IT Industry & TCS Strategic Analysis Business Strategy This report is submitted as part of industry analysis project of the

course Busin ess Strategy, under the guidance of Prof. Rushi Anandan, in Post Graduate Program me In Management at SPJIMR, Mumbai Group 7: Sameer | Sohail | Sankar | Himanshu | Arun V M PGPM508 7/10/2009

Table of Contents INDIAN IT INDUSTRY OVERVIEW .................................................... .............................................. 3 INTRODUCTION .................. ................................................................................ .............. 3 EXTERNAL ANALYSIS ............................................. ............................................................ 4 PORTERS FIVE FORCE S MODEL (INDIAN IT INDUSTRY) ................................................... ........ 7 SWOT ANALYSIS - IT & ITES INDUSTRY .................................. ............................................ 8 TATA CONSULTANCY SERVICES ....... ................................................................................ ............. 9 INTRODUCTION ................................................... ............................................................. 9 SWOT ANALYSIS .. ................................................................................ ......................... 10 TCS RESOURCES & CAPABILITIES ....................... .............................................................. 11 TCS STRATEGY AN ALYSIS ......................................................................... ...................... 12 RECOMMENDATIONS ...................................... ........................................................................ 19 REFE RENCES ......................................................................... ................................................. 21 Disclaimer: This report should be treated strictly for academic purpose and shou ld not be used elsewhere. Users of this report are required to take permission f rom authors before reproducing or publishing this material anywhere else. PGPM508-Group 07 Page 2

IN DI AN IT IN DU S T R Y O VER VI EW Introduction In an increasingly flat world, significant complexity and uncertainty is getting attached to the unprecedented economic crisis. The Indian economy has also been impacted by the recessionary trends, with a slowdown in GDP growth to seven per cent. The focus and exponential growth in the domestic market has partially off set this fall and insulated the country, resulting in net overall momentum. The IT-ITeS industry in India has today become a growth engine for the economy, cont ributing substantially to increases in the GDP, urban employment and exports, to achieve the vision of a young and resilient India. During the year, the sector ma intained its double digit growth rate and was a net hirer. This growth has been fuelled by increasing diversification in the geographic base and industry vertic als, and adaptation in the service offerings portfolio. While the effects of the economic crisis are expected to linger in the near term future, the Indian IT-B PO industry has displayed resilience and tenacity in countering the unpredictabl e conditions and reiterating the viability of Indias fundamental value propositio n. Consequently, India has retained its leadership position in the global sourci ng market. India is now the leading country in providing IT Enabled Services in the world. According to a recent study, Indian IT & ITES is expected to grow at 10.8% in 2009, the lowest in the last five years, due to the current global melt down. But in next four years, it would grow at 13.9% to touch revenue of $110 bi llion. NASCOM, the premier institute which manages all the IT and ITES companies in India, estimated that the revenue of the IT Enabled Services will cross the revenues of IT industry by 2010. The export revenue generated from ITES is about US$ 47.5 billion and has a projection of more than US$ 86 billion by 2012. (CAG R 20.7%) IT-ITeS Exports - USD bn 400 300 200 100 0 328.9 86.6 23.6 FY06 37.6 47.5 60 FY08 FY09 FY10 FY12 FY20 Source: NASSCOM McKinsey Research India holds a dominant share of the global off shore IT-ITES sector (65% of the global market in offshore IT and 46% of the ITE S market). Yet, at US$ 31.3 bn in FY07, Indian IT-ITES exports accounted for les s than 3% of the global spend on IT-ITES. This clearly indicates significant hea droom for growth. If India maintains its current share of the global offshore IT -ITES market, IT-ITES exports from India will exceed US$ 60 bn by FY10 and US$ 8 6 bn by FY12. Further, growing at current trends, Indian IT-ITES exports are pro jected to reach nearly US$ 330 bn by FY20 (nearly 14% of the projected worldwide spend). Software and services exports (including BPO) are expected to account f or over 99 per cent of total exports, employing over 1.76 million employees. But the Indian IT companies will have to move up in the value chain and concentrate more on high value added services. PGPM508-Group 07 Page 3

Why Outsourcing? Outsourcing system allows companies to contract for services tha t are not within the scope of their expertise, so that they can focus their time , money and energy on their core competencies instead of wasting valuable resour ces trying to gain Understanding of areas that are somebody else s expertise". C hallenges While the industry has significant headroom for growth, competition is increasing, with a number of countries creating enabling business environments aimed at replicating Indias success in the IT-BPO industry. Hence, concentrated e fforts are required by all stakeholders to address the current challenges, to en sure that India realizes its potential, and maintains its leadership position. External Analysis Current position of IT/ITeS sector in India PGPM508-Group 07 Page 4

Environmental Scanning Figure: Financial Attractiveness of Top 5 Global service locations Figure: Number of IT graduates in India External Environment - PESTLE Analysis PGPM508-Group 07 Page 5

Legal IT SEZ requirement: IT companies can set up SEZ with minimum area of 10 hectares and enjoy a host of tax benefits and fiscal benefits. Positive Contract / Bond re quirements: Huge debates surrounding the bonds under which the employees are req uired to work, which is not legally required. Negative IT Act: Indian government is strengthening the IT act, 2000 to provide a sound legal environment for compa nies to operate esp. related to security of data in transmission and storage, et c. Positive Companies operating in Software Technology Park (STPI) scheme will co ntinue to get tax-benefit till 2010. Mildly Positive Environment Energy Efficient processes and equipments: Companies are focusing on reducing the carbon footprints, energy utilization, water consumption, etc. Positive National Revenues: IT & ITES Industry in India PGPM508-Group 07 Page 6

Porters Five Forces Model (Indian IT Industry) Medium Shift from High to Low Very High Low PGPM508-Group 07 Page 7

Market Share: Sources of Revenue: SWOT Analysis - IT & ITES Industry Considering industry and any IT firm in general Strength Cost advantage most fin ancially attractive country in a study by A T Kearney on global IT destinations Breadth of service offering end to end solutions including high end services lik e IT consultancy and KPO Ease of Scalability more than half of Indias population is less than 25 years old. English speaking IT ITES professionals growing at a g ood pace Quality and Maturity of process many players have quality standards suc h as CMM to differentiate from other low cost advantage countries Global and 24/ 7 Delivery capability excellent internet backbone and telecommunications facilit ies enabling companies to develop 24/7 delivery capabilities from India itself O pportunities Greater scope for product innovation Increased focus on high end wo rk like consulting and KPO Domestic demand for IT services is to grow at 20% Gre ater scope to service domains other than BFSI such as Transportation, Infrastruc ture, etc. Satyam fiasco Likely to have positive impact on business considering corporate governance, possibility of shifting of business, getting higher increm ental business from overlapped clients, and winning new business from new client s PGPM508-Group 07 Weaknesses Excessive dependence on USA for revenues US Compan ies are cutting down IT budget hence revenues to be hit hard of Indian IT firms Excessive dependence on BFSI sector for revenues Banking sector is facing a cris is globally and is going to spend less on IT High rates of attrition Although sl owdown in global economy has lowered attrition rate but the industry still faces high attrition rates as compared to other sectors Decreasing competitive advant age rising salary expenses is taking away the cost advantage enjoyed by India. Threats Global economic slowdown may continue for several years hence low IT spe nding globally US Govt. against outsourcing Shrinking margins due to rising wage inflation Rupee-dollar movement affects revenue and hence margins Increased com petition from foreign firms like Accenture, IBM etc. Increased competition from low-wage countries like China, Indonesia etc. Page 8

TAT A CO N S ULT AN CY SERV ICES Introduction Rapid globalization, diversification, and intense competition have resulted in a more dynamic and complex world. Corporations have to increase agil ity in a way in which their business units across geographies operate and collab orate seamlessly across people, processes and technology. Tata Consultancy Services Limited (TCS) is a leading and Indias largest provider of IT Services, Business Solutions and Outsourcing with revenues of USD 6B durin g FY08-09. TCS envisioned and pioneered the adoption of the flexible global busi ness practices that today enable companies to operate more efficiently and produ ce more value. More than 95 percent of TCS customers reward the companys reliabil ity, passion, creativity, and unique ability to handle the broadest range of the ir IT needs. TCS has 143,000+ worlds best trained IT consultants located in 50 co untries. TCS achieved this by creating and perfecting a unique method of global deployment and delivery of high quality, high value services known as Global Net work Delivery Model (GNDM), the strategic services delivery concept that has resh aped the IT services industry. GNDM is a unique network of 79 Delivery Centers in 16 countries. These delivery centers operate at the same quality (TCS is the on ly company in the world to be assessed at CMMi Level 5 through a single assessme nt across all its delivery centers), security and skill levels, giving customers the same experience of certainty across the organization globally. GNDM provide s the fastest turnaround time from concept to service delivery, with certainty o f cost, quality and schedule, tailored for its customers based on the type of wo rk, risk mitigation needs, business knowledge requirements, geographic spread, s cale of delivery etc. Being a pioneer in the IT industry, TCS have a good apprec iation of trends and challenges faced by industries TCS choose to focus. The sol utions TCS build are powered by domain expertise, enterprise solutions and infra structure services, turning the challenges of globalization into a competitive e dge for clients. TCS helps some of the worlds largest companies adopt the right t Optimize business performance Facili echnology-enabled solution that helps them: tate alignment of business with technology Connect their extended supply chains Reduce product development time Improve product differentiation Provide real-tim e business insight Lower operational costs Profile Tata Consultancy Services Ltd . (Founded in 1968, went public in August, 2004) Vision: Top 10 by 2010 Mission: To help our customers achieve their business objectives by providing innovative , best-inclass Consulting, IT solutions & services. We shall make it a joy for a ll stakeholders to work with us. Values: Integrity, Excellence, Respect for the individual, Continuous learning and sharing, Leading change. PGPM508-Group 07 Pa ge 9

Leadership in IT Outsourcing: TCS is the largest IT consulting company in Asia w ith 143,000 of the world s best trained IT consultants and an acknowledged pione er, innovator and thought leader in the IT space, having literally coined the te rm Offshore Development. It is also a global consulting, IT services and systems i ntegrator with a 40-year track record and world class processes and methodologie s. TCS has won many accolades for its significant contribution to the maturity a nd visibility of the Indian IT services worldwide Trusted Partner: TCS is part o f one of Asia s largest conglomerates - the TATA Group. The group, with annual r evenue of more than USD 72.5 billion+ (Feb, 2009), spans across diversified indu stry segments such as consumer package goods (CPG), energy, telecommunications, financial services, chemicals, engineering & materials. The TATA Group, a symbol of trust in India, is known for its pioneering spirit and the brand stands for business excellence and integrity. Headquarters TCS is headquartered out of Mumb ai, India. Location TCS is operating in 47. TCS has 50+ delivery centers in Indi a across 15 cities; 15+ development centers outside India. TCS employees are spre ad across countries. Thus, Global presence helps in country availability of comp etencies for any technical assistance mission or application project. Also, TCS deputes the associates on long term and short term basis to the local countries for specific engagements. Turnover Tata Consultancy Services Limited (TCS) is a leading and Indias largest provider of IT Services, Business Solutions and Outsou rcing with revenues of USD 6 Billion during FY08-09. Number of customers Over 98 5 active clients; 6 out of Top 10 US Fortune companies are TCS clients. Customer revenue contributions are presented below: SWOT Analysis Tata Consultancy services (TCS) is one of the major IT service providers. The co mpany provides a wide range of services including business consulting, informati on technology, business process outsourcing, infrastructure, and engineering. Th e company has extensive global reach, which provides a diverse revenue base. How ever, increasing competition threatens to erode its market share. PGPM508-Group 07 Page 10

Strength Extensive global reach Strong financial performance Employee management skills Innovation labs Opportunities Focus on SMB segment Growth in worldwide I T services Focus on high end business and IT consulting Expanding operations in countries like China

Weaknesses Significant exposure to financial services market Lack of scale in co nsulting operations Threats Increasing employee costs Intense competition from f oreign firms like Accenture, IBM etc. Consolidation in the end markets Rupee app reciation Increased competition from low-wage countries like China, Indonesia et c.

TCS Resources & Capabilities TCS has over 143,000+ (Apr-2009) World Class Professionals. 30% of workforce is women. Non Indian nationals comprise 8.3% of TCS workforce. TCS employees are fr om across 67 nationalities. Key Differentiators of TCS Pioneer in the industry & Brand Having started in 1968, TCS has established himself as the industry leade r. Being part of the trusted Tata group is also a big differentiator for TCS giv ing it a strong brand strength. Integrated full-services player Portfolio of off erings extends from consulting to implementation, testing and support; from engi neering services to BPO; from products to end-to-end solutions. Collaboration wi th multiple stakeholders Having worked on large global scale enterprise projects , TCS appreciates the need for flexibility to work with multiple stakeholders fr om customers, partners, and other service providers. TCS have developed innovati ve engagement models that have proven TCS ability to deliver significant value to its customers in managing their projects as the sole solution provider, or prim e/lead partner, or supporting partner. Global Network Delivery Model Unique netw ork of 79 Delivery Centers in Brazil, Uruguay, Chile, China, Hungary, UK, Japan, Australia, Singapore and India that operate at the same quality, security and s kill levels, giving customers the same experience of certainty across the organi zation globally with a lower total cost of ownership. High Quality and Maximum s ecurity In 2005, TCS was awarded enterprise-wide triple certification for: Quali ty (ISO 9001:2000), Security (BS 7799-2:2002) & Services (BS 15000-1:2002) Innov ation Network TCS has established 19 labs with strong links to start-ups, academ ia and alliance partners to continuously develop innovative solutions for their customers. PGPM508-Group 07 Page 11

TCS Technology Partnerships and Relationships Tata Consultancy Services combines its system integration expertise, flexible global delivery model and deep indus try insights with the technological expertise and capabilities of its renowned a lliance partners to offer competitive advantage to its customers. The alliances enable TCS to deliver cutting edge technological solutions and enhanced services to help customers integrate their business applications effectively while impro ving the operational efficiencies and ROI. Strategic partner relationships of TC S include leading industry players like SAP, Oracle, IBM, and Microsoft among ot hers. Strategic Partners IBM - Global System Integrator Partner Oracle - Global System Integrator and Global Certified Advantage Partner Microsoft - Global Syst em Integrator Partner SAP - Global Consulting Partner Growth Engine Partners Sie bel - Consulting Partner Web Methods - Global System Integrator, Preferred Offsh ore Partner BEA - TCS is BEA Strategic Partner SUN - System Integrator Partner, G SS Partner Business Continuity TCS follows a well defined and mutually agreed (w ith customer) business continuity and disaster recovery plan. The BCP is tested on a pre determined frequency. This was recently invoked during the under-sea ca ble fault leading to disruptions in the voice/internet connectivity. The traffic was diverted through alternate routes as per the plan. TCS Strategy Analysis TCS organization restructuring in April 2008 was one of the major moves in last d ecade to adapt to external environments. Having an organization structure that w ould respond to customer demands is most efficient way to lay down your business strategies. TCS did it little late but just in time. PGPM508-Group 07 Page 12

Business Strategy TCS calls its Business Units as Industry Service Practice. TCS BU wise revenue di stribution is as shown below: TCS Industry Practice - Revenue Q4FY09 3.8 5.7 5.5 9.8 42.8 2.7 2.1 2.5 BFSI Telecom Retail Manufacturing Hi-Tech 12 13 .1 Life Sciences & Healthcare Travel & Hospitality Energy & Utilities Media & En tertainment Others This clearly shows that TCS has 42.8% of exposure to Banking Financial Services & Insurance sector. No doubt, TCS has to re look its business strategy as the wo rld financial institutions are in a tremendous shock of subprime crisis and thin k of scaling up revenue from other verticals/industries. Generic Business Strate gy: 1. Low cost Global delivery 24X7 model. 2. Focus on customer relationship ma nagement, customer retention (for repeat business revenue which is 95.6%). 3. Ti mely delivery with the help of proven delivery & quality framework iQMS. 4. Diff erentiation in low end services in terms of cost, resources. 5. Differentiation in high end services such as consulting in term of niche offerings, expertise. 6 . Protection from currency fluctuations with the help of currency hedging. 7. Du e to its strong knowledge management system and resource strength, TCS has been successful in getting the cost leadership in the industry. 8. Since last decade, TCS has been following a more focused strategy where they are going as per loca l needs of customer and their nature of business. E.g. Middle East, Australia. T hey are being more focused region wise and customer wise rather than being gener ic. 9. Focus on the Centers of Excellence (CoE) to strengthen capability so as t o build state-of-the-art solutions in specific technologies such as service-orie nted architecture, testing, and virtualization. These high-end skills and scale will help TCS to tackle larger projects aimed at transforming clients IT applicat ions and infrastructures. PGPM508-Group 07 Page 13

TCS Service Practice Revenue Distribution is as follows: TCS Service Practice Revenue Q4FY09 1.7 2.1 8.3 48.6 5.8 3.8 11.8 6.8 11.1 Application Development & Maintenance Bus iness Intelligence Enterprise Solutions Assurance Services Engg. & Industrial Se rvices Infrastucture Services Global Consulting Asset Leverage Solutions Busines s Process Outsourcing This shows that TCS has a heavy exposure to IT Solutions Application Development & Maintenance 48.6%. TCS has traditionally a low cost outsourcing player which provides application development and maintenance services, which till date accou nt for almost half of its revenue. Though TCS has managed to bring down this per centage significantly in last decade by entering into niche areas like, BPO, inf rastructure services, business consulting, IT consulting, asset leveraged soluti ons etc. TCS sees a strong growth potential especially into consulting, BPO and infrastructure services. Thus TCS is investing heavily into these areas to explo re new market segments. BCG Matrix for TCS LOW Business Growth Rate HIGH BPO Infrastructure Services Application Development & Maintenance Software produ cts Consulting Packaged Implementation KPO Engineering & Industrial Services None HIGH Relative Position (Market Share) LOW PGPM508-Group 07 Page 14

Global Strategy TCS GNDMTM is at the heart of TCS global strategy. What is GNDMTM? Follow the sun strategy: Market Penetration Strategy Current Markets: USA and Europe Current Products: AD M, BPO, KPO, consultancy services (in BFSI, manufacturing and retail) and softwa re products (financial products). Recommendation: As most large clients in US an d Europe are cutting costs, TCS needs to be more aggressive on cost and quality front. Market Development Strategy New/Emerging Markets: India, Middle-east and Australia Current Product: ADM, BPO, KPO, consultancy services (in BFSI, manufac turing and retail) and software products (financial products). Recommendation: S ince these are fast developing IT market, TCS needs a paradigm shift in focus fr om US and EU markets to these markets. PGPM508-Group 07 Page 15

Product Development Strategy Current Market: USA and Europe New Product: Consult ancy and package implementation services in relatively growing sectors esp. life sciences & healthcare, aviation sector, and KPO services. Recommendation: Conce ntrate on building expertise in these domains by strategic acquisitions. Other global strategies Since last few years TCS is successfully leveraging labo r cost in Eastern Europe, South America and China. Getting big foreign names on board of directors is also one of the key strategies for TCS. The current three foreign directors are: Clayton M Christensen (HBS Professor, joined in 2006), Dr . Ron Sommer (former Chairman of the Board of Management of Deutsche Telekom AG, joined in 2006) & Laura M Cha (member of the Executive Council of the Hong Kong Special Administrative Region (SAR) and Non-Executive Chairman of HSBC Investme nt Asia Holdings Limited) Look beyond US and UK for growth and beyond India for skills to emerge as a global firm. Clearly bullish with successes such as ABN Am ro in continental Europe, Qantas in Australia, and almost 18% to 20% revenue fro m the Asia Pacific market, TCS wants to grow its businesses in global markets in cluding India. Recent acquisitions in Ireland and Latin America demonstrate its ambition to create delivery centers of respectable size outside of India. TCS wa s the first one to set up a delivery centre in China.

Corporate Strategy TCS is a firm believer in organic growth and acquire only those companies which are in line with TCS strategic long term goals. Diversification Strategy In February 2008, TCS restructured its global operation s to adopt an integrated, customer-centric approach, which is expected to helpfu l in eliminating the risk factors arising from the U.S. economic collapse. The c ompanys operations are now divided into five units: Industry Solutions (for verti calspecific services), Major Markets (North America, Western Europe and the U.K) , New Growth Markets (Latin America, Eastern Europe, Middle East & Africa and In dia), Strategic Growth Business (TCS Financial Solutions, SMB and Platform-based BPO) and Organizational Infrastructure. TCSs diversification plan seems to have worked since the company has been gaining momentum in Europe and other emerging markets, which is evident in the companys marked growth rate of 40% year to year in its FY08s European operations. The firms operations in Latin America and Middle East have also seen considerable expansion. In order to deepen its penetration, TCS has established delivery and offshore centers in countries like Brazil, Uru guay and Mexico. The weakening European economy and its GDP decline of 0.2% in t he second quarter (April, May, June) might hinder TCSs diversification plans, as it is bound to have a direct impact on BFSIs outsourcing services. TCS, which dra ws 44% of its global revenue from the BFSI sector, is likely to be affected. Als o, the Indian market is becoming difficult to afford, leading to a wider gap bet ween the PGPM508-Group 07 Page 16

demand and supply of IT consultants. This can be traced to the fact that hired e mployees lack required skills or fail to deliver their expertise, but still seem to be demanding higher wages. Strategic Alliances TCS has strategic relationshi ps with various global technology vendors. These relationships are in various di mensions such as Customer, Service Provider, Supplier, and Alliance Partner. Ext ending collaborative research to several global technology vendors has made rela tionships with them more holistic. TCS and these technology vendors collaborate on joint research leveraging each others strengths to research and to the develop ment of best-of-breed offerings. The intent is to define and develop solutions w ith associated services and offer the same as an integrated business model to cu stomers. Some of the strategic alliances are listed below. Intel: Intel and TCS provide information technology products and services that complement each other. The companies are engaging in a technology alliance model in which the two orga nizations collaborate on research and develop solution offerings to deliver cust omer-specific solutions to the marketplace. This alliance has matured over the l ast two years of collaborative work, with the companies implementing a well-defi ned model for collaboration using a three-stage approach: Joint innovation engag ements defining new or improved solutions Joint go-to-market strategies for the solutions The companies have completed two significant virtualization and balanced compute research projects with these objectives: Virtualization: Demonstrate server con solidation through virtualization using multi-core Intel Xeon processors and Intel Virtualization Technology on a real-life customer application to reduce total co st of ownership. Balanced Compute: Demonstrate and validate balanced compute mod el usages in real enduser scenarios, showcasing central manageability and client side computing using a combination of OS and application streaming technologies on Intel vPro technologybased platforms. SAP: SAP as a leading technology and product vendor is one of the key partners o f TCS. The partnership with SAP has been a long-standing one and multi-dimension al. Leveraging and extending this existing partnership to collaborate for joint research and innovation was a logical next step for both SAP and TCS. Senior Res earch Scientists of SAP and TCS initiated this collaboration setting the objecti ves and defining the modus operandi for carrying out research in a collaborative manner. And they committed to cause by undertaking the responsibility to be Exe cutive Sponsors in the respective organizations. Collaboration with SAP Research was initiated after detailed discussions and exchange of research interests fro m both SAP and TCS. Identified areas include Model-driven Architecture and Integ ration of Enterprise-Data, Web 2.0, Internet of Services, and Internet of Things . Hewlett-Packard: HP and TCS have initiated discussions for joint research in t he areas of SaaS, Power Management & Cooling, Utility/Grid Computing, Cloud Comp uting, Green IT and Next PGPM508-Group 07 Page 17

Generation Data Center. Some of the potential research initiatives could also in volve development of market-specific offerings based on value-added services, us ing products and solutions from HP. EMC2: With TCS being an IT solutions and services provider, EMC2 and TCS have co nceptualized IT solution architectures for specific industry-domains integrating products from E MC2 and software platforms from TCS. Acquisition Strategy TCS is looking at grow th from two ways first through organic means and second through the inorganic way . The inorganic way of growth is through acquisitions of those companies that ma ke business sense to TCS. The companies should add great value to TCS. Like for instance TCS acquisition of CMC is helping it taking a sharper look at the domes tic IT business. Both the companies have synergies in the government sector, sin ce both the companies are well known for doing work for the government. TCS as p art of its strategy to look at growth options has set up an internal team which will focus only on acquisition strategies .Below are some of the acquisitions of TCS in the recent past:

Nov 2008: TCS Acquisition of Citigroup Services. TCS gains a range of new capabi lities, with end-to-end banking BPO service offerings, and an opportunity to pro vide integrated IT and BPO services to the banking market, as well as the signif icant contracted revenue commitment. Over 12,000 staff has transferred with the deal. From the Citigroup side, they get a cash payment, and an external partner committed to deliver (and probably to improve) the services they have monetized their investment in setting up CGS (Citigroup Services). They no longer have dir ect responsibility for managing an offshore delivery centre in a market becoming increasingly competitive, and they have significantly reduced their overall hea dcount. Feb 2006: Tata InfoTech (TIL) Limited was merged into TCS Limited. TIL w as a software services company like TCS with operations in the UK, U.S, and Aust ralia among others. The merger gave TCS a broader customer base and deeper penet ration into key geographies. The acquisition was touted as providing TCS more ab ility to provide full-service to customers in affected markets. March 2006: TCS, through its subsidiary, Diligenta, acquired a basis in part of UKs Pearl Group. Pearl is the 2nd largest player in the UKs life insurance and pension BPO industr y, giving TCS a new stake in BPO work for the UK market. Right after Pearl, TCS picked up Comicron in Latin America to offer banking solutions in both IT and BP O services in that market, and now Spanish language capability. Experience gaine d here will again allow TCS to expand further into new markets with BPO offering s, especially in the rather large and under-addressed Spanish-speaking world. Oc t. 31, 2006: Similar to the financial stakes made above, TCS again expanded its banking products and consolidated its European operations after acquiring a 75% equity stake in its Switzerland-based partner, TKS-Teknosoft. TKS was the market ing agent for TCS in Europe. TCS Joint ventures TCS went for a joint venture (JV) in Feb 2007 with three Chin ese partners and is billed by the company as a "role model for the Chinese IT ind ustry. The TCS joint venture, in which Microsoft took a 10 per cent stake, plann ed to employ over the next five year at least 5,000 people that would represent a considerable scaling up from the company s then present strength of 800 employ ees in China. The Chinese software industry remains fragmented and lacks scale. Only about 10 Chinese IT firms among some 8,000 employ more than 1,000 people. T

he TCS joint venture will thus be one of the largest software companies in China once it reaches its 5,000-employee target. The new venture PGPM508-Group 07 Pag e 18

is widely expected to enable TCS to finally break into the $30-billion domestic Chinese IT market, a market that has in the past proved elusive for Indian IT co mpanies. Another JV is between TCS and SBI (State Bank of India) in Nov 2005 to cater advanced technology solutions and domain consulting for the banking and fi nancial services sector. The joint venture is called C-Edge Technologies Ltd. an d has an authorized capital of Rs. 40 crore. TCS holds 51 per cent of the equity in C-Edge and SBI the balance with no asset transfer. The joint venture was to offer transformational capabilities to banks and financial institutions in India and other markets by helping them to use technology as a competitive tool in th e market place using bureau services and service platforms. "In three to five ye ars, we hope the company creates niche services in the national and internationa l stage, said Mr. Ramadorai. R ECO MMEN D ATIO N S The first and foremost recommendation for TCS is to change its vision statement. In our humble opinion it is short sighted. TCS needs to have a vision that will show its leadership qualities and long term thinking. Adapt to recession, but dont ignore the new ecosystem In all likelihood, the econ omy will worsen before it picks up again in late 2009. All service providers wil l feel this, albeit not equally; providers response at this critical time will se t the vendor landscape for the coming years. Based on current situation, TCS str ategists can adapt their positioning and direction, paying particular focus to t he following issues to ensure long-term market success: Expect to see the landsc ape continue to consolidate. Clients will seek to cut costs and focus on fewer p rovider relationships as the economy worsens. TCS should take this opportunity t o improve your market positioning. Ensure marketing articulates your value propo sition to all stakeholders concerned. In a recession, marketing can work as a di fferentiator. Service providers like TCS need to create specific value propositi ons aimed directly at the relevant stakeholders and in the new tech ecosystem, t hese relevant stakeholders must include business executives, not just IT personn el Dont be influenced solely by short-term shareholder pressure. The recession is at the top of everyones agenda right now, but those providers that take a long-t erm view will use this time to prepare for the fundamental changes in industry d ynamics that will emerge. Those providers prepared for the new ecosystem will be the ones to flourish once the dark clouds of economic turmoil have lifted. Do no t put all eggs in one basket TCS must provide diverse services to refrain from be ing over-dependent and increasing exposure to the vulnerabilities of few sectors (BFSI) /geographies (USA). Provide more high-end services in value chain (3rd W ave in IT) There is a move required from ADM (Application Development and mainte nance) to value added services, BPO to Consulting and Package Implementation, et c. TCS should shift focus from Low cost advantage to high quality services comma nding a premium being the pioneer in the industry Consolidation and strategic ac quisitions are essential for future growth of revenues. We feel that a big wave of consolidation in IT industry has just started. The HP-EDS merger (one of the biggest ever merger in this industry) is testimony to this. TCS should gear up f or such opportunities which are strategic fit for them be prepared. Page 19

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Quickly adapt and gain customer confidence in high growth markets. In FY2009, In dian domestic market grew by more than 20%, but TCS revenue from India increased only by 6.46%. TCS should leverage its success stories (IRCTC success done by i ts subsidiary CMC, Passport project etc.) to drive the growth in this market. TC S has rightly placed SMB (Small and Medium Businesses) as a separate strategic u nit, which should be focused aggressively. They should also focus consulting pra ctice on the same radar. TCS (rather all Indian IT players) should focus more on increasing their IP (Intellectual Property) assets. Finally would like to conclude with a prediction/recommendation from Gartner: Th e role of an IT Organization is changing and will have a service effect. PGPM508-Group 07 Page 20

REFER EN CES 1. 2. 3. 4. 5. 6. Tata Consultancy Services www.tcs.com (Investors section) Forr ester reports www.forrester.com Gartner reports www.gartner.com IT-ITeS Market & Opportunities IBEF (India Brand Equity Foundation) report Tata Consultancy Serv ices A Company Profile www.datamonitor.com Newspaper Mint www.livemint.com PGPM508-Group 07 Page 21