Monday, August 06, 2007

India Outsourcing Giant Battles Volatile Market

Despite a challenging environment marked by wage increases and the negative impact of an appreciating currency, India outsourcing giant Tata Consultancy Services, or TCS (No. 32 on the VARBusiness 500), delivered impressive results in what it called a volatile quarter.

TCS, India's largest IT services organization, reported a 55 percent increase in earnings to $291 million on a 42 percent increase in sales to $1.3 billion for its first fiscal quarter ended June 30 compared with the similar quarter one year ago. TCS said it was able to maintain net margins through cost management, productivity increases and hedging gains.

TCS' strong showing comes with outsourcing rivals like EDS and Computer Sciences Corp. (CSC) expected to post single-digit sales growth for the similar quarter. For example, EDS is expected to post a 4 percent increase in sales to $5.41 billion compared with $5.19 billion, according to a survey of analysts by Thomson First Call. CSC, meanwhile, is expected to post a 5 percent increase in sales to $3.76 billion compared with $3.55 billion in the year-ago quarter, according to a survey of analysts by Thomson First Call.

At least at this point, TCS is not seeing a sales fall-off in the wake of concerns that outsourcing is becoming more costly and difficult to sustain.

"Over the last two to three years, there has been a tendency among U.S. corporations to see the value of outsourcing, especially to destinations like India," says Pradipta Bagchi, spokesman for TCS.

In fact, seven out of 10 companies on the Fortune 100 use TCS for some type of outsourced service, whether that's for business process outsourcing (BPO), infrastructure services or consulting. The reasons for the integrator's popularity, Bagchi explains, is threefold: global expansion, increasing Indian labor force and cost.

In the last quarter, the company opened its Mexico Global Development Center; TCS has more than 150 clients and in excess of 5,000 professionals in 14 Latin American countries. The center is strategic for furthering its success in the United States as well as for forging new markets in Mexico and Latin America.

"Our centers in Latin America speak Spanish and Portuguese," Bagchi says, "and our new center in Mexico serves not only that country but also U.S. businesses that have a need for Spanish-language services. It can also serve as a 'near-shore' center for U.S. companies because of its English capabilities, and it is in a more favorable time zone than our centers in India." Companies have made it clear that while it is advantageous to have work done overnight in the United States (the Indian workday), it's even more desirable to be able to speak to offshore employees in as close to real- time as possible. Sites in Mexico and Latin America, therefore, are briskly gaining popularity.

That high demand continues to fuel the attractiveness of engineering degrees in India. "[India] will have 400,000 engineering graduates this year," Bagchi says.

As a result, Tata has had its choice of hires. In the first fiscal quarter, 8,706 employees joined the company, bringing the total employee count to 94,902. Engineering is one of the most lucrative fields for Indians, and the challenge for both Tata and its customers now is containing salary costs, which have been growing rapidly.