TCS equipped to face rupee challenge

Tata Consultancy Services (TCS) is banking on a strategy of diversification, higher productivity (revenue and profit per person), global presence and comprehensive portfolio to face any further appreciation of the rupee, even if it were to rise to 35 against the dollar.

"We are mentally prepared for the 35 to the dollar," said N Chandrasekaran, the executive director and chief operating officer of TCS, India's largest software company.

The company's net profit growth dipped to a new low in the July-September quarter due to the rising rupee, salary inflation, sub-prime crisis and a perceived US slowdown.

"Even now, it's not that we are not growing. Rather, it's our growth that is getting devalued due to the appreciating rupee," he reasons.

Perceived as a strong contender to head the company after S Ramadorai's retirement in 2009, Chandrasekaran asserts that while the IT industry has been hit hard, TCS has worked out a strategy that helps it to cross these hurdles, enter the list of global top-10 IT giants and register revenues of $10 billion by 2010.

Diversifying risk has always been a priority with the company. Its portfolio of services covers the entire gamut: application, development and maintenance, infrastructure management services and business process outsourcing.

"We have always believed in diversification. We have invested in Latin America, China and other geographies. These centres are not used only for outsourcing work for our existing clients in these countries. We have, in parallel, built the respective national markets too," adds Chandrasekaran.

For instance, in China, TCS is working on two of the largest transformational deals in the financial vertical. In addition, the company has won a few more deals in the financial services sector in China.

TCS plans to further promote its component-based software approach to increase its productivity in terms of revenue and profit per person.

Chandrasekaran explains: "We are not going to change the revenue model completely. But moving ahead, we will have a substantial amount of capabilities that will be built into multiple platforms where we see an outcome-based pricing model existing."

TCS also plans to move up the value chain by increasing its 800-odd consulting team to over 4,000 "over a period of time", while simultaneously building its intellectual property rights (IPR) portfolio.

While TCS has been successful in controlling its attrition rate at 11.5 per cent for this quarter as well, wage hikes remains a concern.

"The wage hike will taper off. There was a period when salaries hikes were in the range of 30-35 per cent. It is not sustainable in the long run "� both for companies and the economy," notes Chandrasekaran.

TCS believes that wage inflation in the IT industry "� currently ranging between 12 and 15 per cent "� will come down for the next financial year (2008-09).

S Padmanabhan, executive director, human resources, TCS, said: "The wage stabilisation is due to several factors such as supply available in the market, pricing by competitors and prevalent market conditions."

The company crossed the 100,000 mark in employee strength and plans to hire additional 9,000 employees during the current (October-December) quarter.

The company will be hiring more from campuses. It has already made over 22,000 offers for 2008-09 and has visited 265 campuses across tier-I, II and III cities.

It will also be setting up three more training centres with a seating capacity of 5,000-10,000. The company will be investing Rs 8-10 lakh for each seat. Around 52 per cent of its employees have under 3 years of experience.

It also plans to invest in specialised training for the middle-level executive. The company has been spending 2 per cent of its revenue towards training employees.

And while the market is buzzing with M&A deals, TCS prefers to grow organically and concentrate more on getting larger deals.

"We have seen a strong organic momentum. We are getting more business from existing clients as well as new clients. For us, acquisitions are not about increasing revenues but to build our strategic abilities."

Finally, the global spend on information technology (IT) will not come down, he argues, adding this augurs well for IT firms.

"The overall demand situation still exists and the IT spend will only increase. While there may be some impact in certain countries such as the US "� and on certain companies and sectors "� there will always be someone else spending more on IT. Besides, even the affected companies have to cut costs. This is where more outsourcing will take place."