Filed in archive Offshoring by prashanth on June 26, 2007
Sandhill has an interview with the CFO of Tata Consulting Services - S Mahalingam, below are some interesting excerpts from the same that cover the current concerns and opportunities in the outsourcing market.
SH: "What about wage inflation? Sometimes the rate hits 12 to 15 percent annually, on average. That figure seems significant, especially when labor arbitrage is one of the advantages that you seek."
Mahalingam: "There are 500,000 engineers but then we go through the employable number of persons and they might not have the skills that we value. So that takes the figure down to 250,000 or 300,000. And what is happening now is that it isn't just the computer industry that is attracting people. It is all the other industries which are doing well in India at this time. The competition for talent is intensifying and that leads to the wage spiral that is taking place.
We think that the 12-15 percent increases we are going through at this time will last a few more years but not beyond that. [If it does continue beyond that], the wage inflation coupled with the rupee appreciation will come to a point that the margins will get eroded significantly.
Companies such as ours also try and see how we can have additional productivity improvement to pay for additional wage expenses. We use a lot of incentive systems which put us in a better position to handle it."
SH: "Over the past decade, the Indian tech companies arrived on the world stage in a major way and have been a tremendously disruptive influence on the tech services giants, such as EDS, Accenture and IBM. Over the past few years, Indian companies have become more like Western companies and Western companies are becoming more like the Indian companies. How does TCS differentiate itself from the other Indian companies and also from the Western companies?"
Mahalingam: "The competition is really heating up now. Almost on a monthly basis, we hear about an Indian company with a lot of talent being acquired by one of the global organizations. And when we visit clients, they tell us that there is an Indian story with almost every services company now.
From a customer perspective, the kind of value proposition that you get from India is compelling. We can offer the 'full services plate' - delivering all the services needed from one shop, that's a desired capability.
To be able to serve the customer from multiple locations is another. If there is a need for multinational service in different countries with different languages, we can offer that. We also give the customer a great experience through processes, and so on. And very importantly, the cost element: India has a very good advantage here. The differentiation [between services companies] is blurring at this time. The key is the complete capability that you bring in with the agility to work in many different tech environments... We can offer all this and hopefully we can offer it at a better value... that remains the primary differentiator at this time."
SH: "When you think about it, most people say 'Tech services, that's not innovation.' So what do you mean when you talk about innovation in your services?"
Mahalingam: Although you say services is not an innovative area, we are really the ones who have brought in disruptive processes to the industry. We said that we could do offshore work - we could take the process away from the customer's location - and that was very disruptive.
In the 1970s, when we [introduced the concept of offshoring], the world was not as connected as it is now. That's when we started talking about process and process maturity and we continue that kind of business model innovation today.
Now we deal with innovation in three ways. First, what can we derive out of what we are doing. Second, in the platform itself, can we create a new platform... and can we create an ecosystem around that platform?
The third is looking far out in the future. We have a research and development organization ... of about 200 scientists. They keep evaluating what we do and they have a close linkage to the business side where if they see something they come back and tell [R&D]. We have built a good team of people there."