As Dollar Declines, so Do Chances of Getting a Good Offshore Deal

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The U.S. dollar has been taking a beating lately in the currency markets. A weak dollar makes it far less financially compelling for U.S. firms to purchase supplies from foreign companies -- whether those supplies are widgets or IT services.


One possible answer for U.S. companies is to purchase their goods and services from countries where the dollar is still performing well against the local currency. Problem is, as this Global Services blogger points out, it's getting harder and harder to find such places.


This also makes it tough for, say, an Indian outsourcing provider to maintain the same pricing for its U.S. clients in the wake of a declining dollar by shifting some of its own services to lower-cost countries.


In the past six months, the U.S. dollar has declined significantly against the currencies of quite a few countries favored as offshore locales, including India (8 percent), Russia (4.5 percent), the Philippines (5 percent) and Malaysia (7 percent).


A number of other economic factors also affect the ability of U.S. companies to get financially favorable outsourcing deals. There's inflation, for instance, which can drive up labor costs.


The best way to address these factors, says Chris Kalnik of TPI in an IT Business Edge interview, is to spell out the potential risks of these types of issues in outsourcing contracts and agree up-front as to who will bear the risk.


"The buyer might agree to take the inflation risk in countries where it operates. But the provider may bear the risk if it delivers services from different countries, say, if it has a call center in the Philippines," Kalnik says. "What you want to do is establish an agreement beforehand, so you won't have any disputes as these issues arise."


These issues drive home the point that the global economy has made countries much more dependent on each other than ever before, and that these kinds of dependencies can have wide-ranging implications, financial and otherwise.