs 75,000 / quarter.

Therefore net pay for 40 people = Rs3mn / quarter.

If for first quarter 1USD = Rs 45.00 then the employee cost for that project for that quarter = $66,666 (Rs 3 mn / 45)

If in the second quarter 1USD = Rs40.00 then the employee cost for the project that quarter = $75,000

This is an increase in $8,344 which is a whopping 12% increase.

CONCLUSION : The impact of gain in rupee is not dependent as to where the company is headquarterd instead it depends on its headcount in India. In fact I dont see how Accenture wont be impacted because it is projecting to have around 50,000 people in India by the end of this year.

Thanks,
Dayanand
visit me @ annualreportanalysis.b...

Which IT Outsourcing Company Gives Maximum Return on Covered Calls?

As the difference was just $0.50 so I ignored that and took the next higher price that was $30.00 . The reason I did is because I dont think it is practical to write a covered call on a stock trading at $24.50 for a strike price of $25.00. Unless and until you are just happy with the premoim you get on writing the covered call.

Which IT Outsourcing Company Gives Maximum Return on Covered Calls?

Hi Ciba,
Please read the title of my blog again "Which IT Outsourcing Company Gives Maximum Return on Covered Calls?"


Also I have mentioned "For calculating maximum return, I have considered the next higher call price than that of the stock price. For example, the next higher call price for INFY, whose stock is around $50.50, is $55."

This is the reason I had to choose the $30.00 strike price for Satyam and I have been consistent with that rule for all other stocks.

I would appreciate if you be professional in your comments.
Thanks,
Dan.