The Hindu Business Line : `We see new services growing faster'

`The model that is emerging is that clients will have more than one vendor. We have to have a very conscious mix of long-term, annuity, volume-based as well as very strategic wins, which have an impact on the business of our customers.'

A file picture of Mr S. Ramadorai (left), CEO & Managing Director, TCS and Mr N. Chandrasekaran, Executive Vice-President & Head-Global Operations. - - Paul Noronha

Mumbai , July 24

THE CEO and MD of Tata Consultancy Services, Mr S. Ramadorai, and the Head of Global Operations Mr N. Chandrasekaran, talked to Business Line about the future of large-sized contracts and new business areas for TCS.

Over the last few quarters, the percentage of contribution of revenues from the top five and even top 10 clients, say $50 million-plus clients, has been dipping. Are customers showing a trend towards multi-vendor contracting or is it your decision to bring down their contribution, as it has been in the case of GE?

Mr Ramadorai: "The model that is emerging is that they will have more than one vendor. Any corporation that is outsourcing will look at two and in some cases, three. Now how much outsourcing they do, how much they will do in-house and how much they will do in their own country are all matters of detail.

"The other one is do we consciously say we don't want to take more? We never say no to customers to start with. At the end of the day, we have to either serve a customer with a certain volume and at a certain price or use the same skill and competency to enlarge the customer base with better returns... .you ought to make a conscious choice between these two.

"So yes, if a customer reaches $50 million or $100 million, it is a combination of both the customer themselves feeling do we need to put everything with one partner, do we need to diversify? Or we may also consciously accept it and in some cases, tell them so transparently.

"I think it is difficult to say that there is a trend. Naturally, as $50 million to $100 million clients, they will look for various leverages. But at the same time, nobody walks away from you, just as you don't walk away from business. We have to have a very conscious mix of long term, annuity, volume-based as well as very strategic wins, which have an impact on the business of our customers."

The banking & financial services and insurance (BFSI) segment seems to have grown faster for TCS than the other segments; is TCS showing a decline in other sectors?

Mr Ramadorai: "No, I think engineering and industrial services, which include manufacturing, are going to show big growth. Telecommunication, IT and BPO too are big play for us.

Mr Chandrasekaran: "This is also because of the number of companies in the industries. Take the telcos, how many telco players are there in any country? There will be four or five. How many banks and financial institutions are there? Hundreds."

What are the strategies at TCS in the new services sector? Do these yield higher margins for the company?

Mr Chandrasekaran: "We have a number of services, which we call as growth engines and value engines. We have BPO, remote engineering, remote infrastructure management, engineering and industrial services, -radio frequency identification-related work and offerings in data management.

"We measure each of them separately, so I can't give you a consolidated figure. But our enterprise solutions— today, that business has grown to be 23-24 per cent of TCS' $2.2-billion revenues last year.And there are multiple businesses within that, each of them $100-million plus. If you take BPO, that is about $22 million and we expect it to grow more than 100 per cent. Remote infrastructure management will be more than $100 million. Each of these services is growing at a much higher growth rate than the rest."

Are restructuring activities abroad coming in the way of business for Indian companies, such as what happened with CMC and some of its clients?

Mr Ramadorai: I think it (the trend) will continue for some time. Abroad, there is a clear-up from the balance sheet perspective and the accumulated inventory perspective of data and processes. A lot of consolidation is also happening, you may have to renegotiate with the combined entity. This could reduce our share of the business.

Mr Chandrasekaran: Or the reverse could happen too. The only way to cushion ourselves against these structural changes abroad is to have a set of services and offerings to address such eventualities.

What are the common reasons for delay in implementation? For example, such a delay for your customer NHS brought down revenues for TCS in Q4 of 2004-2005.

Mr Ramadorai: "These are situations where an n-number of vendors is involved. Some in software creation, others in customisation, still others in programme management. Multiple stakeholders will mean time too. Once these problems are sorted out, projects gather speed. For example, today, we have automated 28,000 branches of State Bank of India, six months ago, we had not even done 100."

Mr Chandrasekaran: "We are adding 30 branches a day on that project (the nationwide core banking solution implementation for SBI).

There were talks that you were looking at a European company, Unilog, a large $500-million one. Does this mean that TCS is looking at an acquisition of that size?

Mr Ramadorai: No comments (on Unilog). There are a lot of big deals that come to us; one can either ignore or look at them.

But are you looking at acquisitions of this size actively?

Mr Ramadorai: We always saying there will be inorganic growth. We have an M&A organisation in the company whose job is to look at opportunities where there is potential value creation. If tomorrow life sciences are looking big, then we will look at it.

Would the expansion of your BPO operations bring down the company's margins, even though you may be doing better margin operations within the BPO itself?

Mr Chandrasekaran: "If you look at the kind of work that we do in BPO, it is quite high-end work. So we are very, very margin-focused even on BPO. One concern is margins, second is attrition, we don't want 80 - 90 per cent attrition. "We are not in that game. The third one is long-term customer value that will create the stickiness in BPO. We are going to add 2,000 people to our capacity of 1,900 this year."

At one time, TCS claimed that it aims to compete with the Big Four. Are you winning contracts against competition from them?

Mr Chandrasekaran: "Two weeks ago, we won a telco deal in Europe. The competition was from the Big Four, there was no Indian vendor. We had another enterprise resource planning win against two MNC competitors. We won a transportation deal too, where there was no Indian vendor in competition."

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