High China staff costs prove hurdle for TCS

India’s biggest IT outsourcing services company has encountered significantly higher staff costs and turnover in China than in its home market, suggesting China’s ambitions to establish itself as a major outsourcing provider will not easily be achieved.

Executives at Tata Consultancy Services told the Financial Times that, for many senior positions, engineers can command 50-70 per cent more money in China than in India.

“We were quite surprised by these numbers because the issue is not just the cost of the individual but also welfare costs [borne by] the company,” S. Ramadorai, TCS chief executive, said on the sidelines of the Boao Forum for Asia. “For some skills China is very expensive.”

Girija Pande, who runs TCS’s Asia Pacific operations, added: “If you want to operate in China, you have to operate at Chinese costs. Our costs are not higher than our competitors’.”

TCS must also contend with annual staff turnover of 18 per cent in China, compared with 10 per cent in India.

“We’re not used to such a high attrition rate but that’s the way the market is,” Mr Pande said.

India’s annual IT outsourcing exports have reached $33bn against $2.5bn in China, which, unlike India, is also handicapped by a paucity of English-speaking engineers.

In an effort to close this gap, China’s National Development and Reform Commission last year invited four overseas companies to tender for the right to form a Beijing-based joint venture with Microsoft and three Chinese companies: Uniware, Beijing Zhongguancun Software Park Development, and Tianjin Huayuan Software Area Construction and Development.

After TCS won what its executives described as a “beauty parade”, the company agreed to wrap its wholly owned China operation – established in 2002 – into the joint venture.

TCS today employs 800 engineers in centres in Beijing, Shanghai and Hangzhou, the three cities where China’s nascent outsourcing industry has clustered. Globally it has 89,000 employees.

“If you want to get the engineers, you have to go to these three cities where everyone is bunching,” Mr Ramadorai said.