Tata Consultancy plans big push into China

By Joe Leahy in Mumbai

Published: April 18 2007 00:59 | Last updated: April 18 2007 00:59

Tata Consultancy Services is planning a big push into China, the only computer services outsourcing market that the Mumbai-based company believes has the potential to match India in size.

India’s biggest outsourcing company, which has set a goal of increasing its China staff fourfold to 5,000 in four years, sees the country as the central plank in a global emerging market expansion plan that takes in Asia, Latin America, eastern Europe and north Africa.

“If any country has the potential to scale up like India, it’s China,” N. Chandrasekaran, TCS global head of sales and operations, told the Financial Times. “We can easily grow to 3,000 or 5,000 in Hungary but not to 50,000 like we could in China.”

China has raced ahead of India in manufacturing but it remains a comparative minnow in terms of the IT outsourcing industry.

TCS had nearly 90,000 employees at the end of March, dwarfing Shenyang Neusoft, China’s largest comparable company, which had a staff of about 8,000.

But China is the only other emerging market whose universities and colleges are producing enough engineering graduates to build a large-scale software engineering outsourcing hub, making it attractive for the Indian outsourcers.

“China will become one of the major markets for IT services in the longer term. Therefore establishing a foothold is critical for success,” Moody’s Investors Service said in a report on TCS.

Expanding in China, however, has been a relatively slow process for TCS and its peers at other Indian computer services companies, such as Infosys Technologies.

TCS stole a march on its competitors by collaborating with the National Development and Reform Commission, a powerful government agency, to take a controlling stake in a joint venture with Microsoft, Uniware of China and two other state agencies.

But the negotiations for the venture, which were concluded in November, took more than a year to complete.

The challenge now for TCS will be to recruit and retain good staff in a country where costs are higher, the language is less familiar, potential recruits do not recognise the TCS name and staff attrition is high.

Mr Chandrasekaran said the first source of China business was multinationals operating there, followed by domestic Chinese companies. Eventually, its China operations would also serve global markets.

“If you take the Fortune 500, all of them will be in China one day,” he said.

In an industry in which margins are everything, TCS will also have to find new ways to mitigate higher costs associated with China and its other overseas operations.

The percentage of foreign nationals in its workforce has risen to nearly 10 per cent from a fraction of a per cent several years ago, driven by the need to be closer to clients and to diversify risk.

“If TCS fails to promote efficiency, this [the rising percentage of foreign nationals] could pressure overall profitability,” Moody’s, the rating agency, said.

To raise its profile overseas, the company in recent weeks has launched a frontline print and online media advertising campaign, touting among other things work it does for Ferrari.

The campaign is an unusual step for India’s outsourcing companies, which have normally been content to operate behind the scenes.

“We’re recruiting people internationally, so it’s important people know about us,” said Mr Chandrasekaran.