TCS: Company Snapshot Tata Consultancy Services (TCS) is a part of Indias largest and oldest conglomerate, The Tata

Group. Established in the year 1968, TCS pioneered the Indian IT industry. Setup with an objective of offering IT services to other Tata companies; it soon realized immense untapped potential in the global markets. By Early 1970s the company has started exporting IT services. TCS is the largest IT service provider with the annual sales of around Rs 225 Bn and a net profit of Rs 46 Bn. The company commands a market share of 7% in terms of sales turnover. While it offers a full menu of technology and business services, including business process outsourcing (BPO), enterprise systems installation, network management, and systems integration, the company specializes in developing and maintaining customized software for businesses. It enjoys a wide presence across 42 locations with the market of North America contributing significantly to its sales revenues. The presence of office in every major centre enables it to serve the customer 24/7. Being the leader of a rising industry, TCS has been successful in attracting young workforce. It is the largest private sector employer with the headcount of 1.4 lakh. The company has a relatively younger employee base with the average age less than 28 years. The younger workforce acts as a double edged sword with growing aspirations resulting in high attrition rates. TCS also actively hires local employees in their foreign development centres and hence overseas nationals form 8.3% of the total employee base with employees from 67 different nationalities. The organizations structure is divided into different business verticals each of which caters to a different industry. TCS is one of the few Indian IT companies which have established Research Development and Design Centre and Innovation Labs for development of new products.

Winning Strategies: 1. Expansion in emerging offshore destinations In the coming years, the major growth in IT spending will come from Asia Pacific, Middle East and Africa. Within Asia Pacific, the growth is expected to come from India and China and in America the growth will come from Latin America. To take advantage of the relatively higher growth in developing countries, TCS is expanding its employee base in delivery centres in other emerging offshore destinations such as China and Latin America. Table: Worldwide IT and ITES services spend region wise 2007-08 575 293 145 2008-09 623 314 162 CAGR 8.3% 6.9% 11.6%

America EMEA Asia Pacific

Presence in 42 locations provides the company a foothold in all the major centres. These offices in emerging offshore destinations help the company to adapt to the local markets and create new opportunities. The company also aggressively hires locals for their delivery centres in foreign locations and about 8.3% of the TCS workforce is non Indian. Table: Region wise presence in emerging offshore destinations South America 6 6 Middle East & Africa 6 Asia 35 18

Regional Offices Delivery Centres

2. Access to low cost, skilled workforce Indian IT companies are dependent on application development and maintenance for major portion of their revenues. One of the main reasons for the same is, the cost benefit realized by delivering traditional services from Indian development centres. The reason being the traditional services being relatively more labor intensive, the benefit realized from delivering the same from low cost countries like India is higher. Table: Availability of suitable talent pool in low cost offshore destinations (000s) India 1773 China 727 Russia 654 Philippines 514 Turkey 427

Talent Pool

India accounts for 28% of the total employable pool available across all offshore destinations. TCS being the largest employer in the IT space has an employee count of 1.4 lakh which is 8% of the total employable IT population in India.

3. Pricing Strategy adopted. Dominance of India in the offshore market is because of its cost competitiveness and availability of suitable talent pool. In terms of compensation cost, India has a sizeable advantage as it costs around 4 times lower than in US. This allows TCS to bid aggressively for the contracts. Typically TCS adopts 2 types of pricing models which are: a. Fixed Pricing: 55% of the contracts in TCS are based on this model. Under this strategy, the customer pays an agreed price that doesnt vary with the manpower deployed on the project b. Time and Material based Pricing: 45% of the contracts in TCS are based on this model. Under this strategy, customers are billed based on the number of man-hours spent on a project This would not be possible in foreign countries where the cost of labor is very high compared to back in India and hence they would not be in a position to compete based on the pricing strategy.

Cautions: 1. Excessive Dependence on BFSI sector for revenues Vertically (i.e., industry-wise), TCS is dependent on Banking and Financial Services (BFS) sector for a major portion of its total revenues. Infact the portion of revenues it generates from this sector is the highest among all the Indian IT companies. Over dependence on a particular sector can be detrimental as witnessed now where due to the credit market losses, financial companies in US are curtailing their IT spends. Table: Percentage of revenues from BFSI sector for the top 3 Indian IT companies Infosys 36% TCS 43.6% Wipro 24%

BFSI vertical

2. Rising Wage Bill and Employee Costs Due to the mismatch between the supply and demand of skilled IT professional there is an intense competition for hiring and retaining IT personnel. Therefore inorder to attract and retain professionals, the employee costs of the IT companies have been going up thereby impacting the profitability.

Table: Employee Costs as a percentage of Total Revenues for top 3 Indian IT Companies 2008 - 09 52.11% 49.10% 41.90%

TCS Infosys Wipro

The employee cost as a percentage of total revenues for TCS is amongst the highest in the IT industry. Conclusion: TCS is increasing its employee strength in emerging markets such as China and Latin American countries. This provided dual advantage in terms of lower delivery costs and opportunity to enter fast growing local IT market. It is also targeting high growth from domestic market. This will help to support its revenue growth despite concerns about the US economy. The company is also diversifying its service portfolio to reduce dependence on traditional service lines. The diversification would help all the Indian IT companies as non traditional service lines are expected to grow at a CAGR of 30%. Increase in offshore component in the revenue mix will help in moderating the impact of wage inflation going forward.