The Hindu Business Line : Value proposition

One of the inadvertent and long-term benefits of the rupee’s recent appreciation against the dollar is that it is familiarising exporters with the possibility that the exchange rate may not always work in their favour and that governments may not always be generous with mitigating relief measures. This maturing, as it were, of the Indian firm has been in evidence ever since the rupee began its climb against the dollar; barring some of the traditional exporters, such as textiles, gems and jewellery that petitioned the Commerce Ministry for relief, the general response among the exporting community has been remarkably stoic. This is a far cry from the tendency of industry associations, particularly seen in the 1990s, to bemoan the adverse consequences of Customs duty reductions or excise duty hikes. If Indian firms had got used to competition from foreign investments by the time the 1990s ended, that happy trend has now manifest itself in the gritty determination of many exporters to re-orient their strategies in the global markets.

This is all to the good for it represents a recognition that protecting margins is not as important as retaining markets, finding new ones and broadening product offerings. Expectedly, software and high-tech firms are adept at this and most Indian IT majors have gone about adapting to the stronger rupee and wage hikes with élan. Some have reduced their exposure to the US markets with expansion into the European markets while still others are shifting a part of their offshore activities closer to clients in east Europe, Mexico or Latin America. The good news is that some mid-size software firms too are adjusting their plans to get over the two humps, of a strong rupee and of wage inflation. With wages rising 15-18 per cent annually, mid-size tech firms are considering lower pay hikes or seeking higher prices from customers or utilising capacities more efficiently, if not opting for a combination of these moves. Obtaining higher prices is, at best, risky and, at worst, can goad customers to take their custom elsewhere. In either event, market retention or expansion with better products and services has now acquired a sharper strategic urgency than in those days when price was to India’s exporting advantage.

Traditional exporters of gems and jewellery, textiles, leather and the like should take a lesson from the IT firms and overhaul their utilisation patterns and market penetration strategies instead of praying for relief to protect margins. Some textile exporters are doing so and they will emerge the winners — so, too, will all those firms adjusting themselves to the cyclical nature of global demand and fluctuating exchange rates with movements up their value chain.

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