TCS chief worried about China growth

Tata Consultancy Services (TCS), which beat rival Infosys Technologies in terms of both revenue and profit in the quarter ended December, was rewarded by investors on Tuesday when its shares gained 5.5% on the Bombay Stock Exchange compared with a 1.1% gain in the broader market.

But the company’s head honcho is worried it is not growing faster in China, at a time when large corporations in Europe and the US are actively seeking alternatives to India for outsourcing work. Even as he remains buoyant on the current demand scenario and confident of capturing the rising demand, TCS chief executive officer

N Chandrasekaran told DNA he would like to scale up operations in the middle kingdom, where TCS currently has only about 1,100 of the total 187,000 employees. Excerpts from an interaction:

The organisational restructuring undertaken by TCS has paid off. How much of the current growth can be attributed to that?
What we did was we created units, very client-focused units, which are industry specific, of manageable size and very simple to understand. All the units had a single point of responsibility. That also brought organisational power. How do you act like a small company but have the power of 180,000 people? That is what we did and it has worked well. It has also given leadership opportunities to a lot of our staff.

With TCS growing faster, the gap between it and its Indian peers has widened. Do you think you have sustainable traction to be able to compare with global peers in future?
I’m not looking at any comparison. What I am looking at is that we have an operating model and a business model and we have huge opportunity before us.    We need to work with our customers to give them the right solutions. I truly believe that we can build this business in such a way that there is not only growth but also profitability.

That’s the way I’m looking at it and I’m not trying to do any comparisons.

Are clients loosening purse strings when it comes to IT budgets?
It will be higher than last year. Our addressable market may increase as the offshore focus of our clients might increase.

While most markets have grown, we haven’t seen Europe catching up with the rest. How do you see the demand scenario unfolding in Europe?
Macroeconomic conditions are tough. All the markets are going through their own transitions. In some markets, joblessness is a big problem; some other markets, sovereign debt is a bigger issue; some other markets, the inability to change is a bigger problem because of the rigidity, the regulatory rigidity… So, each market goes through different challenges and changes. From our point of view, in all markets, clients are looking to drive their business to be more efficient. As long as you understand those priorities, opportunity is there.

As far as TCS’s alternative delivery locations such as China are concerned, despite being there probably at the same time as Latin America, the operations have not scaled up at the same pace. I can only say two things. I agree that China is an opportunity. And I need to worry why we are not growing faster in China. I am worried. We are studying it to see how we can grow faster.

What went wrong?
Nothing went wrong, it is just taking time. We have our business model right, but we need scale. It is a question of getting more orders, training more people, recruiting more people and getting the business model to scale. But it is taking time.

There is a lot of talk about cloud model emerging as a dominant paradigm. Is that a threat to the current model of delivering services?
It is a major opportunity, but I can’t tell you how much will be our cloud revenue by next year. It will take time. For customers, cloud is a business model change, so adoption time will be longer.    

But it is a huge opportunity and we are well-invested. We have some banking platforms operating from the cloud; we have our SMB (small and medium businesses) solution that is on the cloud with abut 100 customers; all our BPO platforms are on the cloud. So cloud is a paradigm change, which we believe in, are invested in, and are creating solutions on. And it will pay off in the years to come.

For India, the next decade is all about infrastructure development. How will TCS benefit from that?
We are heavily invested in financial inclusion initiatives and are looking to participate in government initiatives in that space. We have research and development efforts going on as well, like mKrishi. We are participating in different ways, but you know, you don’t put a revenue potential upfront.

The fast pace at which revenues have grown over the last few quarters also comes with massive increase in the employee base. When do we expect non-linearity to kick in?
Not now. These things take time. Unless you tell me not to grow for four years (laughs)… stop, do all that and not grow for four years. It will take a few years.

You haven’t made any acquisition for some time. Can you tell us more about your acquisition strategy?
We keep looking at targets both from a markets perspective and from the point of view of getting into new industry verticals or strengthening our position in some of the existing verticals. Europe, Germany and Japan are some of the markets we are looking at. We are not in a hurry.

What worries you?
I need to make sure attrition levels are contained. We need to integrate people. We are adding a lot of people both in India and elsewhere… and all the protectionist measures that keep coming up.