Wednesday, April 22, 2009

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TCS’ new mantra: Cost-cutting

Tata Consultancy Services (TCS), India's largest IT outsourcing firm, said on Tuesday that price competition will force it to focus on cost reductions in coming years.

Even though competition is intensifying as customers seek cost reductions, Tata's earnings in fiscal 2010 should be higher than the year earlier, Chief Executive S Ramadorai said.

"I would like to see a 10 per cent year-on-year improvement" in cost reduction, he said. Tata Consultancy Services Ltd posted a 4.6 per cent rise in quarterly profit, but it expects prices to fall by lower single digits in the coming year.

"Profits will continue to rise, but at a slow pace," he said. "That is what we hope.”

"The challenges are definitely cost rationalisation and offshore leveraging," Ramadorai added.

Despite the pressure on prices, he said the company would try to avoid being drawn into a price war with competitors. "Growth has come down dramatically from what we were used to...So automatically, the focus of the organisation has been on looking at our internal efficiencies," Ramadorai said.

Prices of IT outsourcing services will shrink 5 per cent to 20 per cent through 2010 due to the uncertain economic climate, IT budget constraints and competition between vendors, research company Gartner predicted last month.

TCS's headcount has more than doubled over the past three years to about 144,500, but in fiscal 2010 -- which began on April 1 -- the company expects to add only about 16,000-17,000 new net hires, about half the number in the previous year.

The pressure on Tata is heavy because 43 per cent of its business comes from the global financial industry, which has taken the brunt of the economic crisis.

India's $60 billion sector, which provides services from software coding to managing computer networks and call centres, faces weak demand, cut-rate prices and rising competition from global rivals such as IBM.


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