N Chandrasekaran, CEO of TCS

 

July 13,2012

Tata Consultancy Services Ltd., India’s largest software company by sales, Thursday posted strong quarterly results and forecast its annual sales will top industry estimates, defying concerns raised by its nearest rival, Infosys Ltd., about shrinking technology investments.

TCS’s strong performance comes at a time when India’s outsourcing industry is concerned about slowing demand as economic uncertainties refuse to ease in the U.S. and Europe, from where the company gets most of its business.

However, N. Chandrasekaran, chief executive and managing director of TCS, says the economic situation is also opening up new opportunities as there is an increased need now for businesses to use technology to rationalize costs.

The 48-year-old CEO spoke with Dhanya Ann Thoppil about what drives growth at TCS and how the company is addressing the challenges faced by the industry. Edited excerpts.

WSJ: You sounded confident of the growth prospects of TCS even in such a difficult macroeconomic environment. Where does that confidence come from?

Mr. Chandrasekaran: Technology is becoming very critical for businesses in their operations. Every industry is trying to become more efficient. In every industry there are growth opportunities.

Take the financial services industry for example. They have to take new initiatives so that they can work on some other margin pressure that they have. This translates into risk and infrastructure rationalization. All these are linked to technology. Similarly, in retail there are huge investments in terms of knowing your consumer so that they can sell more into the basket.

WSJ: In all their endeavors, how much does the economic environment play a role?

Mr. Chandrasekaran: If you look at our customer base, these are all large global companies. Each of them has got a strategy. They have to show revenue growth. They also recognize that they are operating under this macro environment which is dynamic.

Everyone expects it to last for a while. Clients have a plan based on what they hear from their customers. In today’s context, they are staying on course with the plan. In that plan, somebody may have decided to spend more money on IT and somebody may have decided to spend less. But they are spending.

These are companies which are present in multiple markets and they have pressures on some sides and they have opportunities on some sides.

WSJ: Are you concerned about the volatility in the macroeconomic environment and its impact on clients?

Mr. Chandrasekaran: We will watch this very carefully. But at this point of time, based on what we hear from our customers and from our deal flows, we are on track to achieve the goals with which we started the year. They have decided on the spending at the beginning of the year and they are not changing course on that at this point in time.

WSJ: Are you assuming that the economic situation may not worsen from here and hence investments by clients may stay on course?

Mr. Chandrasekaran : The economic situation will go a little bit up and down. But still the companies will use technologies to come out of this situation. That presents us with the visibility to do things that we can do. By and large clients are sticking to their IT budgets that they decided on at the beginning of the year. They aren’t dropping or increasing budgets midway.

WSJ: What are you seeing in the U.S. in terms of client spending given the shaky economic recovery?

Mr. Chandrasekaran: We have huge exposure to U.S. companies. We see a lot of efficiency initiatives across the board, whether it is retail, manufacturing, pharmaceuticals, banking and insurance. That translates into rationalizing their applications systems, infrastructure and relooking at their business processes for driving agility and tightening processes.

Apart from that, each of these industries has got its own agenda. Consumer products companies spend a lot on analytics, regulatory spending in the U.S. for financial services companies, insurance companies are relooking at their systems because many of their systems have been there for 20 or 30 years. The pharmaceutical industry is looking at processes to streamline drug discoveries and clinical trials. Utility companies are looking at asset management. We see all these trends.

WSJ: Are these just cost reduction fixes or are you seeing spending on higher value discretionary projects?

Mr. Chandrasekaran: It’s a combination of the two. In the same industry, different companies may do different things. The thing that we have to really avoid is to come up with a broad-based statement, saying that it is applicable to everybody in the industry.

It’s pretty dangerous. We are seeing momentum in retail, insurance, telecommunications and utilities. I don’t want to take a sectoral view on discretionary spending. In each sector there are companies where we have opportunities and where we don’t have opportunities. I’m not seeing discretionary spending drying up.

WSJ: Recently General Motors Corp. said in an interview to InformationWeek that it plans to slash outsourcing spending to 10% of its technology budget, from 90% previously. Do you see this as a trend where U.S. companies are being cautious of shipping work overseas?

Mr. Chandrasekaran: At the end of the day, work will get done where you can have the right teams in place. We want to execute projects successfully. Sometimes it may be onsite, sometimes it may be offshore. I don’t think that we can take a single statement and say that all work will be moved to one country or another. I don’t see it as a trend.

WSJ: The non-availability of visas has been a major concern for IT companies in the past. What is the situation now?

Mr. Chandrasekaran: It is a question of assembling the teams. Sometimes, if there is a delay we have to take alternate means, like recruiting locally or trying to see whether we can do that work offshore.

The whole visa issue should not be seen in isolation. We are working with customers to deliver the project. That requires us to understand what they need and design it and then send the team and deliver it.