CORPORATE AFFAIRS

Software successes

A profile of Tata Consultancy Services, Asia's largest software and services company, now on the threshold of further achievements and growth.

ANUPAMA KATAKAM

THE Tata group, the giant of the old economy, saw its fortunes take quite a tumble in the 1990s. It is now making a very visible comeback as a prominent force in the new economy. Once synonymous with steel and heavy engineering, the group in recent years has had to lean on its strong forays into the information technology (IT) and telecom sectors for continued success. With Tata Steel and Tata Engineering, the group's mainstays, showing few signs of regaining their past pre-eminence, it is becoming apparent that the group's IT sector will be largely responsible for carrying forward the Tata empire.

Spearheading the group's IT sector is the 34-year-old Tata Consultancy Services (TCS), a division of Tata Sons Limited. There has been no hype about TCS, which is one of Asia's largest software and services companies and India's top IT performer. One of corporate India's best kept secrets, TCS has consistently held the top spot among IT companies in the country. In what the National Association of Software and Services Companies (NASSCOM) industry report, released in July 2001, has termed a 'rough year' for the Indian software industry, TCS with revenues over Rs.4,000 crores has not disappointed. It has once again retained its number one position in software exports.

An industry analyst suggests that TCS' most vital role currently is its outstanding contribution to the Tata Group. Over the next seven years the group reportedly needs to raise Rs.10,000 crores for new investments. An impending initial public offering (IPO) from TCS is expected to bring in a significant amount of funds. Additionally, revenues and profits from TCS as well as other IT companies belonging to the Tatas are expected to fill the group's coffers.

BY SPECIAL ARRANGEMENT
Inside the Salt Lake, Kolkata, office of TCS.

A look at TCS' financials indicate that it is in a position to help. Despite facing tough conditions, TCS, whose portfolio has more than 800 global clients, earned Rs.4,187 crores in 2001-02. The Tata group's overall IT sector revenues for 2001-02 reached Rs.5,523 crores, making it the first Indian IT company to cross the $1 billion mark. According to the company, this figure represents nearly 12 per cent of the group's overall revenues. Interestingly, it works out to almost 10 per cent of the total revenues of the Indian IT industry. The IT segment accounts for more than a third of the group's total profits. An industry analyst suggests: "Since TCS leads the pack of IT companies within the group, its responsibility becomes even more vital." The contribution of the group's other IT division includes Rs.484 crores from Tata Infotech, Rs.132 crores from Tata Elxsi, Rs.555 crores from the recently acquired CMC division, Rs.100 crores from Tata Technologies, Rs.25 crores from Nelito Systems and Rs.40 crores from Tata Interactive.

Several major deals, new initiatives and tie-ups have been undertaken this year. This will, in all likelihood, ensure a strong performance from TCS. For instance, TCS clinched a $100 million deal with GE-Medical to provide a range of global IT solutions and services. TCS says that "this is one of the biggest contracts ever secured by a software company in India." TCS also agreed to a significant tie-up with Racal Instruments Ltd, United Kingdom, a key provider of digital cellular test equipment worldwide. Racal Instruments has asked TCS to establish a Software Develop-ment Centre. This alliance is expected to fetch revenues of over $15 million. A œ30 million contract with United Utilities Water, Great Britain's first multi-utility group, to provide end-to-end IT services is another major gain for TCS.

International agreements signed this year include contracts with the Swedish company, Ericsson. Ericsson will outsource TCS' expertise in the telecom domain in areas such as digital switching and wireless networks. TCS' offshore development centre in Hyderabad will support Ericsson worldwide. The Bank of America has awarded TCS the contract to provide worldwide IT solutions through an exclusive offshore development centre at Sholinganallur in Chennai. TCS has also spread its geographical reach this year by entering markets in Spain, Brazil, Argentina and Mexico.

Additionally, in June 2002, TCS set up its "China Initiative", a subsidiary of Tata Information Technology in Shanghai, to handle projects in China.

TCS' major project gains within India include a ten-year contract with Tata Chemicals Limited and a substantial IT project with the State Bank of India (SBI). The SBI is India's largest commercial bank with a vast domestic network. It commands one-fifth of deposits and loans of all scheduled commercial banks in India. TCS will supply, customise and implement the Centralised Core Banking System for the SBI, across its 9,000 branches. According to TCS, "this is perhaps one of the biggest banking projects in the world in terms of locations, customers and transaction volume."

The year has seen TCS and the Tata group do some shopping in the IT and telecom sectors. Strengthening its position in the domestic market, TCS bought a controlling stake of 51 per cent in CMC, a leading infrastructure management, networking and maintenance company. Despite facing stiff competition from the corporate Goliath, Reliance Industries Limited, the Tatas also bagged the disinvested stake of the Government of India in Videsh Sanchar Nigam Limited (VSNL). According to an industry analyst, this has enabled the Tatas to make a strong entry into telecommunications and to become a major player in that sector immediately. "A combination of vision, reach and a cross section of deliverables to a range of industries, is the edge TCS has over the others," says the analyst.

"TCS' achievements are mainly due to the company's foresight in gaining expertise and experience in emerging technologies," says Atul Takle, a company spokesperson. For instance, TCS pioneered the concept of Offshore Development Centres in India. Takle told Frontline that the software industry in the country has grown largely thanks to this concept. According to Takle, TCS' greatest advantage over other Indian software companies is its in-depth knowledge of diverse business domains as well as expertise across varied technologies. These business domains include sectors such as banking, financial services, manufacturing, transportation, government services and healthcare. The company provides services in eBusiness, application development and maintenance, eSecurity, architecture and technology consulting, infrastructure development and quality consulting. "TCS' ability to provide end-to-end solutions is another of its major strengths," notes Takle. "We may not be visible, and we do not publicise our achievements but we are definitely leaders in the industry."

TCS develops and markets innovative software products and tools in the world market. A globally popular TCS product is MasterCraft, a tool-based development environment, which allows the user to build applications for uses in finance, telecom, insurance and other sectors. Its industry specific tools include Cempac for the cement industry and eBankWorks, FIG, BancOnAbm, Netquote and QUARTZ for the banking and financial sectors. TCS has been actively involved in developing products for "SMARTGOV," more commonly referred to as "e-governance". One of TCS' recent projects was with the Andhra Pradesh government. Over a period of a year, TCS developed both a central information system and a departmental information system. These programmes include an efficient filing system, a data-base and an application system. According to TCS, "the SMARTGOV framework yields enhanced productivity, reduced paperwork, easy access to information and automatic prioritisation of work." Smaller e-governance projects have been undertaken for the governments of Karnataka, Uttar Pra-desh, Madhya Pradesh and Tamil Nadu.

TCS is focussed on research and development. Over 4 per cent of its revenues is invested in this critical activity. A state-of-the-art facility in Pune is said to be one of the most advanced of its kind. "Quality," which as TCS points out, "is a key business driver", has been assessed at Level 5, the highest level in the Carnegie Mellon SEI Capability Maturity Model scale. According to TCS, in August 2001 it became the first organisation in the world to achieve P-CMM Level 4 - Ver.2.

With its successes, TCS' workforce is growing impressively. Currently, over 19,000 professionals work at 90 branches in 29 countries. In spite of the slowdown in the sector of late, this year TCS recruited 1,500 engineering trainees. In addition, it took in 140 management graduates of whom 52 were from the Indian Institutes of Management (IIM). Apparently, this represented the highest number recruited by any corporate on campus this year. Moreover, while some fell back on their promises, TCS honoured every single offer letter made. It has plans to add over 1,500 fresh recruits in the current year.

Although TCS and a few other top IT companies registered sizeable revenues and growth, the software industry itself took a beating in 2001-2002. The software sector in India is used to a 50 to 60 per cent annual rate of growth. According to Nasscom, the overall growth rate of the software sector was 22 per cent (amounting to $10.1 billion) over the previous year, with the software export segment growing by 23 per cent (amounting to $7.8 billion). Nasccom chief Kiran Karnik expects the industry to record a 30 per cent growth rate this year and notes that the year has been exceptionally challenging.

TCS, which is emerging as the Tata group's flagship company, plays way and ahead the leading role in the industry's advance.