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IT industry Analysis

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  • 1. IT Industry & TCSStrategic AnalysisBusiness StrategyThis report is submitted as part of industry analysis project of the course‘Business Strategy’, under the guidance of Prof. Rushi Anandan, in PostGraduate Programme In Management at SPJIMR, Mumbai Group 7: Sameer | Sohail | Sankar | Himanshu | Arun V M PGPM508 7/10/2009
  • 2. Table of ContentsINDIAN IT INDUSTRY OVERVIEW .................................................................................................. 3 INTRODUCTION ................................................................................................................ 3 EXTERNAL ANALYSIS ......................................................................................................... 4 PORTER’S FIVE FORCES MODEL (INDIAN IT INDUSTRY) ........................................................... 7 SWOT ANALYSIS - IT & ITES INDUSTRY .............................................................................. 8TATA CONSULTANCY SERVICES .................................................................................................... 9 INTRODUCTION ................................................................................................................ 9 SWOT ANALYSIS ........................................................................................................... 10 TCS’ RESOURCES & CAPABILITIES ..................................................................................... 11 TCS’ STRATEGY ANALYSIS ............................................................................................... 12RECOMMENDATIONS .............................................................................................................. 19REFERENCES .......................................................................................................................... 21 Disclaimer: This report should be treated strictly for academic purpose and should not be used elsewhere. Users of this report are required to take permission from authors before reproducing or publishing this material anywhere else.PGPM508-Group 07 Page 2
  • 3. IN DI AN IT IN DU S T R Y O VER VI EW IntroductionIn an increasingly flat world, significant complexity and uncertainty is getting attached to theunprecedented economic crisis. The Indian economy has also been impacted by the recessionarytrends, with a slowdown in GDP growth to seven per cent. The focus and exponential growth in thedomestic market has partially offset this fall and insulated the country, resulting in net overallmomentum. 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 thevision of a “young and resilient” India. During the year, the sector maintained its double digit growthrate and was a net hirer. This growth has been fuelled by increasing diversification in thegeographic base and industry verticals, and adaptation in the service offerings portfolio. While theeffects of the economic crisis are expected to linger in the near term future, the Indian IT-BPOindustry has displayed resilience and tenacity in countering the unpredictable conditions andreiterating the viability of India’s fundamental value proposition. Consequently, India has retained itsleadership position in the global sourcing market.India is now the leading country in providing IT Enabled Services in the world. According to a recentstudy, Indian IT & ITES is expected to grow at 10.8% in 2009, the lowest in the last five years, due tothe 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 more thanUS$ 86 billion by 2012. (CAGR – 20.7%) IT-ITeS Exports - USD bn 400 328.9 300 200 60 86.6 23.6 37.6 47.5 100 0 FY06 FY08 FY09 FY10 FY12 FY20Source: NASSCOM McKinsey ResearchIndia holds a dominant share of the global offshore IT-ITES sector (65% of the global market inoffshore IT and 46% of the ITES market). Yet, at US$ 31.3 bn in FY07, Indian IT-ITES exportsaccounted for less than 3% of the global spend on IT-ITES. This clearly indicates significant headroomfor 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 projectedworldwide spend). Software and services exports (including BPO) are expected to account for over99 per cent of total exports, employing over 1.76 million employees. But the Indian IT companies willhave to move up in the value chain and concentrate more on high value added services.PGPM508-Group 07 Page 3
  • 4. Why Outsourcing?“Outsourcing system allows companies to contract for services that are not within the scope of theirexpertise, so that they can focus their time, money and energy on their core competencies insteadof wasting valuable resources trying to gain Understanding of areas that are somebody elsesexpertise".ChallengesWhile the industry has significant headroom for growth, competition is increasing, with a number ofcountries creating enabling business environments aimed at replicating India’s success in the IT-BPOindustry. Hence, concentrated efforts are required by all stakeholders to address the currentchallenges, to ensure that India realizes its potential, and maintains its leadership position. External AnalysisCurrent position of IT/ITeS sector in IndiaPGPM508-Group 07 Page 4
  • 5. Environmental ScanningFigure: Financial Attractiveness of Top 5 Global service locations Figure: Number of IT graduates in IndiaExternal Environment - PESTLE AnalysisPGPM508-Group 07 Page 5
  • 6. Legal •IT SEZ requirement: IT companies can set up SEZ with minimum area of 10 hectares and enjoy a host of tax benefits and fiscal benefits. Positive •Contract / Bond requirements: Huge debates surrounding the bonds under which the employees are required to work, which is not legally required. Negative •IT Act: Indian government is strengthening the IT act, 2000 to provide a sound legal environment for companies to operate esp. related to security of data in transmission and storage, etc. Positive •Companies operating in Software Technology Park (STPI) scheme will continue to get tax-benefit till 2010. Mildly Positive Environment •Energy Efficient processes and equipments: Companies are focusing on reducing the carbon footprints, energy utilization, water consumption, etc. PositiveNational Revenues: IT & ITES Industry in IndiaPGPM508-Group 07 Page 6
  • 7. Porter’s Five Forces Model (Indian IT Industry) Medium Shift from High to Very High Low LowPGPM508-Group 07 Page 7
  • 8. Market Share: Sources of Revenue: SWOT Analysis - IT & ITES IndustryConsidering industry and any IT firm in general Strength WeaknessesCost advantage – most financially attractive Excessive dependence on USA for revenues – UScountry in a study by A T Kearney on global IT Companies are cutting down IT budget hencedestinations revenues to be hit hard of Indian IT firmsBreadth of service offering – end to end Excessive dependence on BFSI sector forsolutions including high end services like IT revenues – Banking sector is facing a crisisconsultancy and KPO globally and is going to spend less on ITEase of Scalability – more than half of India’s High rates of attrition – Although slowdown inpopulation is less than 25 years old. English global economy has lowered attrition rate butspeaking IT – ITES professionals growing at a the industry still faces high attrition rates asgood pace compared to other sectorsQuality and Maturity of process – many players Decreasing competitive advantage – risinghave quality standards such as CMM to salary expenses is taking away the costdifferentiate from other low cost advantage advantage enjoyed by India.countriesGlobal and 24/7 Delivery capability – excellentinternet backbone and telecommunicationsfacilities enabling companies to develop 24/7delivery capabilities from India itself Opportunities ThreatsGreater scope for product innovation Global economic slowdown may continue forIncreased focus on high end work like consulting several years – hence low IT spending globallyand KPO Domestic demand for IT services is to US Govt. against outsourcinggrow at 20% Shrinking margins due to rising wage inflationGreater scope to service domains other than Rupee-dollar movement affects revenue andBFSI such as Transportation, Infrastructure, etc. hence marginsSatyam fiasco – Likely to have positive impact on Increased competition from foreign firms likebusiness considering corporate governance, Accenture, IBM etc.possibility of shifting of business, getting higher Increased competition from low-wage countriesincremental business from overlapped clients, like China, Indonesia etc.and winning new business from new clientsPGPM508-Group 07 Page 8
  • 9. TAT A CO N S ULT AN CY SERV ICES IntroductionRapid globalization, diversification, and intense competition have resulted in a moredynamic and complex world. Corporations have to increase agility in a way in which theirbusiness 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 andpioneered the adoption of the flexible global business practices that today enable companies tooperate more efficiently and produce more value. More than 95 percent of TCS customers rewardthe company’s reliability, passion, creativity, and unique ability to handle the broadest range of theirIT needs. TCS has 143,000+ world’s best trained IT consultants located in 50 countries. TCSachieved this by creating and perfecting a unique method of global deployment and delivery of highquality, high value services known as Global Network Delivery Model (GNDM™), the strategicservices 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 theonly company in the world to be assessed at CMMi Level 5 through a single assessment across all itsdelivery centers), security and skill levels, giving customers the same experience of certainty acrossthe 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 the 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 byindustries TCS choose to focus. The solutions TCS build are powered by domain expertise, enterprisesolutions and infrastructure services, turning the challenges of globalization into a competitive edgefor clients.TCS helps some of the world’s largest companies adopt the right technology-enabled solution thathelps 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 costsProfileTata Consultancy Services Ltd. (Founded in 1968, went public in August, 2004)Vision: Top 10 by 2010Mission: To help our customers achieve their business objectives by providing innovative, best-in-class 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 and sharing, Leadingchange.PGPM508-Group 07 Page 9
  • 10. Leadership in IT Outsourcing: TCS is the largest IT consulting company in Asia with 143,000 of theworlds best trained IT consultants and an acknowledged pioneer, innovator and thought leader inthe IT space, having literally coined the term “Offshore Development”. It is also a global consulting,IT services and systems integrator with a 40-year track record and world class processes andmethodologies. TCS has won many accolades for its significant contribution to the maturity andvisibility of the Indian IT services worldwideTrusted Partner: TCS is part of one of Asias largest conglomerates - the TATA Group. The group,with annual revenue of more than USD 72.5 billion+ (Feb, 2009), spans across diversified industrysegments such as consumer package goods (CPG), energy, telecommunications, financial services,chemicals, engineering & materials. The TATA Group, a symbol of trust in India, is known for itspioneering spirit and the brand stands for business excellence and integrity.HeadquartersTCS is headquartered out of Mumbai, India.LocationTCS is operating in 47. TCS has 50+ delivery centers in India across 15 cities; 15+ developmentcenters outside India. TCS’ employees are spread across countries. Thus, Global presence helps incountry availability of competencies for any technical assistance mission or application project. Also,TCS deputes the associates on long term and short term basis to the local countries for specificengagements.TurnoverTata Consultancy Services Limited (TCS) is a leading and India’s largest provider of IT Services,Business Solutions and Outsourcing with revenues of USD 6 Billion during FY08-09.Number of customersOver 985 active clients; 6 out of Top 10 US Fortune companies are TCS clients.Customer revenue contributions are presented below: SWOT AnalysisTata Consultancy services (TCS) is one of the major IT service providers. The company provides awide range of services including business consulting, information technology, business processoutsourcing, infrastructure, and engineering. The company has extensive global reach, whichprovides a diverse revenue base. However, increasing competition threatens to erode its marketshare.PGPM508-Group 07 Page 10
  • 11. Strength Weaknesses  Extensive global reach  Significant exposure to financial services  Strong financial performance market  Employee management skills  Lack of scale in consulting operations  Innovation labs Opportunities Threats  Focus on SMB segment  Increasing employee costs  Growth in worldwide IT services  Intense competition from foreign firms  Focus on high end business and IT like Accenture, IBM etc. consulting  Consolidation in the end markets  Expanding operations in countries like  Rupee appreciation China  Increased competition from low-wage countries like China, Indonesia etc. TCS’ Resources & CapabilitiesTCS has over 143,000+ (Apr-2009) World Class Professionals. 30% of workforce is women. NonIndian nationals comprise 8.3% of TCS workforce. TCS employees are from across 67 nationalities.Key Differentiators of TCSPioneer in the industry & BrandHaving started in 1968, TCS has established himself as the industry leader. Being part of the trustedTata group is also a big differentiator for TCS giving it a strong brand strength.Integrated full-services playerPortfolio of offerings extends from consulting to implementation, testing and support; fromengineering services to BPO; from products to end-to-end solutions.Collaboration with multiple stakeholdersHaving worked on large global scale enterprise projects, TCS appreciates the need for flexibility towork with multiple stakeholders from customers, partners, and other service providers. TCS havedeveloped innovative engagement models that have proven TCS’ ability to deliver significant valueto its customers in managing their projects as the sole solution provider, or prime/lead partner, orsupporting partner.Global Network Delivery ModelUnique network of 79 Delivery Centers in Brazil, Uruguay, Chile, China, Hungary, UK, Japan,Australia, Singapore and India that operate at the same quality, security and skill levels, givingcustomers the same experience of certainty across the organization globally with a lower total costof ownership.High Quality and Maximum securityIn 2005, TCS was awarded enterprise-wide triple certification for:Quality (ISO 9001:2000), Security (BS 7799-2:2002) & Services (BS 15000-1:2002)Innovation NetworkTCS has established 19 labs with strong links to start-ups, academia and alliance partners tocontinuously develop innovative solutions for their customers.PGPM508-Group 07 Page 11
  • 12. TCS Technology Partnerships and RelationshipsTata Consultancy Services combines its system integration expertise, flexible global delivery modeland deep industry insights with the technological expertise and capabilities of its renowned alliancepartners to offer competitive advantage to its customers. The alliances enable TCS to deliver cuttingedge technological solutions and enhanced services to help customers integrate their businessapplications effectively while improving the operational efficiencies and ROI. Strategic partnerrelationships of TCS include leading industry players like SAP, Oracle, IBM, and Microsoft amongothers.Strategic Partners  IBM - Global System Integrator Partner  Oracle - Global System Integrator and Global Certified Advantage Partner  Microsoft - Global System Integrator Partner  SAP - Global Consulting PartnerGrowth Engine Partners  Siebel - Consulting Partner  Web Methods - Global System Integrator, Preferred Offshore Partner  BEA - TCS is BEA’ Strategic Partner  SUN - System Integrator Partner, GSS PartnerBusiness ContinuityTCS follows a well defined and mutually agreed (with customer) business continuity and disasterrecovery plan. The BCP is tested on a pre determined frequency. This was recently invoked duringthe under-sea cable fault leading to disruptions in the voice/internet connectivity. The traffic wasdiverted through alternate routes as per the plan. TCS’ Strategy AnalysisTCS’ organization restructuring in April 2008 was one of the major moves in last decade toadapt to external environments. Having an organization structure that would respond tocustomer demands is most efficient way to lay down your business strategies. TCS did itlittle late but just in time.PGPM508-Group 07 Page 12
  • 13. Business StrategyTCS calls its Business Units as Industry Service Practice. TCS’ BU wise revenue distribution is asshown below: TCS Industry Practice - Revenue Q4FY09 3.8 2.7 2.1 2.5 BFSI Telecom 5.7 5.5 42.8 Retail Manufacturing 9.8 Hi-Tech Life Sciences & Healthcare 12 Travel & Hospitality 13.1 Energy & Utilities Media & Entertainment OthersThis clearly shows that TCS has 42.8% of exposure to Banking Financial Services & Insurance sector.No doubt, TCS has to re look its business strategy as the world financial institutions are in atremendous shock of subprime crisis and think of scaling up revenue from other verticals/industries.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 service-oriented 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.PGPM508-Group 07 Page 13
  • 14. TCS’ Service Practice Revenue Distribution is as follows: TCS Service Practice Revenue Q4FY09 Application Development & Maintenance 2.1 Business Intelligence 1.7 11.1 Enterprise Solutions 8.3 48.6 Assurance Services 5.8 3.8 Engg. & Industrial Services Infrastucture Services 11.8 6.8 Global Consulting Asset Leverage Solutions Business Process Outsourcing This shows that TCS has a heavy exposure to IT Solutions – Application Development & Maintenance – 48.6%. TCS has traditionally a low cost outsourcing player which provides application development and maintenance services, which till date account for almost half of its revenue. Though TCS has managed to bring down this percentage significantly in last decade by entering into niche areas like, BPO, infrastructure services, business consulting, IT consulting, asset leveraged solutions etc. TCS sees a strong growth potential especially into consulting, BPO and infrastructure services. Thus TCS is investing heavily into these areas to explore new market segments. BCG Matrix for TCSHIGHLOW Business Growth Rate Consulting Packaged Implementation BPO KPO Infrastructure Services Engineering & Industrial Services Application Development & Maintenance Software products None HIGH Relative Position (Market Share) LOW PGPM508-Group 07 Page 14
  • 15. Global StrategyTCS’ GNDMTM is at the heart of TCS’ global strategy.What is GNDMTM?Follow the sun strategy:Market Penetration StrategyCurrent Markets: USA and EuropeCurrent Products: ADM, BPO, KPO, consultancy services (in BFSI, manufacturing and retail) andsoftware products (financial products).Recommendation: As most large clients in US and Europe are cutting costs, TCS needs to be moreaggressive on cost and quality front.Market Development StrategyNew/Emerging Markets: India, Middle-east and AustraliaCurrent Product: ADM, BPO, KPO, consultancy services (in BFSI, manufacturing and retail) andsoftware products (financial products).Recommendation: Since these are fast developing IT market, TCS needs a paradigm shift in focusfrom US and EU markets to these markets.PGPM508-Group 07 Page 15
  • 16. Product Development StrategyCurrent Market: USA and EuropeNew Product: Consultancy and package implementation services in relatively growing sectors esp.life sciences & healthcare, aviation sector, and KPO services.Recommendation: Concentrate on building expertise in these domains by strategic acquisitions.Other global strategies  Since last few years TCS is successfully leveraging labor cost in Eastern Europe, South America and China.  Getting big foreign names on board of directors is also one of the key strategies for TCS. The current three foreign directors are: Clayton M Christensen (HBS Professor, joined in 2006), Dr. Ron Sommer (former Chairman of the Board of Management of Deutsche Telekom AG, joined in 2006) & Laura M Cha (member of the Executive Council of the Hong Kong Special Administrative Region (SAR) and Non-Executive Chairman of HSBC Investment Asia Holdings Limited)  Look beyond US and UK for growth and beyond India for skills to emerge as a global firm. Clearly bullish with successes such as ABN Amro in continental Europe, Qantas in Australia, and almost 18% to 20% revenue from the Asia Pacific market, TCS wants to grow its businesses in global markets including India.  Recent acquisitions in Ireland and Latin America demonstrate its ambition to create delivery centers of respectable size outside of India.  TCS was the first one to set up a delivery centre in China.Corporate StrategyTCS is a firm believer in ‘organic growth’ and acquire only those companies which are inline with TCS’ strategic long term goals.Diversification StrategyIn February 2008, TCS restructured its global operations to adopt an integrated, customer-centricapproach, which is expected to helpful in eliminating the risk factors arising from the U.S. economiccollapse. 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 GrowthMarkets (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 company has been gaining momentum inEurope 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 America and MiddleEast have also seen considerable expansion. In order to deepen its penetration, TCS has establisheddelivery 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’soutsourcing services. TCS, which draws 44% of its global revenue from the BFSI sector, is likely to beaffected. Also, the Indian market is becoming difficult to afford, leading to a wider gap between thePGPM508-Group 07 Page 16
  • 17. demand and supply of IT consultants. This can be traced to the fact that hired employees lackrequired skills or fail to deliver their expertise, but still seem to be demanding higher wages.Strategic AlliancesTCS has strategic relationships with various global technology vendors. These relationships are invarious dimensions such as Customer, Service Provider, Supplier, and Alliance Partner. Extendingcollaborative research to several global technology vendors has made relationships with them moreholistic. TCS and these technology vendors collaborate on joint research leveraging each other’sstrengths to research and to the development of best-of-breed offerings. The intent is to define anddevelop solutions with associated services and offer the same as an integrated business model tocustomers. Some of the strategic alliances are listed below.Intel: Intel and TCS provide information technology products and services that complement eachother. The companies are engaging in a technology alliance model in which the two organizationscollaborate on research and develop solution offerings to deliver customer-specific solutions to themarketplace.This alliance has matured over the last two years of collaborative work, with the companiesimplementing a well-defined model for collaboration using a three-stage approach:  Joint innovation engagements  defining new or improved solutions  Joint go-to-market strategies for the solutionsThe companies have completed two significant virtualization and balanced compute researchprojects with these objectives:  Virtualization: Demonstrate server consolidation through virtualization using multi-core Intel® Xeon® processors and Intel® Virtualization Technology on a real-life customer application to reduce total cost of ownership.  Balanced Compute: Demonstrate and validate balanced compute model usages in real end- user scenarios, showcasing central manageability and client side computing using a combination of OS and application streaming technologies on Intel® vPro™ technology- based platforms.SAP: SAP as a leading technology and product vendor is one of the key partners of TCS. Thepartnership with SAP has been a long-standing one and multi-dimensional. Leveraging and extendingthis existing partnership to collaborate for joint research and innovation was a logical next step forboth SAP and TCS.Senior Research Scientists of SAP and TCS initiated this collaboration setting the objectives anddefining the modus operandi for carrying out research in a collaborative manner. And theycommitted to cause by undertaking the responsibility to be Executive Sponsors in the respectiveorganizations.Collaboration with SAP Research was initiated after detailed discussions and exchange of researchinterests from both SAP and TCS. Identified areas include Model-driven Architecture and Integrationof Enterprise-Data, Web 2.0, Internet of Services, and Internet of Things.Hewlett-Packard: HP and TCS have initiated discussions for joint research in the areas of SaaS,Power Management & Cooling, Utility/Grid Computing, Cloud Computing, Green IT and NextPGPM508-Group 07 Page 17
  • 18. Generation Data Center. Some of the potential research initiatives could also involve developmentof market-specific offerings based on value-added services, using products and solutions from HP.EMC2: With TCS being an IT solutions and services provider, EMC2 and TCS have conceptualized ITsolution architectures for specific industry-domains integrating products from EMC2 and softwareplatforms from TCS.Acquisition StrategyTCS is looking at growth from two ways –first through organic means and second through theinorganic way. The inorganic way of growth is through acquisitions of those companies that makebusiness sense to TCS. The companies should add great value to TCS. Like for instance TCSacquisition of CMC is helping it taking a sharper look at the domestic IT business. Both thecompanies have synergies in the government sector, since both the companies are well known fordoing work for the government.TCS as part of its strategy to look at growth options has set up an internal team which will focus onlyon acquisition strategies .Below are some of the acquisitions of TCS in the recent past:  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.  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 TCS more ability to provide full-service to customers in affected markets.  March 2006: TCS, through its subsidiary, Diligenta, acquired a basis in part of UK’s Pearl Group. 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.  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 gained here will again allow TCS to expand further into new markets with BPO offerings, especially in the rather large and under-addressed Spanish-speaking world.  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 venturesTCS went for a joint venture (JV) in Feb 2007 with three Chinese partners and is billed by thecompany as a "role model” for the Chinese IT industry. The TCS joint venture, in which Microsofttook a 10 per cent stake, planned to employ over the next five year at least 5,000 people that wouldrepresent a considerable scaling up from the companys then present strength of 800 employees inChina. The Chinese software industry remains fragmented and lacks scale. Only about 10 Chinese ITfirms 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 venturePGPM508-Group 07 Page 18
  • 19. is widely expected to enable TCS to finally break into the $30-billion domestic Chinese IT market, amarket 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 technologysolutions and domain consulting for the banking and financial services sector. The joint venture iscalled 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 jointventure was to offer transformational capabilities to banks and financial institutions in India andother markets by helping them to use technology as a competitive tool in the market place usingbureau services and service platforms. "In three to five years, we hope the company creates nicheservices in the national and international stage, said Mr. Ramadorai.R ECO MMEN D ATIO N SThe first and foremost recommendation for TCS is to change its vision statement. In ourhumble opinion it is short sighted. TCS needs to have a vision that will show its leadershipqualities and long term thinking.Adapt to recession, but don’t ignore the new ecosystemIn all likelihood, the economy will worsen before it picks up again in late 2009. All service providerswill 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 anddirection, paying particular focus to the following issues to ensure long-term market success:  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.  Ensure marketing articulates your value proposition to all stakeholders concerned. In a recession, marketing can work as a differentiator.  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  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.  ‘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).  Provide more high-end services in value chain (3rd Wave in IT)  There is a move required from ADM (Application Development and maintenance) to value added services, BPO to Consulting and Package Implementation, etc.  TCS should shift focus from Low cost advantage to high quality services commanding a premium being the pioneer in the industry  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.PGPM508-Group 07 Page 19
  • 20.  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.  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.  TCS (rather all Indian IT players) should focus more on increasing their IP (Intellectual Property) assets.Finally would like to conclude with a prediction/recommendation from Gartner:The role of an IT Organization is changing and will have a “service effect”.PGPM508-Group 07 Page 20
  • 21. REFER EN CES 1. Tata Consultancy Services www.tcs.com (Investors section) 2. Forrester reports www.forrester.com 3. Gartner reports www.gartner.com 4. IT-ITeS Market & Opportunities – IBEF (India Brand Equity Foundation) report 5. Tata Consultancy Services – A Company Profile – www.datamonitor.com 6. Newspaper Mint – www.livemint.comPGPM508-Group 07 Page 21