With the return of discretionary technology spending, India?s top IT exporter Tata Consultancy Services is focusing on onsite work again. During the Great Recession, TCS was busy building offshore capabilities. Now, the company is looking more favourably at the high-value onsite deals.
In Q4, the percentage of TCS? onsite sales rose 110 basis points. The impact on bottomline was little ? just 0.6% ? since onsite work is a low-margin business. TCS plans to hire about 3,000 employees overseas in 2010-11. It would also look at applying for about 600-700 H1-B visas. Last fiscal, TCS did not apply for H1-B visas at all.
N Chandrasekaran, MD & CEO, TCS said: ?We have driven the offshore leverage quite hard and our global work in global delivery centres has come down; so, the work will go up a bit onsite (in the coming quarters).?
By the end of 2007-08, when the Indian IT industry started feeling the heat of the global financial meltdown, TCS had its offshore component at 41.9%. Since then, the firm consistently focussed on offshore work, taking it to about 51% by the end of 2009-10. Now, it is bringing its focus back onsite.
?However, this would be client-specific. We will continue to move offshore, but not at the pace at which we have been doing in the last few quarters,? Chandrasekaran added.
?A 50:50 onsite-offshore ratio is not reasonable, because though the onsite work brings a positive impact on topline, it has low margins. However, we don?t expect any major impact on TCS margins on the back of it,? said Harit Shah, IT & telecom research analyst at Karvy Stock Broking.
The rise in onsite work is largely an indication of the rise in discretionary spends, driven by consulting and package implementation. This requires IT firms to provide services at the client?s location. Though onsite work is billed higher, the cost of delivery is high as well. Thus, margins from onsite work are lower than offshore.
Chandrasekaran adds that large clients still prefer two- three vendors for large, transformational deals. ?But we have managed to bag large deals as the only vendor on the back of full-service offerings of IT, technology and operations. These are quite relevant to mid-size customers as well. Therefore, we are increasingly focusing on bidding for deals that are driven by outcome-based pricing.?
However, large deals just don?t come by. Size matters, says Chandrasekaran. ?Five years back, when TCS was just about $1 billion in size, we couldn?t compete for deals of similar size. The customer would say that my deal size is equal to your revenue size. That?s gone,? he adds. At the end of the 2009-10, TCS said it was $6.3 billion company. ?Discretionary spending is coming back but in packets. So, though we are witnessing large transformational deals these are coming out in phases,? Chandrasekaran had said in an interview with FE after announcing the firm’s results this week.