Rank 1: Tata Consultancy Services: Flight To Scale

McKinsey called IT the ‘Flight to Scale’–customers

reducing suppliers, flocking to the largest ones… It was the sheer size of the

company that worked the numbers for TCS. Revenue growth declined from 55% to

33%, though at its size and compared to the industry average, it was a healthy

performance.

However, growth came at a price–a significant fall in

billing rates. For a company already known to be among the most price-aggressive

in the business–this also meant a hit on margins. As customers went into

multiple rounds of negotiations, deals closed on price more often than not and

TCS picked up a few of them on rates lower than the $20 range offshore. More

importantly, TCS was among the few Top 10 software exporters whose onsite

revenues went up significantly from 62% in FY00-01 to 71% in the last financial

year.

Performance Highlights Signed a $100-mn outsourcing deal with GE–the largest in Indian IT services history Began geographical diversification with the setting up of global development centers Strengths In a year marked by customers’ flight to scale, its sheer size was a big advantage Price-point aggression–TCS could afford to win most deals on competitive billing rates Weaknesses Needs value-added offerings Needs to de-risk its business further–70% of export revenues come from the US and most of it from onsite work Tata Consultancy Services l Startup: 1968 l Products & services: Software services, consulting, products, solutions l Branches:107 l Address: Air India Building, 11th Floor, Nariman Point, Mumbai-400021 l Tel: 2024827 l Fax: 2040711 l Website: tcs.com

A significant component of onsite maintenance and support activity,

coupled with more customers wanting development to be done onsite, in response

to events such as September 11, explained the increase in onsite revenues.

Soothing on the top-line, it lowered TCS’ margins.

Despite the pressure, TCS signed some of the largest deals–a

£30-million deal with the UK’s United Utilities Water, a $15-million deal

with Racal Instruments and multi-year outsourcing and offshore development

contracts from Tata Chemicals, Ericsson, and Bank of America. Its biggest story

was a $100-million deal with GE–the largest deal in the Indian IT services

history.

In FY 01-02 the company sought to increase its reach both within India and

outside. Compared to its competitors, TCS managed a healthy chunk from the

domestic market, and sought to enhance local presence with the CMC takeover. A

big coup: a Rs 200 crore bank automation deal for SBI. It increased its

marketing presence and set up development centers in Hungary, Australia,

Uruguay, Japan, Mexico, the United States, UK and recently–a subsidiary in

China called Tata Information Technology (Shanghai). Going forward, the company’s

long-delayed IPO may come through by end of 2002, market conditions permitting.

Expected to raise around Rs 500 crore, it is likely to be India’s largest IPO

from the IT industry and the capital market’s delight.