TCS plans SBU for emerging markets

The appreciating rupee is increasingly driving India's largest IT services provider, Tata Consultancy Services (TCS), to capitalise on its presence in emerging markets such as Eastern Europe, West Asia, Africa and Latin America.

The company is now in the process of consolidating its operations in these regions into a strategic business unit.

And given that these emerging markets account for almost 7 per cent of TCS' revenues and employ over 6,000 people, it has appointed Gabriel Rozman as executive vice-president, emerging markets.

Rozman headed the company's operations in Latin America, Spain and Portugal, collectively known as TCS Iberoamerica, for the last 5 years.

"We have built expertise in these regions, besides adding local clients to our portfolio. We also have our existing clients from other geographies who wish to have a presence in emerging markets. We get added business from them in terms of solutions and consultancy," said Rozman.

Emerging markets offer a great opportunity for TCS. It is estimated that these regions account for 25.5 per cent of the $730 billion global IT services market, growing at a faster annual rate of 8 per cent versus the developed market growth rate of 6 per cent.

The results show for TCS. For the third quarter ending December 31, 2007, Latin America accounted for 4.7 per cent of the revenues. It was 4.2 per cent in the trailing quarter.

Over the last five years, TCS has set up operations in 14 countries, including major centres in Argentina, Brazil, Chile and Uruguay, employing over 5,000 professionals (98 per cent of who are locals) and catering to more than 150 clients.

The revenues of TCS Latin America touched $159 million (around Rs 650 crore) in 2006-07.

The Indian IT major also acquired 100 per cent control of its Brazilian joint venture, TCS do Brasil.

Among its big deals in the region figure the outsourcing solutions agreement valued at over $140 million (around Rs 55 crore) over a period of five years with Banco Pichincha, Ecuador's largest private bank, and the $200 million (around Rs 800 crore) deal with the Bank of Mexico.

Large clients, explains Rozman, prefer to use multiple centres for delivery of services. In TCS' case, 51 of its large customers use more than one centre other than India.

Eastern Europe and Latin America are quickly gaining in popularity, primarily due to a concept called "near-shoring" (proximity to the client) and "time-zone" advantage. Mexico, Argentina, Brazil and Costa Rica are the most mature sourcing destinations in South or Central America.

Mexico's benefits include its cultural ties and physical proximity to the US and Canada, including shared time zones and frequent flights with short travel times that make it the most accessible low-wage market for the North American companies.

The price is higher than that of India "but companies are willing to pay a premium for nearshore operations," says Rozman.

Brazil is well placed to supply labour to the global offshoring market with its strong telecom infrastructure, attractive market for IT vendors and relatively low costs, according to a McKinsey report, which cautions that weak English-speaking skills and lack of international experience among Brazilian workers make many of them unsuitable for employment.