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Last Updated: Tuesday, 14 December, 2004, 00:00 GMT
Earning IT money the Indian way
By Tim Weber
Business editor, BBC News website

Phiroz Vandrevala
It's difficult if you are Jill or Joe who is laid off in Newcastle, and you don't feel the macroeconomic benefit of outsourcing
Phiroz Vandrevala, TCS

Phiroz Vandrevala is clearly pleased with himself.

Sitting in a trendy bar in London's fashionable Soho district, chomping on his second cigar, the executive vice president of Indian information technology firm Tata Consultancy Services (TCS) has a success story to tell.

The days are over when India's information technology (IT) services firms were seen as the sweatshops of the computer world. Today they provide the full range of IT services, from call centres to software development to consulting.

With growth consistently in the double-digits, TCS is starting to play in the same league as the big boys, competing with well-known IT giants like US-based EDS and France's Cap Gemini.

Top 10 target

GLOBAL IT SERVICES GIANTS
1. IBM - $89bn
2. HP - $73bn
3. EDS - $21.4bn
4. Computer Sciences - $14.8bn
5. Accenture - $11.8bn
6. Cap Gemini - $7.2bn
...
14. TCS - $1.56bn
...
16. Wipro - $1.32bn
17. Infosys - $1.07bn
by turnover
Source: TCS

The firm's global reach gets bigger and bigger with every new contract rolling in, like a 900m ($1.73bn) deal earlier this year to provide IT infrastructure for the UK's National Health Service in a Fujitsu-led consortium.

"The credibility of Indian firms to provide IT services increases by the day," says Mr Vandrevala.

By 2010 his company wants to be in the top 10 of IT services firms.

With six years to go, TCS is nearly there.

Mr Vandrevala revels in the numbers: "We are number 14 in terms of revenue, ranked 6 in profits, and are number 9 in people employed."

TCS offices in Hyderabad
Parts of India are turning themselves into high-tech regions

The roots of TCS go back to 1968 when, in what would later become known as outsourcing, the company started to provide software services for US insurance firm Sun Life.

TCS had a comparatively easy start, backed as it was by parent firm Tata, the giant tea to telecoms conglomerate.

Today the firm operates in 33 countries, has more than 35,000 employees worldwide, boasts an annual turnover of $1.56bn (803m), and a whopping return on investment of about 25%.

Giving chase

And after its $1.2bn stock market flotation earlier this year, TCS is ready to grow through an acquisition spree: "We will show some appetite now ... [focusing on] IT firms in continental Europe - France, Germany, Italy and Scandinavia," says Mr Vandrevala.

While TCS is nipping at the heels of giant Western IT services companies, a pack of Indian rivals is giving chase.

PROGRAMMERS' SALARIES
Romania: $2,400
India $5,880
Czech Republic $6,400
Philippines $6,500
Malaysia $7,200
China $8,900
Israel $25,000
Ireland $28,000
average wage/year
Source: Nasscom

Local competitors Wipro and Infosys, which both have their fair share of ex-TCS staff, have grown into billion-dollar-turnover companies as well.

It is a huge achievement, and Indian IT executives find it difficult to hide the pride in their success.

Global reach

Regardless of whether one speaks to Mr Vandrevala, Infosys boss Nandan Nilekani or any other executive working for one of India's rapidly growing tech companies, they are proud that it is their country making a mark in the world of high technology.

"We will be the new EDS," says a confident Phiroz Vandrevala, and points to Western IT giants rushing to set up their own operations in India.

"EDS and Cap Gemini are now playing on my playing field, which makes it easier," adds the TCS top executive.

At the same time, Infosys, TCS and others are working hard to extend their global footprint.

"We have to be where our customers are," says Mr Nilekani, boss of 33,000-strong Infosys with headquarters in Bangalore, India's answer to Silicon Valley.

That translates into regional services centres across America and Europe. TCS's UK operation is typical. It employs 140 people, with another 2,000 engineers flown in from India to work on specific jobs on-site.

Both firms have also set up shop in China, to be closer to the Japanese market and to support the outsourcing operations of their manufacturing clients in China itself.

'Made in India'

But with big Western firms still ruling the roost, how far up the value chain can Indian companies go?

INDIAN IT PROFESSIONALS
TCS developers
1991: 56,000
1997: 160,000
2000: 284,000
2003: 650,000
Source: Nasscom

There are plenty of critics who are dismissive of the challenge. Indian IT services firms, they argue, are mere body shops, churning through young graduates that do repetitive, boring and ultimately not very demanding work, and just about good enough for the outsourcing of some basic jobs.

Not so, argues Mr Vandrevala. "We are active in all six 'boxes' of the IT services industry - application development, IT engineering, IT products, infrastructure support, business process outsourcing, and consulting - which allows us to compete at the same levels as IBM."

Ultimately, though, for most jobs firms like TCS are mere vendors and service providers, helping other companies to efficiently implement and run software written by firms like Microsoft, Oracle and SAP.

It's "Processed", not "Made in India".

And so far only a few Indian software houses have had much success taking a different route.

I-flex Solutions is one of them. The company emerged 12 years ago from a Citicorp outsourcing outfit and has now grown to more than 4,000 employees.

Yes, traditional IT services provide a third of turnover and useful cash flow.

Rajesh Hukku, chairman of i-flex solutions
Rajesh Hukku of i-flex says software should be "Made in India"

But the potential of I-flex Solutions lies in the intellectual property it has generated, for example Flexcube, a software package that allows banks to integrate and mine the deluge of data flowing through their systems, and manage the risks involved.

Rajesh Hukku, chairman and managing director of I-flex, is another proud IT boss, with a calling card that lists three addresses around the world.

With the banking sector estimated to spend $70bn on IT over the next three years, he jets through Asia, Europe and the Americas, hoping to add to his long list of clients, which runs from Citibank, the world's largest financial services firm, to banking outfits in Russia and Nepal.

And by having created something that bears the stamp "Made in India", he believes that his company can set itself apart from the competition.

"With our product strategy, we generate the added value ourselves and don't just earn money by helping companies run other people's software," says Mr Hukku.

Coping with the backlash

Whichever model ultimately succeeds, everybody seems to agree that there is plenty of space for more giant IT services companies, even though IT services exports from India are already worth about $18bn a year.

There is just one problem: For many in the West, outsourcing has become a dirty word.

"Outsourcing helps both sides," counters Mr Nilekani of Infosys. "It creates jobs both in India and where the original jobs have disappeared from."

Mr Vandrevala acknowledges that this is difficult to take if you are "Jill or Joe who is laid off in Newcastle, and you don't feel the macroeconomic benefit" of outsourcing.

But protectionism or subsidies, he says, are not the way forward. Western countries "have to go up the value chain."

He points Western critics of outsourcing to the fate of steel: "The US went for protectionism, but today there's not much left of the US steel industry."


SEE ALSO:
India's Wipro sees profits surge
15 Oct 04 |  Business
India launches record share float
29 Jul 04 |  Business
Microsoft signs two Indian deals
15 Nov 04 |  Business
Infosys cashes in on outsourcing
12 Oct 04 |  Business


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