TATA GROUP : On a Giant’s Shoulder

TCS becomes India’s first $1-billion company, sets up GDCs in China and Japan CMC signs projects worth Rs 150 crore TIL reports 49% rise in profits, wins laurels for contract manufacturing Group companies enter new markets: engineering outsourcing, gaming, entertainment, outsourced product design services and bioinformatics BPO strategy still fragmented. Expect some action this year

Group Revenues The Tata Group
Ratan Tata Non-executive chairman Tata Group
S Ramadorai CEO, TCS S Mahalingam Chief financial officer, TCS S Padmanabhan Corporate V-P (OD)
SS Ghosh MD & CEO, CMC
Madhukar Dev CEO, Tata Elxsi FK Kavarana chairman, Tata Infotech Sanjaya Sharma CEO, Tata Interactive Systems PR McGoldrick MD, Tata Technologies JM Varma president, Nelito Systems
1968	Tata Consultancy Services created out of Tata Computer Center
1977	Tata Burroughs formed after a collaboration venture is signed between the Tata Group and Burroughs
1987	Tata Burroughs is Tata Unisys
1989-90	Tata Elxsi formed to focus on scientific computing
1991	TCS becomes first software company to cross Rs 100 crore in turnover. An era in software begins
1993-96	IBM joins hands with the Tata Group for its re-entry into India
1996-99	Tata Unisys gives up Unisys stake to become Tata Infotech. Tata Technologies formed. Gives up stake in Tata IBM
1998-03	TCS revenues grow fivefold from Rs 1,066 crore to Rs 5,104 crore. The Tatas buy out majority stake in government-owned CMC. TCS becomes largest India’s largest IT company and the Tata Group becomes the largest IT group in India

It’s an empire unvanquished. The Tata Group’s revenues from its infotech ventures stood at Rs 6,281 crore in Year 2002-03, up 16% from 2001-02, to remain by far
the largest IT group in the country. The growth percentage may seem a tad depressing. But check this out–four-fifths of the group’s revenues came in from Tata Consultancy Services, which grew 19.5%, while the rest–a sprinkling of companies focussed on various niché and largely domestic services–pulled down growth. Apart from TCS’ continued efforts at ramping up global operations, and some large domestic projects bagged by CMC, group companies had a tough year. The much-hyped TCS IPO also didn’t happen–due to depressed stock market conditions fueled by US-Iraq tensions and the spread of
SARS.

The crown jewel of the group, TCS, raked in Rs 4,914 crore in revenues to cross a big milestone–becoming India’s first billion-dollar IT company. On top
of this, TCS’ preeminence in the IT services exports business continued. While tech stocks fell like ninepins on Indian bourses, analysts turned to TCS, though unlisted, to get an idea about how the global market for IT services and outsourcing fared.

With eight companies in the US Fortune Top 10 as its clients, TCS looked forward to bagging larger deals from these companies; deals over $30 million or so, to even multi-year contracts that are worth hundreds of millions.

TCS has been the foremost in setting up near-shore development centers to provide services to clients in specific geographies that may be risk-averse to offshoring to India. TCS has nine such centers in the US, Australia, Hungary and Latin America, and some centers were opened in China and Japan in 2002-03. These centers, modeled as global development centers, have seen significant ramp-ups in the past two years and are proving to be advantageous for TCS–as far as tapping new markets is concerned.

TCS continued to grow its domestic IT services business, with CMC too bringing in fresh projects at the close of the year. CMC brought in close to Rs 615 crore in revenues, growing 11% over the previous year. CMC bagged projects close to Rs 150 crore–in both the domestic and global markets–in various sectors like banking, ports, railways, cargo and e-governance. The company intends to focus on the optimal usage of its assets in India and overseas, infrastructure management, image processing, deploying largescale solutions, along with focussing on high-end education and training.

Reporting a 49% increase in profit-after-tax was Tata Infotech Ltd, with revenues declining marginally by 4.5% to stand at Rs 462 crore. Over the
past few years, ever since it has broken away from the Unisys partnership, TIL has been engaged in a series of restructuring and refocussing initiatives in a bid to restore its lost sheen. The increased profitability has been attributed to its focus on systems integration and manufacturing operations. In contrast to the rest of the industry, TIL hit the jackpot in its contract manufacturing activities with three awards–‘Excellence in Exports Award’ (MAIT), the ‘Contract Manufacturing Export Award’ (ESC), and ‘Supplier Excellence Award’ (Unisys Plymouth–coming its way during the year. Recently, Diebold and TIL entered into a contract manufacturing agreement, under which TIL will manufacture Diebold ATMs in India for distribution in the country, and South and South-East Asia. Speculations are rife about TIL’s possible merger with TCS, especially as the former is seen to be on shaky ground with an unclear agenda.

The smaller members–namely Tata Technologies, Tata Elxsi, Tata Interactive Systems and Nelito Systems–reported mixed results for the year. Tata Interactive Systems, a SEI-CMM Level 5 company, stood out for its leadership in the e-learning area, with the world’s largest team for design and development of custom e-learning solutions. Tata Technologies inched ahead to Rs 93 crore in revenues, earned through its business and product data applications for the manufacturing segment. In the current year, Tata Technologies is actively looking at projects in engineering outsourcing.

Tata Elxsi earned Rs 110 crore in revenues, nearly 15% lower than the previous year. The company redefined its strategy in 2002-03 to focus on the design engineering space–right from specialized product design services to system and silicon design. Tata Elxsi has a competitive advantage in this field and is banking on it to put up a better performance in future. Besides, the company is sharpening its focus on the product R&D outsourcing space. Other markets on Tata Elxsi’s radar are gaming, bioinformatics and entertainment, where it launched its initiative to offer content creation for animation and special effects. With these new markets, the company is optimistic about growing its revenues and profits in the ongoing financial year.

The Tata Group’s play in the global business process outsourcing business is yet to emerge fully–at least in comparison to Wipro and Infosys–in terms of scope, scale and structure. Presently, TCS has got a 50:50 joint venture with the Housing Development Finance Corporation in the form of Intelenet, a BPO company. Another Tata company, Tata Infotech, has a 40% stake in Sitel India–a company that offers information technology-enabled services. TCS also bought out an airlines process outsourcing subsidiary–AFS–from Swissair. However, in the coming year or two, the Tata Group may seek a significant foothold in the BPO business, comparable in scale to what has done in the telecom business.

Overall, the year was quite uneventful for the Tata Group’s IT companies. The TCS IPO story has gotten old. In 2002-03, the Tatas focussed on making giant strides in expanding their footprint in the telecom services business in India. In that sense, it was the “Year of Telecom” for the Tata Group, leadership in IT notwithstanding.

TEAM DQ