'When clients are hurt, there is bound to be pricing pressure'

The top management of India’s largest information technology services firm, Tata Consultancy Services (TCS), seems cautious on the uncertainty in the global market. The company’s Chief Operating Officer and Executive Director, N Chandrasekaran, tells Shivani Shinde he’ll focus on cost efficiency. Edited excerpts:

You admitted to pricing pressure in single digits. Is the scenario really bad?
When your clients get hurt, there is bound to be pricing pressure. It is difficult to say when the environment will improve. Through the year, we have had surprises springing up every month. As long as it impacts our top clients in any sector, it will affect us. But does that mean the last few months have been disastrous? The answer is no.

Will the next few quarters be bad? If the next three months are smooth, we will give you good numbers for June. We see sectors like telecom, manufacturing and hi-tech under pressure, but other verticals should continue to grow, including BFSI (banking, financial services and insurance).

You said your clients are seeing a dip in revenue and profits...
It’s not just about TCS clients. Take the top 100 clients of the global 500 or 1,000 firms and you will see a similar trend. More than 40 per cent have seen a drop in revenue and more than 40 per cent a drop in profits. Probably 10-20 per cent are incurring losses. But all these are good companies. Nothing is wrong with their business models. They are just facing pressure.

What’s your strategy now?
Back in 2002, we identified developing markets as a huge growth opportunity and obviously a place where we had to invest. Since then, we have built a solid business in this market. We have an over $250 million business in Latin America. Between Latin America and APAC alone, we have built a $500 million market.

India is another $500 million (around Rs 2,500 crore) market. We have been here for a few years and understand what kind of deals come from local businesses. We have a base of key clients and solutions portfolio. We have made investments and have people, business and clients. Now, we will accelerate all of this.

On the other side of this market is volatility. Our business in the West has a healthy mix of repeat business, annuity revenue and project business. But here, the mix is more towards discretionary spend. Hence, the growth is volatile.

The change will not happen in one quarter. So we just have to shape our business accordingly and this is something we will have to do over the year. We are focusing on the business mix in these core markets. We are also seeing the cyclical nature of the business. Over the course of the year, we will get a hang of these regions.

What about costs?
There are a couple of things we will continue to do. We will continuously optimise our operational performance. Which means optimising resources, getting the onsite-offshore mix and looking at all possible opportunities. We will look at these on weekly basis with concerned teams. We will keep on accelerating this effort.

How are the BPO and SME divisions performing?
Our BPO segment is doing quite well. We are winning many full-services deals which encompass IT, BPO and infrastructure. Of the four mega retail deals that we won, two were for full-services capability. Other than the human resources organisation (HRO) platform, we have launched three more platforms and for all these we have clients.

On the SME front, we will go live this year. We are live with 25 clients the next three-six months. We are making sure that everything goes as per our plans in terms of customer satisfaction, ease of use and customer getting real value. But at the same time, our products business was impacted this year. One of the reasons is the slowdown in the financial sector.

What about your plan to take 200-250 campus hires from the US for your Cincinnati centre?
This centre was announced more than a year back. The plan was to develop local capability and recruit graduates locally and do some of the onsite work in the US from those centres. It’s just that the game plan is now getting into place. For us, this is a part of our onsite-offshore mix and, hence, will not increase our costs. We are already talking to some of our customers who are willing to shift their onsite work to the Cincinnati centre.