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Watch out! TCS is on prowl
Business Standard | October 22, 2005 13:22 IST
Tata Consultancy Services, the largest Indian software company, has announced two major international wins over as many days, thus clearly consolidating its leadership position.
The first deal, valued at $ 840 million, is quite overwhelming in size and leaves far behind TCS's own and till then the Indian IT industry's biggest deal of $250 million with ABN Amro.
Under the latest deal, the UK's Pearl Group is outsourcing work for its "closed book" (business underwritten) to a joint venture between itself and TCS, with the new company taking 950 of Pearl's existing 1,100 employees.
Other than the size, the deal indicates that TCS will be performing a range of services and processes, which will traverse the entire value chain the life and pensions verticals. Thus, TCS, which was till now behind in BPO, has in one go acquired both size and complexity.
The second deal, buying out the Australian firm Financial Network Services, whose core banking solution TCS has been implementing, also enhances its offerings and profile. TCS now owns a significant bit of intellectual property in the banking and financial services space and can hope to land bigger fish in this sphere.
If for TCS winning the Pearl order was a major achievement, making it succeed will be equally challenging. It has to offshore work to India if it is to reap economies. But it has to retain the Pearl employees. So it will have to win new orders for the new company in order to both drive efficiencies and derive an adequate return on its investment.
This is difficult but doable and another Indian company has already made such an operation work well. In 2001, HCL took over the Apollo Contact Centre of BT in Belfast along with its staff.
Over the years the headcount at that centre has gone up and the venture has provided a good front office for HCL's BPO operations, enabling it to field business as a UK company while having the flexibility to offshore to India.
TCS's advantage is that it knows Pearl well, having worked with it for over a decade, and also the UK environment, where it has a considerable reputation.
TCS's ability to win the largest orders in an industry which is almost entirely outward-looking indicates that it has taken rapid strides in becoming a truly global company and also that its future lies in its ability to successfully remain so while growing.
TCS is far ahead of its Indian competitors in both foreign centres (it is present in virtually every continent) and the number of foreign employees. It has also turned out to be very aggressive in pursuing inorganic growth and taking on the daunting task of absorbing other firms' employees.
Such acquisitions take long to digest and there is no guarantee that they will go down well. This is why other large Indian software companies have moved very cautiously on this front. TCS has also other challenges before it.It is still very new to being a listed company and so has to go up the learning curve in managing investor expectations. It also has to improve its margins. It is the size leader, not the margin leader. This can also be seen as a legacy problem as it did not have to face earlier the rigours of quarterly reporting and the pressures created by analysts' perceptions.