Reuters Summit: TCS sees strong software order growth

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Reuters Summit: TCS sees strong software order growth
TOKYO (Reuters) - Tata Consultancy Services Ltd, India's top software services exporter, said on Thursday its orders were increasing as customers outsource more of their office tasks.

Girija Pande, Asia Pacific director for Tata Consultancy Services, also said fast growth in domestic wages, which has undermined profit margins and threatened the industry's rapid expansion, would moderate in the coming year.

"The global order pipeline is healthy and increasing," Pande said at the Reuters Asia Technology and Telecoms Summit.

Companies such as General Electric Co are turning more frequently to TCS for software services to cut costs and increase efficiency. Demand for such services is also surging in Asia.

"Asia had been a slow taker of IT (information technology) services. Only now companies are going into using IT as a competitive tool to increase productivity, so you see substantial restructuring that is going on in various sectors," Pande said at the summit, held at the Reuters office in Tokyo.

Growth has been robust in the banking, telecoms and manufacturing sectors, he said.

"In telecoms, subscriber growth is going through the roof in Asia, and this requires large-scale billing systems which didn't exist earlier, while the implementation of 3G (third-generation mobile technology) solutions is also going alongside."

Its Asia-Pacific business accounts for 6 percent of TCS's revenue and has about 2000 employees. Both revenue and staff numbers grew by about 50 percent in the last financial year. In August 2004, TCS raised more than US$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, and the rupee's appreciation versus the dollar -- the US$17.2 billion industry's main currency for billings.

Pande expected the rate of wage increases in the industry, generally between 12 and 15 percent last year, would moderate in the coming year.


Domestic market

He estimated the domestic IT market in Asia's third-largest economy would surge 25 percent a year as companies retool business processes and begin using software packages to cut costs.

TCS, which this month signed a multi-year IT services contract worth more than 200 million euros (US$245 million) with Dutch bank ABN AMRO, plans to hire 15,500 engineers and staff this year, boosting its 50,000-strong work force, Pande said.

"Of these, 2000 will be hired globally and 13,500 in India," he added.

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.

Pande said several global companies seeking to contract out software services had made requests for proposals, and TCS was bidding for all of them.

TCS operates in more than 40 countries and is General Electric's largest offshore software services provider. It has 31 nationalities on its rolls and faces the lowest employee attrition rate, at 8 percent, among listed Indian software companies, Pande said.

Pande said TCS was beefing up its staff in China to service transnational clients and tap the Japanese, South Korean and Taiwanese IT markets. TCS currently has 250 people in China.

TCS has formed a joint venture with the Chinese government and global software giant Microsoft to create an IT firm that would serve as a role model for Chinese companies hoping to replicate India's outsourcing success.

India's information technology exports, such as computer coding, consultancy, call centres, financial modelling and engineering design, are set to grow 30 to 32 percent in the year to March 2006, according to industry forecasts.

Exports surged 34.5 percent, the highest in five years, during 2004/05, despite a political outcry against outsourcing during last year's presidential campaign in the United States, which accounts for 68 percent of exports.

The industry employs about one million people. In lower-end jobs, engineers earn one-fifth as much as their Western counterparts.
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