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October 16, 2007 5:04 pm

TCS takes outsourcing centres to US

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Tata Consultancy Services plans to open two computer services centres in the US in one of the biggest expansions by an Indian information technology outsourcing company in a developed market.

India’s largest computer services company, part of Tata Industries, said the first centre of 500-1000 people would open in Cincinnati, Ohio, by the end of this year or early next year, with the second to follow in late 2008 or early 2009 at an undisclosed location.

S. Ramadorai, TCS chief executive, said the centres would help the company to recruit from US universities and to qualify for IT outsourcing work that can only be done onshore, such as government contracts.

It could also help to reduce criticism of the Indian outsourcing industry from politicians in Washington keen to turn perceived job losses to India into an election issue ahead of US presidential polls.

Mr Ramadorai said one of the aims of setting up overseas centres “is to create employment generation in those countries”.

“It shows we belong to that community,” he told the Financial Times. India’s fast-growing IT outsourcing industry faces one of its biggest challenges since it first began to seize market share from developed world rivals a decade ago.

The country’s currency, the rupee, is trading at nine-year highs against the dollar, strengthening more than 10 per cent in the first six months of this year.

Together with wage inflation of 10-15 per cent, this is threatening Indian companies’ operating margins, which are among the highest in the industry at 20-30 per cent.

Indian outsourcers earn most of their revenues in dollars or other foreign currencies, but pay most of their costs in rupees.

To maintain their margins, such companies are seeking to improve productivity by offering more sophisticated services and undertaking more research and development.

However, a shortage in Indian universities of postgraduate students in fields such as computer science is threatening to hold back this evolution.

Mr Ramadorai said TCS aimed to double its research and development budget from 2-2.5 per cent of sales to 5 per cent in the next two years.

The US centres, as well as a third unit in Peterborough in the UK, would play a role in this.

“The value-add will be attracting some of the PhDs and people who are at US universities,” Mr Ramadorai said. “That will feed back into India or to other parts of the world which have lower cost locations.”

He said the company was also considering the introduction of contracts that would enable profit-sharing with clients as another way of improving margins.

Aside from TCS, Infosys Technologies and Wipro, India’s number two and three computer services companies, have also been boosting their operations in the US.

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