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Tata Consultancy Services has received the final go-ahead for a joint venture with Microsoft and three Chinese state-owned companies for a new software development centre based in Beijing.

The centre, one of the showcases in a bilateral investment relationship that has otherwise been slow to get off the ground, is aimed at giving India’s largest information technology outsourcing company a base to serve its multinational customers in China.

“It will probably be our second [largest] or largest centre in the next three to five years after India,” said S. Padmanabhan, a director of the new company, TCS China.

The development has been hailed as one of the most striking steps forward in bilateral IT relations between India and China, which five years ago were marred by mutual suspicions. Political leaders, particularly in India, have traditionally been wary about the export of technology skills from India to China, amid fears of assisting an economic rival.

One sign of the complexities of establishing such a partnership in China is the time it has taken to set up TCS China – the parties signed the initial agreement to go ahead with the project in June last year.

Under the deal, TCS will hold 65 per cent of the venture while three Chinese partners, Uniware and two software parks, will hold 25 per cent. Microsoft will hold the remaining 10 per cent. Total investment will be $14m.

The three Chinese partners are grouped under the National Development and Reform Commission, the powerful central government planning agency.

TCS plans to merge its existing 600-strong business in Hangzhou with the joint venture and increase the number of staff to 5,000 software engineers over the next five years.

The new venture will first service TCS’s multinational clients in China before expanding its remit to include businesses in Japan, South Korea and Hong Kong, providing the Indian group with a gateway into east Asia.

The new company, which will also eventually target the domestic Chinese market, will specialise in providing software services for the banking and financial sector, as well as for manufacturing and telecoms.

TCS, which first set up operations in China in 2002, said it had more than 25 customers there, including the state-owned Huaxia Bank.

For the Chinese, the aim of the new venture is to lay down the roots for a world-class outsourcing industry handling offshore and onshore technology services and business processing.

Chinese leaders concede that, as in the country’s motor and electronics manufacturing industry, the only way to acquire scale and access to global markets is through partnerships with foreign parties.

TCS’s rivals, Infosys Technologies and Satyam Computer Services, are also trying to increase scale in China’s software services market but neither company has been able to match the typical growth rates of about 30 per cent in India.

Copyright The Financial Times Limited 2017. All rights reserved.
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