TCS says outsourcing margins safe for now

Jennifer Tan

SINGAPORE: Tata Consultancy Services Ltd., India's top software services exporter, expects the services industry to keep up its profit margins despite risings labour costs, the chief executive said on Thursday.

Increased outsourcing opportunities globally will support margins in the short term, despite pressure from higher demand for skilled employees, Chief Executive S. Ramadorai told journalists on a visit to Singapore.

"Looking at the supply and demand of professionals, skilled capabilities that are needed, on balance, the margin impact is not substantial," he said.

He added that TCS planned to expand into new business areas, including engineering and industrial, the life sciences and healthcare sectors.

Companies such as General Electric Co. are turning more frequently to TCS for software services to cut costs and increase efficiency.

"Europe is just beginning to happen, as you can see from the ABN-AMRO deal, Ramadorai said."

TCS this month signed a multi-year IT services contract worth more than 200 million euros ($245 million) with Dutch bank ABN AMRO.

The 37-year-old firm earns some 40 percent of its revenue from banking and financial services customers. About 20 percent comes from manufacturing clients and some 16 percent from telecoms customers.

NEW BUSINESS AREAS

Girija Pande, TCS's Asia Pacific director, said the company was using Singapore as a regional recruitment base, and had hired 171 people from across Asia -- including the Philippines, Vietnam, Malaysia and China -- in the last 18 months.

"The model of everything happening in India for Indian IT companies is going away. We are increasingly localising our operations," he added.

International revenues, excluding North America, Europe and India, contributed 5.4 percent to total revenues in TCS' fiscal first quarter ended June 30.

In August 2004, TCS raised more than $1 billion through one of India's largest initial public offerings.

But TCS and smaller rivals such as Infosys Technologies Ltd. and Wipro Ltd. are facing cost pressures in India due to rising wages, as companies compete for skilled employees.

The rupee's appreciation versus the dollar -- the $17.2 billion industry's main currency for billings -- also is a factor.