The undersold TCS story

Last Updated: Tue, Jul 23, 2013 06:48 hrs

The first quarter of 2013-14 marks a watershed for Tata Consultancy Services (TCS). It has, for the first time, overtaken Infosys in net margins, if by a whisker - clocking 21.3 per cent against its rival's 21.1 per cent. Infosys previously always commanded a pricing premium, reflected in market-leading margins. In recent quarters, even though TCS had forged ahead in topline growth, Infosys had hung on to its superior margins. And, at a time when numbers from global leaders like Accenture and Oracle have been underwhelming and Infosys has been only cautiously optimistic about the future, TCS has found the outlook for discretionary spending on IT to be robust. In fact, the root cause of TCS's performance is its ability to get a handle on technology which lets it garner what clients are ready to spend on doing new things. As CEO N Chandrasekaran has explained, during a slowdown, companies seek to redo their businesses to beat costs - and a technology vendor able to partner the client in its business transformation is itself able to forge ahead.

India's oldest software company, which opened shop in 1968, was always big but undistinguished in what it had to offer. So were the other leaders like Infosys and Wipro; but they were able to brand themselves successfully. It is only after TCS went public in 2004 that it began to purposefully project itself. But it still continued to punch below its weight, even while acquiring a remarkable repertoire of skills and technologies. Today it is reaping not just the rewards of these efforts but also of a successful leadership transition.

Mr Chandrasekaran has indicated that while TCS will keep focusing on new geographies and technologies, it is US companies which have been the first to grasp the opportunity of using technology to redo their business model and stay solvent. So the ability of other geographies, except the UK, to account for a bigger share of the business will be limited. But in order to keep serving US clients successfully, TCS, like other Indian software leaders, will have to change the way they do business. Irrespective of the final shape of the new US immigration law, they will have to build into their business model a bigger permanent workforce near client locations and higher skill levels back home. While the former will raise costs, the country will have to respond to the latter by raising the quality of its engineering graduates, rather than their numbers. With recruitment by IT majors going slower and lower-level BPO voice jobs going to the Philippines, the role of the IT-BPO sector as a great job provider for the middle class will decline. A job in TCS will be harder to come by - but will carry increasing value.

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