Tag: TCS

TCS is now valued more than Accenture | In the News

Tata Consultancy Services (TCS) not only touched $100 billion in market capitalization on Monday, but it also in the process overtook the market cap of Accenture, a company whose revenue is almost twice that of TCS.

Rod Bourgeois, head of research in US-based DeepDive Equity Research, said that the root driver of TCS’s success is that it has built a position as the low-cost value player at scale – backed by the execution ability to maintain low costs while still delivering quality work. “This industry positioning by TCS supports good revenue growth, and this low-cost execution supports distinctive margins. Good growth plus distinctive margins over many years produces a huge market cap,” he said.

Peter Bendor-Samuel, CEO of IT consulting firm Everest Group, however, wonders if TCS’s valuation premium would persist over the next few years. Accenture, he said, is further along than TCS in its move into the new digital marketplace. “We anticipate that it will be difficult for TCS to maintain its traditional margins in digital as the business model as we understand it seems likely to demand lower margins. However, if TCS is able somehow to maintain the margin premium by some combination of IP ownership, and digital labour arbitrage, then it will be able to maintain its equity premium,” he said.

Read more in Gadgets Now

TCS wins $6 billion in contracts under a month | In the News

For several years under its previous CEO N Chandrasekaran, TCS achieved growth rates of 15 per cent-16 per cent even when it had hit $10 billion in revenues, way more than the No. 2 player in the Indian IT industry. Then, in the past couple of years, the company slowed down dramatically as customers looked at newer digital technologies that TCS and others were not fully prepared for.  Now, Chandrasekaran’s successor, Rajesh Gopinathan, looks to be bringing the company back to its winning ways.

In less than a month, TCS has announced deal wins of nearly $6 billion, including a $690-million contract with Europe’s M&G Prudential that it announced on Tuesday. It’s a stellar feat that has left many in the Indian IT sector in awe of the company’s deep client connects and robust execution engine.

Peter Bendor-Samuel, CEO of outsourcing consulting firm Everest Group, said TCS is taking on the market with new vigour. “Last year, TCS rolled out a comprehensive strategy to address the markets’ move into a digital-first orientation. This involved increased investments in digital, reorganization of its operations to address the new realities of a digital marketplace, and new messaging for its marketing and sales teams,” he said.

Read more in The Times of India

Gazing into the Global Services Crystal Ball: Sometimes you get it Right, and Sometimes, Not so Much | Sherpas in Blue Shirts

When I visited India for the first time in the early 2000s, the country was largely unknown in terms of business. The airports were small and dingy. The upscale hotels were really nice but also scarce. That meant they could charge insanely expensive rates…I remember paying US$700 per night at the Leela Palace!

My U.S. colleagues and I were on a mission to visit largely unknown service providers like Infosys, TCS, and Wipro, all of which had around 10K employees. At the end of the trip, we concluded that this was going to be real, and big…very big.

So we, and the other industry analysts in the space, pulled out our crystal ball to see what specifics we could predict. How clear, or cloudy, were our sixth senses back then?

What we got right

We did well in this category. India, along with many, many other low-cost locations, is absolutely capable of doing the global services job with scale. It’s also capable of doing many sophisticated processes (full disclosure: we might have underestimated this one a bit.) And those “unknown” companies I mentioned above? They’ve become truly global players, by some measures even surpassing the original powerhouses like Accenture, ACS, CSC, EDS, IBM, and HP (many of which have already consolidated).

What we got wrong

While inflation slowed in the U.S., it did even more dramatically in recent years in India. This, in turn, slowed the arbitrage difference, creating relatively smaller impacts on our models. And currency moves – such as a change from around 45 to 64 rupees – created a large positive impact, offsetting inflation by roughly 50 percent.

What we got really wrong

Labor supply was the biggie. All of us in the analyst community completely underestimated the impact of the available supply, which created an ongoing downward pressure on entry-level salaries. Using the best available data, the number of college students in India has risen from 13.6 million in 2008 to more than double that (28.5 million) in 2016.

While we didn’t predict it in the earliest years of the global services industry, by the end of the 2000s we were forecasting the end of labor arbitrage. India salaries were rising at double digit rates, and it seemed that it was only a matter of time before we reached parity (for offshoring purposes, 70 percent of U.S.-based salaries was considered parity.) As you see, we were miles off on that one.

What we got really wrong | Supply of labor

Increased labor in India as well as other locations have ensured limited salary increase, especially for junior roles

Future of Global Services

Looking forward (through our much more mature crystal ball) on the cost question

  • Temporary shortages of key skills, particularly digital, will create upwards pressures on salaries. But as the education and corporate systems retool their training curriculums, I expect the resulting surge in available talent will allow a cap and perhaps drive down salaries. Still and all, India is still a viable place to get low cost labor, albeit not quite as good as it was 15 years ago. (Review our Executive Briefing, India Global Services Industry: A Look Back at the Last Decade and Our Future Outlook, to drill down into the supporting analytics for this analysis.)
  • Many functions and processes have reached an offshoring saturation point. This doesn’t mean a complete stoppage of work moving offshore, just that many of the big, concentrated moves have already happened.
  • New automated solutions like RPA are going to create significant process labor efficiencies, in turn increasing headcount pressures.
  • The tipping point in this equation will go back to the supply side, where the ongoing wave of college students will keep pressure on wage advances far into the future, especially for the entry level positions.

Gazing forward to at least a 2040 – 2050 timeframe, other low-cost locations such as eastern Europe may get tapped out, since they don’t have as large a stream of graduates as does India. So, I say: advantage to India in keeping the wages compelling with its tidal wave of ongoing supply. But the looming question will be, what to do with all of those freshly minted grads?

My next blog will tackle the interesting another aspect of my looking back and looking forward retrospectives: “Are the India Heritage Services the new Global Leaders? The answer isn’t obvious. Stay tuned…

TCS to carve out a new brand identity for its artificial intelligence product Ignio | In the News

Tata Consultancy Services is creating a product brand for its artificial intelligence (AI) product Ignio and has hired from US companies to drive sales of the standalone product, a move that analysts say is akin to building a software company with a different model to its traditional services.

The company is working to ensure the Ignio brand is a standalone — with a separate website that has minimal TCS branding. Digitate, the unit that houses Ignio, is only once referred to as a TCS venture.

Indian IT companies have so far always sold their AI platforms as part of services and TCS is among the first to sell it as a standalone product. “TCS has taken a different approach to automation and cognitive computing than its competitors in the amount it is spending and that it is building its own software from the ground up and then attempt to sell it independently of its services,” Peter Bendor-Samuel, CEO at IT advisory firm Everest Group, said.

Read more in The Economic Times

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