From Mumbai to the MidwestSource : Economist
DRIVE up the leafy Leadership Trail in Milford, Ohio and you reach what appears from the outside to be a luxury ski lodge. Inside, large windows with forest views are a constant reminder of the surrounding American heartland. This is Tata Consultancy Services’ new American facility, a stark contrast to TCS’s colonial-era headquarters overlooking sweltering cricket pitches in Mumbai. Bought in 2008, the Ohio facility is a symbol of TCS’s efforts to polish its brand and move to higher-margin services.
One reason for choosing Milford, a satellite of Cincinnati, was the proximity of Midwestern clients: ten Fortune 500 companies are based in Cincinnati alone. Another is cost: it is one of the cheapest among America’s main cities and has plenty of land on its fringes.
A third reason for choosing Ohio is the presence of decent universities nearby. TCS set up shop in Milford not only to be closer to clients but to begin in earnest to hire American graduates. Most of TCS’s new coders in Ohio are fresh from the nearby universities of Kentucky, Cincinnati, Purdue, Ohio State and others. They are cheaper than Ivy League graduates and TCS offers them interesting work with a booming company. The facility has 450 employees now, nearly all American, thanks to the difficulty of getting visas for Indians, and the plan is to increase their number to 1,000. They are a fraction of TCS’s 215,000-strong workforce but represent the bridgehead of its ambitions to go beyond being merely an outsourced back-office and coding shop and take on such consultancy giants as IBM, Hewlett-Packard (HP) and Accenture on their home turf.
Having pleased clients with its work for them so far, TCS should have a decent chance at getting them to buy fancier and pricier services. David Johns, chief information officer at Owens Corning, a building-materials maker, is full of praise for TCS; his company has doubled its overall spending with the firm in recent years. Citigroup sold its India-based business-process unit to TCS, guaranteed it $275m annually in business for several years, and then proceeded to spend more than that.
However, Jagdish Rao, a technology chief at Citigroup, says most of the consulting work TCS has done so far has been on systems TCS had built or implemented itself. Tom Rodenhauser of Kennedy Information, which studies the consulting industry, agrees that it has yet to make a breakthrough in high-end work. Although TCS is “printing money” with its outsourcing business, he “can’t say with a straight face they’re doing great at consulting—they’re giving away what other companies charge for”, as a way of selling their legacy outsourcing services.
Amar Naga, the boss of the Milford facility, admits that consulting proper is so far just 2.6% of TCS’s revenue. But it is growing more than twice as fast as the company’s overall revenues, themselves still increasing at around 25% a year. Such eye-catching growth, combined with its reputation for high-quality work, suggests clients can be convinced that TCS’s consultancy work is worth paying for.
For the American rivals it is planning to take on, TCS may so far be no more than a blip on the edge of their radar screens. But as it pushes up into high-value consulting, several of them—such as IBM and HP—are trying to capture more work by moving downstream into TCS’s traditional outsourcing territory. When they meet in the middle it could be quite a fight.