dustry & TCS

PESTLE ANALYSIS OF IT INDUSTRY

Table of Contents
I NDIAN IT INDUSTRY OVERVIEW .................................................................................................. 3 INTRODUCTION ................................................................................................................ 3 EXTERNAL ANALYSIS .......................... ............................................................................... 4 PORTERS FIVE FORCES MODEL (INDIAN IT INDUSTRY) ........................................................... 7 SWOT ANALYSIS - IT & ITES INDUSTRY .............................................................................. 8 TATA CONSULTANCY SERVICES .................................................................................................... 9 INTRODUCTION ................................................................................................................ 9 SWOT ANALYSIS ........................................................................................................... 10 TCS RESOURCES & CAPABILITIES ..................................................................................... 11 TCS STRATEGY ANALYSIS ............................................................................................... 12
RECOMMENDATIONS .............................................................................................................. 19 REFERENCES .......................................................................................................................... 21

INDIAN IT INDUSTRY OVERVIEW:

INTRODUCTION:
In an increasingly flat world, significant complexity and uncertainty is gett ing attached to the unprecedented economic crisis. The Indian economy has also been impacted by the recessionary trends, with a slowdown in GDP growth to seven per cent. The focus and exponential growth in the domestic market has partially offset this fall and insulated the country, resulting in net overall momentum. The IT-ITeS industry in India has today become a growth engine for the economy, contributing substantially to increases in the GDP, urban employment and exports, to achieve the vision of a young and resilient India. During the year the sector maintained its double digit growth rate and was a net hirer. This growth has been fuelled by increasing diversification in the geographic base and industry verticals , and adaptation in the service offerings portfolio . While the effects of the economic crisis are expected to linger in the near term future, the Indian IT-BPO industry has displayed resilience and tenacity in countering the unpredictable conditions and reiterating the viability of Indias fundamental value proposition. Consequently, India has retained its leadership position in the global sourcing market.

India is now the leading country in providing IT Enabled Services in the world. According to a recent study, Indian IT & ITES is expected to grow at 10.8% in 2009, the lowest in the last five years, due to the current global meltdown. But in next four years, it would grow at 13.9% to touch revenue of $110 billion. NASCOM, the premier institute which manages all the IT and ITES companies in India,estimated that the revenue of the IT Enabled Services will cross the revenues of IT industry by 2010.

The export revenue generated from ITES is about US$ 47.5 billion and has a projection of US$ 86 billion by 2012. (CAGR 20.7%) India holds a dominant share of the global offshore IT -ITES sector (65% of the global market in offshore IT and 46% of the ITES market). Yet, at US$ 31.3 bn in FY07, Indian IT-ITES exports accounted for less than 3% of the global spend on IT-ITES. This clearly indicates significant headroom for growth. If India maintains its current share of the global offshore IT-ITES market, IT-ITES exportsfrom India will exceed US$ 60 bn by FY10 and US$ 86 bn by FY12. Further, growing at current trends, Indian IT -

ITES exports are projected to reach nearly US$ 330 bn by FY20 (nearly 14% of the projected worldwide spend). Software and services exports (including BPO) are expected to account for over 99 per cent of total exports, employing over 1.76 million employees. But the Indian IT companies will have to move up in the value chain and concentrate more on high value added services

Why Outsourcing? Outsourcing system allows companies to contract for services that are not within the scope of their expertise, so that they can focus their time, money and energy on their core competencies instead of wasting valuable resources trying to gain Understanding of areas that are somebody else'sexpertise". Challenges While the industry has significant headroom for growth, competition is increasing, with a number of countries creating enabling business environments aimed at replicating India s success in the IT-BPO industry. Hence, concentrated efforts are required by all stakeholders to address the current challenges, to ensure that India realizes its potential, and maint ains its leadership position.

EXTERNAL ANALYSIS: CURRENT POSITON OF IT SCENARIO IN INDIA:

Silicon valley of india-banglore, leading the it industry in india.India now leading the software and services IT industry. Why india became like this? India has huge resources having English people,who can read ,write and understand english . Now a days china,the other competitor for india within 2 -3 years is trying to overtaketake by having English speaking people.but disadvantage of chinais it doesn t have English speaking people as much as india have . Moreover india has a high percentage of youth population having dynamic,energetic, enthusiastic qualities. Just look the major clients of our industry is belongs to USA,so if any economic volatility in the US will also badly affect india too. Bpo is a major employer in the services sector.

EXTERNAL ENVIORNMENT PESTLE ANALYSIS POLITICAL ENVIORNMENT: y Indian political system is stable with majority as ruling party election 2009 Positive. y U.S govt has declared that U.S companies that outsource IT work to other locations other than US will not get tax benefit Negative.

y Terrorist attack or war negative y Govt owned companies and PSUS decided to give more it projects to Indian IT compnies Positive.

y y y y y

Economic Global IT money spending demnd is negative. Reduce in real estate prices results that there is reduction in rental expenditures upto some extent positive. Recession effects a lot , the layoffs and job cuts results in low attrition rate.. Economic Attractiveness is due to cost advantage and due to other factors also.. It is estimated that domestic market will grow by 20% approx and it will reach USD near 20 billion in year 2008-09 as said by NASSSCOM which is good indicator of growth SOCIAL :

As English is very common language and it and it is mostly accepted,which leads to large % ofEnglish speaking people. y Large number of universities offer IT education Technological : y India has lowest world call rates(1-2 US cents). y 2nd largest telephone network in wirld after china. y Because of it revolution of 90s, the cities of india is well connected with latest tech i.e optical cables y Innovations and low cost technologies such as SOA, web 2.0,grid computing etc creates new challenges as well as opportunities for the Indian IT industry .

Legal: y Now companies can set up Sez in area of 10 hectares and take the advantage of tax benefits and other benefits.. y Now govt is strengthening the it by provoding a sound legal environment. y The comp that are working in software tech parks will get maximum benefits.. Environment As now a days companies adopted measures to reduce the carbon, full utilization of resources useful for the society

National revenues: IT & ITES industry in India

As by the given table we can clearly see the trend of revenue of india IT sector.. Porter s five forces model (Indian IT Industry) Threat of substitutes 1. Other offshore locations such as eastern Europe,the Philippines and china are emerging and are posing threat to Indian IT industry because of their cost advantage. However this should have an impact only in medium to long term. 2. Price quoted for projects is a major differentiator ,the quality of products being same. Bargaining power of supplier: 1. Due to slowdown,the job cuts,the layoffs and bleak IT outlook . 2. Availability of vast talent pool-freshers and experienced. Rivaly among firms: high 1. Commoditized offerings 2. Low cost, little-differentiation positioning. 3. High industry growth 4. Strong competitors. Bargaining power of customers: 1.large number of IT companies for IT projects.

2.Huge decline in IT expenditure: Indian it sector is dependent on USA and BFSI in particular for majority of its revenues, and with the recent financial crisis. 3.however ,for the existing products and se rvices, the clients continue the old companies. Barriers to Entry: 1. Low capital requirements. 2. Large value chain, space for small enterprises. 3. MNCs are ramping up capacity and employee strength. Incremental business from overlapped clients, and winning new business from new clients

Swot analysis of indian it industry.. S -means strength. W - means weakness. O -means opportunities. T - means threats.

Strength: 1.india poplation includes youth. 2.players have quality standards such as cmm as to compare with other low cost advantage.. 3.Most financially attractive. 4.internet and telecommunications companies to develop 24/7 delievery capabilities

..

Opportunities: 1.Scope for product innovation now domestic ma rket for IT service grow at 20%. 2.transportation ,infrastructure have a positive impct on business. 3.Now business consider corporate governance..

Weakness : 1.We are depend on USA upto large extent for revenues.. 2.Rising salaries is taking away the cos t advantage which is enjoyed by india.. 3. Banking sector is facing a huge crisis and spend less on IT.. Threats 1.Global economic slowdown.. 2.Increased competition from low wage countries like china,Indonesia etc.. 3.shrinking margins due to rising in wage inflation.. 4.Foreign competitor like IBM,Accenture etc

TATA CONSULTANCY SERVICES

Introduction:
Rapid globalization, diversification, and intense competition have resulted in a more dynamic and complex world. Corporations have to increase agility in a way in which their business units across geographies operate and collaborate seamlessly across people, processes and technology.

Tata Consultancy Services Limited (TCS) is a leading and India s largest provider of IT Services, Business Solutions and Outsourcing with revenues of USD 6B during FY08 -09. TCS envisioned and pioneered the adoption of the flexible global business practices that today enable companies to operate more efficiently and produce more value. More than 95 percent of TCS customers reward the company s reliability passion creativity and unique ability to handle the broadest range of their IT needs. TCS has 143,000+ world s best trained IT consultants located in 50 countries. TCS achieved this by creating and perfecting a unique method of global deployment and delivery of high quality high value services known as Global Network Delivery Model (GNDM ) the strategic services delivery concept that has reshaped the IT services industry. GNDM is a unique network of79 Delivery Centers in 16 countries. These delivery centers operate at the same quality (TCS is the only company in the world to be assessed at CMMi Level 5 through a single assessment across all its delivery centers), security and skill levels, giving customers the same experience of certainty across the organization globally. GNDM provides the fastest turnaround time from concept to service delivery, with certainty of cost, quality and schedule, tailored for its customers based on th e type of work, risk mitigation needs, business knowledge requirements, geographic spread, scale of delivery etc. Being a pioneer in the IT industry, TCS have a good appreciation of trends and challenges faced by industries TCS choose to focus. The solutions TCS build are powered by domain expertise, enterprise solutions and infrastructure services, turning the challenges of globalization into a competitive edge for clients.

TCS helps some of the world s largest companies adopt the right technology-enabled solution that helps them:  Optimize business performance  Facilitate alignment of business with technology  Connect their extended supply chains  Reduce product development time  Improve product differentiation  Provide real-time business insight  Lower operational costs

Profile Tata Consultancy Services Ltd. (Founded in 1968, went public in August, 2004) Vision: Top 10 by 2010 Mission: To help our customers achieve their innovative, best-in-class business objectives by providing

Consulting, IT solutions & services. We shall make it a joy for all stakeholders to work with us. Values: Integrity, Excellence, Respect for the individual, Continuous learning sharing, Leading change. Trusted Partner: TCS is part of one of Asia's largest conglomerates - the TATA Group. The group, with annual revenue of more than USD 72.5 billion+ (Feb, 2009), spans across diversified industry segments such as consumer package goods (CPG), energy, telecommun ications, financial services, chemicals, engineering & materials. The TATA Group, a symbol of trust in India, is known for it pioneering spirit and the brand stands for business excellence and integrity . and

Leadership in IT Outsourcing: TCS is the largest IT consulting company in Asia with 143,000 of the world's best trained IT consultants and an acknowledged pioneer, innovator and thought leader in the IT space having literally coined the term Offshore Development . It is also a globa l consulting, IT services and systems integrator with a 40-year track record and world class processes and methodologies. TCS has won many accolades for its significant contribution to the maturity and visibility of the Indian IT services worl dwide Headquarters TCS is headquartered out of Mumbai, India. Location TCS is operating in 47. TCS has 50+ delivery centers in India across 15 cities; 15+ development centers outside India. TCS employees are spread across countries. Thus Global presence helps in country availability of competencies for any technical a ssistance mission or application project. Also,TCS deputes the associates on long term and short term basis to the local countries for specific engagements. Turnover Tata Consultancy Services Limited (TCS) is a leading and India s largest provi der of IT Services Business Solutions and Outsourcing with revenues of USD 6 Billion during FY08 -09. Number of customers Over 985 active clients; 6 out of Top 10 US Fortune companies are TCS clients

Swot analysis :
Tata consultancy services is one of major it service provider. The company has extensive global reach which provides large revenue base. But increase competition Creates a lot of difficulties.. Strength a. global reach b. innovative labs c. strong financial skills. Weaknesses a. lack of scale in consulting operations b. significant exposure.. opportunities a. focus on smb segment. b. Groeth in world wide it service. c. Expanding operations in countries like china and others. Threats

a. Increase employee cost b. Appreciation in Rupee c. Tough competition like IBM etc

TCS Technology Partnership Tata combines its system integration expertise, flexible global delievery model and deep industry insights with the latest technology expertise and ability of its well renowed partners.. Strategic partners.. y IBM global system integrator partner y Oracle- global system integrator y SAP global consulting partner Growth Engine Partners y Siebel - Consulting Partner y Web Methods - Global System Integrator, Preferred Offshore Partner y BEA - TCS is BE Strategic Partner y SUN - System Integrator Partner, GSS Partner
Business Continuity

TCS follows a well defined and mutually agreed (with customer) business continuity and disaster recovery plan. The BCP is tested on a pre determined frequency. This was recently invoked during the under-sea cable fault leading to disruptions in the voice/internet connectivity. The traffic was diverted through alternate routes as per the plan

TCS Industry practice revenue Q4 fy2009 BFSI constitute 42.8% Telecom constitute 13.1% Retail constitute 12% Manufacturing constitute 9.8%

Hitech constitute 5.5% Life sciences and healthcare constitute 5.7% THE clearly shows that TCS has 42.8% of exposure to banking financial services & insurance sector Generic Business Strategy: 1. Low cost Global delivery 24X7 model. 2. Focus on customer relationship management, customer retention (for repeat business revenue which is 95.6%). 3. Timely delivery with the help of proven delivery & quality framework iQMS. 4. Differentiation in low end services in terms of cost, resources. 5. Differentiation in high end services such as consulting in term of niche offerings,expertise. 6. Protection from currency fluctuations with the help of currency hedging. 7. Due to its strong knowledge management system and resource strength, TCS has been successful in getting the cost leadership in the industry. 8. Since last decade, TCS has been following a more focused strategy where they are going as per local needs of customer and their nature of business. E.g. Middle East, Australia. They are being more focused region wise and customer wise rather than being generic. 9. Focus on the Centers of Excellence (CoE) to strengthen capability so as to build state-of-the-art solutions in specific technologies such as serviceoriented architecture, testing, and virtualization. These high -end skills and scale will help TCS to tackle larger projects aimed at transforming clients IT applications and infrastructures

BCG matrix for TCS

Here Stars represents BPO infrastructure services. Question marks represent consulting packaged implementataion KPO Engineering & industrial services Cash cows represent application development & maintenance software products. Dogs represent none

Market Penetration Strategy Current Markets: USA and Europe Current Products: ADM, BPO, KPO, consultancy services (in BFSI, manufacturing and retail) and software products (financial products). Recommendation : As most large clients in US and Europe are cutting costs, TCS needs to be more aggressive on cost and quality front.

Market Development Strategy New/Emerging Markets: India, Middle-east and Australia Current Product: ADM, BPO, KPO, consultancy services (in BFSI, manufacturing and retail) and software products (financial products). Recommendation : Since these are fast developing IT market, TCS ne eds a paradigm shift in focus from US and EU markets to these markets
Corporate Strategy

TCS is a firm believer in organic growth and acquire only those companies which are in line with TCS strategic long term goals. Diversification Strategy
In February 2008, TCS restructured its global operations to adopt an integrated, customer-centric approach, which is expected to helpful in eliminating the risk factors arising from the U.S. economic collapse. The company s operations are now divided into five units: Industry Solutions (for vertical-specific services), Major Markets (North America, Western Europe and the U.K), New Growth Markets (Latin America, Eastern Europe, Middle East & Africa and India), Strategic Growth Business (TCS Financial Solutions, SMB and Platform -based BPO) and Organizational Infrastructure. TCS s diversification plan seems to have worked since the compa ny has been gaining momentum in Europe and other emerging markets, which is evident in the company s marked growth rate of 40% year to year in its FY08 s European operations. The firm s operations in Latin merica and Middle East have also seen considerable expansion. In order to deepen its penetration, TCS has established delivery and offshore centers in countries like Brazil, Uruguay and Mexico. The weakening European economy and its GDP decline of 0.2% in the second quarter (April, May, June) might hinder TCS s diversification plans as it is bound to have a direct impact on BFSI s outsourcing services. TCS, which draws 44% of its global revenue from the BFSI sector, is likely to be affected. Also, the Indian market is becoming difficult to afford, leading to a wider gap between the demand and supply of IT consultants. This can be traced to the fact that hired employees lack required skills or fail to deliver their expertise, but still seem to be demanding higher wages.

Acquisition Strategy TCS is looking at growth from two ways first through organic means and second through the inorganic way. The inorganic way of growth is through acquisitions of those companies that make business sense to TCS. The companies should add great value to TCS. Like for instance TCS acquisition of CMC is helping it taking a sharper look at the domestic IT business. Both the companies have synergies in the government sector, since both the companies are well known fordoing wor k for the government. TCS as part of its strategy to look at growth options has set up an internal team which will focus only on acquisition strategies .Below are some of the acquisitions of TCS in the recent past:

y Nov 2008: TCS Acquisition of Citigroup Services. TCS gains a range of new capabilities, with end-to-end banking BPO service offerings, and an opportunity to provide integrated IT and BPO services to the banking market, as well as the significant contracted revenue commitment. Over 12,000 staff has transferred with the deal. From the Citigroup side, they get a cash payment, and an external partner committed to deliver (and probably to improve) the services they have monetized their investment in setting up CGS (Citigroup Services). They no longer have direct responsibility for managing an offshore delivery centre in a market becoming increasingly competitive, and they have significantly reduced their overall headcount.  y Feb 2006: Tata InfoTech (TIL) Limited was merged into TCS Limited. TIL was a software services company like TCS with operations in the UK, U.S, and Australia among others. The merger gave TCS a broader customer base and deeper penetration into key geographies. The acquisition was touted as providing T CS more ability to provide full-service to customers in affected markets.  y March 2006: TCS, through its subsidiary, Diligenta, acquired a basis in part of UK s PearlGroup. Pearl is the 2nd largest player in the UK s life insurance and pension BPO industry giving TCS a new stake in BPO work for the UK market. y Right after Pearl, TCS picked up Comicron in Latin America to offer banking solutions in both IT and BPO services in that market, and now Spanish language capability. Experience gainedhere will again allow TCS to expand further into new markets with BPO offerings, especially in the rather large and under-addressed Spanish-speaking world.    y Oct. 31, 2006: Similar to the financial stakes made above, TCS again expanded its banking products and consolidated its European operations after acquiring a 75% equity stake in its Switzerland-based partner, TKS-Teknosoft. TKS was the marketing agent for TCS in Europe. TCS Joint ventures TCS went for a joint venture (JV) in Feb 2007 with three Chinese partners and is billed by the company as a "role model for the Chinese IT industry. The TCS joint venture in which Microsoft took a 10 per cent stake, planned to employ over the next five year at least 5,000 people that would represent a considerable scaling up from the company's then present strength of 800 employees in China. The Chinese software industry remains fragmented and lacks scale. Only about 10 Chinese IT firms among some 8,000 employ more than 1,000 people. The TCS joint venture will thus be one ofthe largest software companies in China once it reaches its 5,000 -employee target. The new venture is widely expected to enable TCS to finally break into the $30-billion domestic Chinese IT market, a market that has in the past proved elusive for Indian IT companies. Another JV is between TCS and SBI (State Bank of India) in Nov 2005 to cater advanced technology solutions and domain consulting for the banking and financial services sector. The joint venture is called C-Edge Technologies Ltd. and has an authorized capital of Rs. 40 crore. TCS holds 51 per cent of the equity in C-Edge and SBI the balance with no asset transfer. The joint venture was to offer transformational capabilities to banks and financial institutions in India and other markets by helping them to use technology as a

competitive tool in the market place using bureau services and service platforms. "In three to five years, we hope the company creates niche services in the national and international stage,'' said Mr. Ramadorai.

RECOMMENDATIONS

The first and foremost recommendation for TCS is to change its vision statement. In our humble opinion it is short sighted. TCS needs to have a vision that will show its leadership qualities and long term thinking. adapt to recession, but dont ignore the new ecosystem
In all likelihood, the economy will worsen before it picks up again in late 2009. All service providers will feel this albeit not equally providers response at this critical time will set the vendor landscapefor the coming years. Based on current situation, TCS strategists can adapt their positioning and direction, paying particular focus to the following issues to ensure long-term market success: y Expect to see the landscape continue to consolidate. Clients will seek to cut costs and focus on fewer provider relationships as the economy worsens. TCS should take this opportunity to improve your market positioning. y Ensure marketing articulates your value proposition to concerned. In a recession, marketing can work as a differentiator. all stakeholders

y Service providers like TCS need to create specific value propositions aimed directly at the relevant stakeholders and in the new tech ecosystem, these relevant stakeholders must include business executives, not just IT personnel y Don t be influenced solely by short-term shareholder pressure. The recession is at the top of everyone s agenda right now but those providers that take a long-term view will use this time to prepare for the fundamental changes in industry dynamics that will emerge. Those providers prepared for the new ecosystem will be the ones to flourish once the dark clouds of economic turmoil have lifted. y Do not put all eggs in one basket TCS must provide diverse services to refrain from being over-dependent and increasing exposure to the vulnerabilities of few sectors (BFSI) /geographies (USA). y Provide more high-end services in value chain (3rd Wave in IT) y There is a move required from ADM (Application Development and maintenance) to value added services, BPO to Consulting and Package Implementation, etc. y TCS should shift focus from Low cost advantage t o high quality services commanding apremium being the pioneer in the industry y Consolidation and strategic acquisitions are essential for future growth of revenues. We feel that a big wave of consolidation in IT industry has just started. The HP-EDS merger (one of the biggest ever merger in this industry) is testimony to this. TCS should gear up for such opportunities which are strategic fit for them be prepared.

Quickly adapt and gain customer confidence in high growth markets . In FY2009, Indian domestic market grew by more than 20%, but TCS revenue from India increased only by 6.46%. TCS should leverage its success stories (IRCTC success done by its subsidiary CMC, Passport project etc.) to drive the growth in this market. y TCS has rightly placed SMB (Small and Medium Businesses) as a separate strategic unit, which should be focused aggressively. They should also focus consulting practice on the same radar. y TCS (rather all Indian IT players) should focus more on increasing their IP (Intellectual Property) assets.

REFERENCES 1. 2. 3. 4. 5. 6. Tata Consultancy Services www.tcs.com (Investors section) Forrester reports www.forrester.com Gartner reports www.gartner.com IT-ITeS Market & Opportunities IBEF (India Brand Equity Foundation) report Tata Consultancy Services A Company Profile www.datamonitor.com Newspaper Mint www.livemint.com