Tata Consultancy Services (TCS), India's top software services provider, has announced a new IT services entity in Japan in a joint venture with Mitsubishi.
The new company, TCS Japan, will be formed by merger of TCS's current Japan unit with IT Frontier Corporation (ITF), a wholly owned IT subsidiary of Mitsubishi, and another joint venture, Nippon TCS Solution Center.
TCS will hold a 51% stake in the new entity, which may be raised to 65% over five years, while Mitsubishi will hold the remaining 49%.
TCS is investing $50 million in the venture, which would be operational July 1.
According to TCS management, the JV will have 2,400 associates largely comprising locals from Japan, and is expected to generate revenues of $600 million per annum.
It is likely to add $375 million to TCS Group revenues in fiscal 2015, making TCS one of the largest Indian IT players in Japan.
Currently, TCS's Japan unit has an annual turnover of around $100 million (compared with TCS Group revenues of $13.4 billion for the year ended March 31), while Mitsubishi's ITF has annual revenues of $500 million.
N Chandrasekaran, CEO and MD, TCS, said, "TCS will now have the scale, strong local presence and our full range of global capabilities to serve the Japanese corporations effectively and accelerate our growth in that market. TCS will bring domain knowledge and full-service capability to key focus areas in Japan including manufacturing, hi-tech, retail, and digital."
In 2012, TCS had announced a joint venture with Mitsubishi to form Nippon TCS Solution Centre with an initial investment of $5 million and 60% stake. TCS has been present in Japan since 1987.
Ashish Chopra, IT analyst with Motilal Oswal Securities, said, "This deal lends TCS an edge in the Japanese market with local manpower (1,600 full time employees added plus more than 1,600 business associates) and client references (Mitsubishi is a $250 million client, and in addition, there are other Japanese clients in hi-tech, manufacturing, BFSI and retail verticals)."
Japan, which has an annual turnover of $125 billion, contributes only 2% to Indian IT firms' revenues despite many of them being in that market since over a decade.
This is because of issues like language and cultural barriers, plus trust issues that Japan has with other nations and its emphasis on long-term partnerships, experts said.
However, the deal with TCS on Monday is a sign that times could be a-changing.
Sid Pai, partner in research and consulting firm, Information Services Group (ISG), said, "Japan has taken longer but the deal today is a sign of more such probable partnerships, since, like the West, Japan is now increasingly facing economic and demographic pressures of an ageing population."