April 17, 2014 5:19 am JST

Tata Consultancy refocusing on quality

TAKAFUMI HOTTA and YUJI KURONUMA, Nikkei staff writers

MUMBAI/TOKYO -- Tata Consultancy Services, India's largest IT services company, has enjoyed consistent success over the past several years. But as it reaches the limits of a business model reliant on force of numbers, it is aiming higher at more sophisticated, cutting-edge services.

38% net profit gain

Consolidated net profit rose 38% on the year to 191.1 billion rupees ($3.13 billion) for the fiscal year ended March 31, according to Wednesday's earnings announcement. Chief Executive Officer Natarajan Chandrasekaran told a news conference in Mumbai that the results were on target.

     But with competition from Western rivals heating up, Chandrasekaran intends to take a scalpel to the company's structure.

     Tata Consultancy broke ground in January on a massive training center in the south. Prime Minister Manmohan Singh, who attended the ceremony, expressed confidence that the facility will set a global standard.

     The sprawling campus will accommodate up to 50,000 trainees at a time. With a focus on quality over quantity, it will serve as the core training facility for the company's workforce of nearly 300,000 worldwide.

     A number of programs will likely be offered to help master the latest technologies, including social media, cloud services and big-data analysis.

     The facility "will produce world-class professionals to meet the future needs of the IT industry," Chandrasekaran said.

     Tata Consultancy also built an advanced research center in Silicon Valley back in 2012.

     India's information technology industry blossomed in the late 1990s. The sector accounts for more than 8% of gross domestic product today, making it a cornerstone of the economy.

     Low labor costs and strong English-language skills have encouraged the growth of business process outsourcing, or BPO, which entails taking on such work as software development and clerical tasks for foreign companies. Considering that this involves distributing large tasks among a broad pool of workers, it has been derided as relying on sheer numbers and adding little value.

     Tata Consultancy aims to move away from that business model. A key part of this is increasing capacity to work with new information technologies. Chandrasekaran plans to grow services based on new IT developments into a multibillion-dollar business in three to five years.

     Another step is making the BPO business more advanced, shifting to more sophisticated work on behalf of clients, such as sales and development. Chandrasekaran points out that many employees hold MBA degrees.

Stability pays off

One of Tata Consultancy's strengths is its stable management. A local analyst notes that the company has not wavered under its current CEO, who took the helm in 2009.

     Infosys, Tata Consultancy's closest local rival, has dealt with an exodus of executives following the sudden return of the founder, who had been frustrated by the company's struggles.

     Tata Consultancy's stability is reflected in its earnings. Consolidated revenue rose 30% to 818 billion rupees for fiscal 2013 -- 50% higher than Infosys or No. 3 player Wipro. Net profit has steadily climbed 20% or more every year since fiscal 2009, compared with 10% for its two major competitors.

     Its employee utilization rate, excluding trainees, exceeds 80% -- besting Infosys' 70% or so.

     The company's operational structure is client-centered, and it offers services that competitors shy away from. This contributes to its consistent earnings and gives it breathing room to invest in more advanced services.

     Tata Consultancy will enter the same realm as technically advanced global giants like Accenture and IBM. Its performance in the international market will serve as a test of the country's IT services sector.