Overview IT Sector

8/6/2019 Overview IT Sector

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SECTOR: INFORMATION TECHNOLOGY

COMPANY: Tata Consultancy Services Ltd

NAME: Stuti Dalmia

DIVISION: C

ROLL NO.: 9

Programme : MBA (core)


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INTRODUCTION TO THE SECTOR

The Information Technology industry has played a significant role in boosting the image of the country and making its presence felt on the global front. Over the past decade, the IndianIT-BPO sector has become the countrys premier growth engine, crossing significantmilestones in terms of revenue growth, employment generation and value creation, inaddition to becoming the global brand ambassador for India.

The changing demand perception, customer conversations and requirements acted as a driver to build in greater efficiencies and flexibility within the service delivery and the businessmodels. Globalisation not only fostered innovation but also changed the face of the industryexposed to the world.

The industry is estimated to aggregate revenues of USD 73.1 billion in FY2010, with the ITsoftware and services industry accounting for USD 63.7 billion of revenues. During this

period, direct employment is expected to reach nearly 2.3 million, an addition of 90,000employees, while indirect job creation is estimated at 8.2 million. As a proportion of nationalGDP, the sector revenues have grown from 1.2 per cent in FY1998 to an estimated 6.1 per cent in FY2010. Its share of total Indian exports (merchandise plus services) increased fromless than 4 per cent in FY1998 to almost 26 per cent in FY2010.

WEATHERING THE RECESSION OF 2009

The IT industry was put to real test during the last two years. 2008-2009 not only provided a platform to the IT industry to grow leaps and bounds but also exposed it to the threat of scepticism prevailing due to various cost cutting measures. While the industry displayedtenacity and resilience, it also commenced its journey to achieve its aspirations in view of thealtered landscape. It commenced working on its agenda to diversify beyond core off eringsand markets through new business and pricing models, specialise to provide end-to-endservice offerings with deeper penetration across verticals, transform the process deliverythrough re-engineering and enabling technology, innovate through research and developmentand drive inclusive growth in India by developing targeted solutions for the domestic market.All these measures, along with Indias game changing value proposition has helped Indiawiden its leadership position in the global sourcing market. The above measures undertaken

by the sector in the altered landscape played a key role in strengthening India s strategicrole in the outsourcing market.

The advent of 2010 has signalled the revival of outsourcing within core markets, along withthe emerging markets increasingly adopting outsourcing for enhanced competitiveness. Keydemand indicators in the last two quarters such as increased deal flow, volume growth, stable

pricing, and faster decision making has made the industry post good results. Though fullrecovery is expected in another two quarters, development of new growth levers, improvedefficiency and changing demand outlook signifies early signs of recovery.


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K EY PLAYERS/MAJOR COMPANIES IN THE SECTOR

The Indian information technology sector is one of the sunshine sectors of the Indianeconomy showing rapid growth and promise. There are a large number of multi-national ITenterprises operating in India in sectors such as: Integrated Chip Design, System Software,Communication Software, R&D Centres, Technology Support Sector, Captive SupportSector, BPO Sector etc reaping the cost and quality advantages.

The Key Players (Tier 1) dominating the industry are as follows:

1. Tata Consultancy Services Ltd.2. Wipro Technologies Ltd.3. Infosys Technologies Ltd.

The other key players include the following:

1. IBM2. HCL3. Patni4. Polaris5. Cisco6. KPIT Cummins7. Kanbay8. i-Flex Solutions9. Cognizant10. Sapient

NASSCOM announced the Industry rankings for FY2008- 09. While TCS emerged as topexporter during the period followed by Infosys and Wipro, Genpact dominated the BPOspace followed by WNS Global services, TCS BPO and IBM Daksh.

NASSCOM Top three IT Services Exporters 2008-09 were Tata Consultancy Services,Infosys Technologies Ltd and Wipro Ltd.

GOVERNMENT REGULATIONS IN THE SECTOR

There is a Department of Information Technology headed by Sachin Pilot, Minister for State.The Department of Information Technology (DIT) regulates the various aspects of Indianinformation technology. The following are comprehensive functions of the DIT:

y Policy matters relating to Information Technology; Electronics; and Internet (allmatters other than licensing of Internet Service Providers)

y Promotion of Internet, IT and IT-enabled servicesy Assistance to other departments in the promotion of e-governance, e-commerce, e-

medicine, e-infrastructure, etc.y Promotion of Information Technology education and Information Technology-based

education


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y Matters relating to Cyber Laws, administration of the Information Technology Act2000 (21 of 2000) and other IT-related laws

y Matters relating to promotion and manufacturing of semiconductor devices in thecountry excluding all matters relating to Semiconductor Complex Limited Mohali; theSemiconductor Integrated Circuits Layout Design Act, 2000 (37 of 2000)

y Interaction in IT-related matters with international agencies and bodies, e. g., Internet

for Business Limited, Institute for Education in Information Society and InternationalCode Council-on line

y Initiative on bridging the Digital Divide: matters relating to Media Lab Asiay Promotion of standardization, testing and quality in IT and standardization of

procedures for IT applications and tasksy Electronics Export and Computer Software Promotion Councily National Informatics Centrey Initiatives for development of hardware and software industries including knowledge-

based enterprises, measures for promoting IT exports and competitiveness of theindustry

y Efforts for increasing the acceptance of FOSS at a national level (NRCFOSS)

TATA CONSULTANCY SERVIVES Ltd

Tata Group, founded by Jamshedji Tata in 1868 is one of Indias most respected institutionstoday.

Established in 1968, Tata Consultancy Services has grown to its current position as thelargest IT services firm in Asia based on its record of outstanding service, collaborative

partnerships, innovation, and corporate responsibility. TCS is a flagship subsidiary of theTata Group, which has interests in areas such as energy, telecommunications, financialservices, manufacturing, chemicals, engineering, materials, government and healthcare.

Its mission reflects the Tata Group's longstanding commitment to providing excellence:

1. To help customers achieve their business objectives by providing innovative, best-in-class consulting, IT solutions and services. To make it a joy for all stakeholders towork with the organization.

2. To be one of the top 10 global companies by the year 2010.3. Values Leading change. Integrity. Respect for the individual. Excellence. Learning

and sharing.

The organisation is known for its ethical standards. Remain close to customers and help themenhance efficiency and enable growth; focus on execution to deliver a superior quality of experience; and manage costs and operations optimally has been the foundation principlefor the group.

TCS offers a consulting-led, integrated portfolio of IT and IT-enabled services deliveredthrough its unique Global Network Delivery Model, recognized as the benchmark of excellence in software development. The organisation delivers real results to global

businesses, ensuring a level of certainty no other firm can match.


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The successful legacy that TCS has left is largely due to the ability to respond quickly to theneeds of their markets and get more strategic advantage from IT. Whether it's IT services,

business solutions, or outsourcing, TCS assures a level of certainty that others can't match.

K EY PERFRORMANCE INDICATORS

The top five Indian IT players have not only emerged smarter out of the recent recession butalso managed to raise their profitability and clocked positive revenue growth. The latestForrester Research report says that these five firms TCS, Infosys, Wipro, HCL andCognizant actually increased their profitability in the past 12 months despite offering 4-6% discounts to their clients in a tough economy.

Says Forresters principal analyst Sudin Apte: To beat the recession, most Indian firms took serious cost-cutting steps such as cuts in salary and variable pay, curbing spend on marketingand long-term R&D and overheads, and even downsizing in a few cases. In addition, asattrition was at a record low, their recruitment costs and annual raises were flat or reduced by5-7%. Such systematic budget cuts, coupled with tight approval mechanisms, helped these

companies cut costs virtually by double-digit percentages.TCS wants to build on its current leadership position and leverage its large number of existing client relationships, wide range of service lines, globally distributed delivery centres,and strong presence in emerging markets. To that effect, it continues to invest in areas such as

platform-based BPO, components and framework, and software products for the financialservices industry.

2010, Q2, 20 Apr 2010

Indias largest software exporter Tata Consultancy Services (TCS) joined rival Infosys insignalling an improving environment for the countrys $60-billion IT industry, as increased

spending from top customers such as Citibank and General Electric boosts profits.

TCS is the second major Indian information technology firm to report strong quarterlyresults, underscoring optimism about a recovery, after a severe downturn crimped marginsand profit growth in 2009. Earlier this month, Infosys made a thumping statement on businessrecovery by forecasting a 16-18% growth for this financial year, awarded wage hikes of 14%and revealed plans to recruit 30,000 employees.

Mumbai-based TCS posted the fastest profit growth in three years by reporting a 47% jumpin fourth-quarter profit to Rs 1,931 crore. Revenue rose at a more sluggish pace of 7.9% to Rs7,377 crore.

TCS profit was boosted by Rs 42 crore of gains due to currency fluctuations while a 3.6%appreciation in the rupee impacted operating profit margins by 1.92%.

While FY10 has been a challenging year, we have used this time to improve efficiencies andgenerate better returns by boosting margins. Our cost base has remained constant and wehave leveraged this to support higher business growth, N Chandrasekaran, CEO and MD of TCS, said.


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TCS, which counts Citigroup, JPMorgan and UKs Cardiff Council among its top customers,also made its highest-ever net addition of employees in a quarter at 16,668. The company

plans to hire about 30,000 employess in FY11, which will take its payroll to nearly 1.9 lakh,making it the largest private sector employer in the country.

2009, Q2, 16 Oct 2009

Tata group company, Tata Consultancy Services (TCS), reported net profit of Rs 1,642 crorein the second quarter (July-September), up 29.17 per cent over the corresponding period lastyear.

The company posted a revenue of Rs 7,435 crore in the same period, up 6.93 per centcompared to the year-ago period, the company said.

"TCS has delivered a sterling performance during the quarter. We are seeing an improvementin market conditions. With our clients' budgets still being tightly managed, we continue todeliver higher value to customers, deepening our reltionships and focusing on superior operational management," its Managing Director & CEO, N Chandrasekaran, said.

The investments made by TCS in its market footprint and its full services offerings wereholding it in good stead to capitalise on emerging growth opportunities, he added.

The company's international business grew 5.3 per cent sequentially in Rupee terms.

TCS's strong market presence in the US helped the company capitalise on the emerging USrecovery, a company statement said.

During the reporting quarter, the IT major added 30 new clients. Besides, it added 5,530employees.

MAR K ETING INITIATIVES

TCS has certainly pulled away from the rest of the offshore pack in terms of brandacceptance and market performance across Europe. Europe is TCS' second-largest marketsegment, representing around 30% of global revenues, with a CAGR of 45% between 2007and 2009, and a client base of over 350. To support growth in Europe, TCS has focused onthe following:

Strengthening regional presence : TCS has eight regional and nearshore delivery centres inEurope (including local delivery centres in Germany, Luxembourg, Switzerland, and the

Netherlands), is in the process of completing a centre in Spain, and plans a local delivery

centre in France. In the next 12 months, TCS will put more efforts into gaining strength inGermany and France. This makes good sense, since these two geographies are the second andthird largest IT services markets in Europe, after the U.K. TCS is making progress inGermany we spoke with some German TCS clients during the event, and they were happycustomers, albeit with a staff augmentation focus. Nonetheless, TCS' on-the-ground presenceremains small in key markets. Its French operation has fewer than 80 employees, for example. In offshore-sceptical territories such as France, TCS needs a credible local

presence, which means investing hard cash in hiring experienced, senior local personnel before (not after) it starts winning major deals. Gaining a stronger footprint in France will


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take more time for the company. After all, French organizations (excluding largemultinationals) are less willing to offshore, and TCS must counteract its natural caution andmargin protection with the need for local credibility.

Investing in partnerships : Partnerships play a key role in supporting TCS growth in Europe;notably its partnerships with SAP and Oracle. TCS has also formed partnerships with local

niche service providers like Arhs, particularly in Belgium and France (where the client baseis less offshore-friendly) and says that this will increase its win rate.

Commercial models: TCS says that cost optimization is still the core customer requirement.However, that cost focus does not preclude deploying novel engagement models, and TCSsays that it is employing diverse commercial models, ranging from co-sourcing (particularlyin the continent where it still needs to build trust), outcome-based pricing (with its moremature outsourcing clients), and managed services on demand.Customer-centricity: Like many competitors, TCS sees customer intimacy as critical todriving new revenues in a time of flat/falling and consolidating services spend by enterprisesand public bodies. TCS grouped its business units around key vertical markets in April 2008,to better focus on customer needs. The U.K. organization is already aligned by verticalmarkets, although continental Europe is still grouped around major centers of excellence. Tosupport its "Experience Certainty" branding strategy, TCS is investing in internal training,

better customer management, and in delivering improved customer experience (something itflagged as a priority a year ago).

CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES

TCS has always recognized the responsibility Corporates should have towards the wider communities they operate in. Be it girl child education in South Asia in collaboration withUNICEF or adult literacy programs in South India, TCS believes in using IT as an instrumentfor social development and change. Other TCS' community initiatives have been in areas

addressing environmental and civic problems; setting up and maintaining infrastructure for urban beautification, pollution reduction and healthcare; waste management in the officeenvironment, tree plantation and water treatment.

Some of the initiatives by TCS have been:

Advanced Computer Training Centre for visually impaired

TCS pioneered an Advanced Computer Training Center (the first of its kind in India) for thevisually impaired. This center, launched at the MN Banajee Industrial Home for the Blind atJogeshwari, Mumbai, offers courses that are in sync with industry requirements, providingthe visually-impaired with life-affirming employment opportunities.

TCS-Maitree has pro-actively worked towards providing an inclusive environment for thedifferently-abled. With the belief that people with disabilities offer incredible reserves of untapped potential and an alternative talent pool, TCS-Maitree has recruited more than 30differently-abled people in various branches of TCS. The following are some of the roles inwhich the visually impaired persons are working in TCS: Infrastructure Services Management BPO processes Learning & Development coordinator Human Resource Manager


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Global Helpdesk Accessibility testing

Rural Development Initiative (at Panvel)

Wazapur (Raigad district of Maharashtra) is a village just off the Mumbai-Pune highway,

near Panvel. In spite of being so close to the city, the village is devoid of even the most basicinfrastructure and amenities. TCS-Maitree has been working at the ground level over the lastthree years to bring about development in the village. A sustainable model has been built toimprove education, healthcare, and the environment in the area.

What started off as a children's education program has today grown into a larger movementwith developmental activities in the areas of water supply, illiteracy, and womenempowerment in addition to the focal point of education. Apart from setting up a primary anda secondary school, some other highlights of the education initiative are:

Mid-day meal scheme for Balwadi kidsComputer literacy programA state-of-the-art science lab

Taking up the cause of women empowerment, TCS-Maitree launched the WEP (WomenEmpowerment Program) where the women of the village were taught basic arithmetic andcreated awareness in health and hygiene. More than 25 women from three villages in the areahave been trained in embroidery, stitching, and other textile craftwork over the last one year with help from the Women's India Trust. A new Gram Vikas Abhiyaan Kendra was recentlyinaugurated to facilitate income generation for the women.

TCS-Maitree has also made strides in the area of health, conducting HIV/ AIDS sensitizationsessions as well as health check-up camps for the villagers and school children.

HIV AIDS awareness program

TCS-Maitree initiated TCS first steps in the area of HIV/AIDS Sensitization and Awarenessa few years ago. The focus of the initiative is to treat HIV as a social issue, as against treatingit as a solely medical prerogative. Associates across the TCS are participating in TCS-Maitree's aim to spread awareness and sensitize people about HIV/AIDS.

The highlights of this initiative are:

Commemorating World AIDS DayRed Ribbon distribution at all offices

Online Quiz for creating more awareness sRemoving myths and misconceptions through articlesPeers Educator Program - Communicating with associates in their own language, through

their peers close to

PORTERs FIVE FORCE MODEL R


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In the case of both software outsourcing and BPO, for TCS there are few important suppliers, because TCS inputs are standard commodities and there is little opportunity for differentiation on the input side. The four forces that are most problematic are as follows:

1. Bargaining power of customers2. The threat of new entrants

3. The threat of substitutes4. The competitive rivalry with existing layers.

We examine each of these four forces in their turn for both software services outsourcing

Bargaining power of customers

In the context of competitive forces helps to explain why TCS built its business aroundapplications programming: given the problems of distance, and operating from India, this wasthe easiest component of the business to build. In the early days of the software exporting

business, the software vendor market was dominated by a few large global suppliers such asIBM. Indian firms were viewed as too small to matter for obtaining significant business. Inaddition, they competed actively with each other at the low-end. The result was that TCS andits Indian peers chose components of the business that were relatively low value-added andrelatively simple to do. TCS also faced a client market that was dominated by the large banksand insurance companies. While it actively sought alliances with larger vendors as acompetitive strategy, its most successful strategy was to directly approach clients and acceptthe lower rates that its competitive position necessitated.Looking ahead, TCS must continue to work to reduce the bargaining power of customers bytrying to move the purchase decision away from price. This means that TCS must deliver more than undifferentiated programming by moving up the value chain. Such a movement isdifficult in software services because the customers have deep domain expertise and almostinvariably wish to retain the tasks grouped under strategic consulting. Moreover, customersunderstand that if they outsource the strategic consulting, then their bargaining power will bereduced. TCS must develop sufficient expertise so as to make outsourcing these tasks acompelling value proposition. Of course, it is exactly in these realms that the multinationaloutsourcing firms such as IBM, Accenture, and EDS are the most ferocious competitors.Forging alliances is often viewed as a good strategy to offset clients bargaining power.However, building alliances with firms working in clients locations should be discounted asthis would further focus TCS in applications development. On the other hand, the acquisitionof a medium-sized American firm with strong client relationships and domain skills could

provide an attractive opportunity. Although costs per employee would rise, the rise would besmall since labor requirements are lower for higher value-added

Threat of new entrants

Meanwhile, the threat of new entrants is declining rapidly as the larger firms have rapidlyincreased their size, market share, and credibility with customers. However, although firmsstrive to reduce their direct competition through product differentiation, in each marketsegment there continue to be numerous players.

Competition from existing players


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A key concern for TCS is competition from existing players as it has generated competitionfor existing business and created significant pricing pressures. Globally, firms such as EDShave positioned themselves as capable of undertaking large, turnkey projects in order todifferentiate themselves from competitors such as IBM and Accenture that focus on higher value-added work such as consulting. This suggests an organically-driven growth strategy for TCS: that TCS continue to do the same kinds of work that it currently does, but try to capture

a greater portion of the value-addition by undertaking larger projects. Though it has alreadydemonstrated a capability in remote project management, it would be required to further increase this capability.

However, there are some risks to this strategy. TCS large size suggests that it may havealready maximized economies to scale in applications development. Adding scope, however,offers the potential for large gains since it necessarily involves higher value-added activities.In the early days, this was difficult, partly due to the technical difficulty in de-integrating thevalue-chain beyond the modularization of applications programming. Over the past fewyears, however, engineering services, systems design, and systems integration work haveincreasingly been outsourced (within the U.S.), suggesting that, if the skills are at hand, suchwork could be done in India.Most American providers of such services offer domain and software skills. TCS already hasthe software skills to move into these areas. But domain skills are a challenge. This isillustrated by TCSs focus on a few industries, notably banking and financial services). Thisreflects a general lack of domain expertise outside the financial services sector in India. Putdifferently, India does not have global-class, nontechnical knowledge in various other industries. As a result it is difficult to offer the full panoply of services a firm would wantwhen it considers outsourcing a software development activity.

Threat of substitutes

These facts indicate that it will be difficult for TCS as an organization based and staffed primarily in India to change its revenue mix through organic growth. Acquiring Indian firmsdoing higher value-added business is a possibility, but there are few such firms in the Indian

business environment. Essentially, the constraint that TCS faces is environmental rather thanfirm specific. In most sectors, Indian business conditions are sufficiently dissimilar tooverseas client conditions that local domain expertise is of low relevance. The threat of substitutes in software services does exist as technology tools to speed coding etc. However,at this time the threat of substitutes seems rather remote.

SWOT Analysis

Infosys is one of the largest businesses in India with a turnover in excess of $4 billion in The

company specializes in Information Technology (IT) and consulting. N.R. Narayana Murthyand six others started the company in 1981, and it is now the largest IT company in Indiawith its headquarters in Bangalore (although it was started in Pune). It employs more than90,000 IT professionals and was famously rated 'Best Employer in India.' It operates in anumber of business sectors from banking to retail, and its services tend to encompass end-to-end IT solutions which includes a whole bundle of added-value solutions from infrastructureto software engineering.

Strengths


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all global IT players, Infosys has to compete for skilled labor and this may have theeffect of driving up wage levels, and making it more difficult to recruit and retain staff.

In the case of both software outsourci ng .

Refere nces

www.economictimes.com

www.tcs.com

IDC Report

Nasscom Report

Overview IT Sector

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