November 28, 2005 | The Financial Express

‘China’s domestic market is fragmented’

It’s destination China for the Indian IT behemoth Tata Consultancy Services (TCS). The company recently signed an MoU with the Chinese government and Microsoft to create a broad-based IT/ITES company in China. “The JV is a role model for IT companies in China,” says Girija P Pande, head and regional director - Asia Pacific of TCS. Mr Pande is the chairman of TCS Asia Pacific Pte Ltd - a Singapore registered holding company. He oversees TCS business in 13 Asia Pacific countries including Greater China, Japan, ASEAN and Australia/New Zealand. Mr Pande has also been involved in successfully overseeing a joint R&D project with NTU/TCS to create a “Smart Controller” for process industry in Singapore. In an interview with FE’s Sudhir Chowdhary, Mr Pande details the company’s strategy to expand operations in the Asia Pacific region. Excerpts:

What has been the strategy to focus on the Asia Pacific market?
TCS serves the region from 12 offices and three development centres across nine countries, and offers high-end IT consulting and software solutions to global corporations as well as local companies. We believe in attracting and developing local talent. We also believe in reaching out to our clients, having opened development centres in Hang Zhou (near Shanghai), Yokohama and Melbourne.

In fact, TCS was the first Indian software company to open a wholly owned foreign enterprise in China.

What about other development centres in the region?
We have the TCS Japan Development Centre at Yokohama which aims to provide customised delivery models to suit the specific needs of TCS’ Japanese clients. Then, another development centre in Melbourne, Victoria provides high-end technical support services to clients in Australia and New Zealand. TCS has a R&D relationship with the Singapore Institute of Manufacturing Technology (SIMTech). Together, we conduct collaborative research into manufacturing technology, with a focus on embedded software.

How can Indian IT firms convince global clients to outsource projects to their China development centres?
According to a statement by the US-China Economic and Security Review Commission in April 2005, China is rapidly becoming a major force in developing new technology. This is one of the main reasons why this joint venture has been set-up. TCS’ China operation is proof that this can be done successfully. It is also important to note that of our 220 staff in China, about 90% are local Chinese.

What is the company’s strategy to expand operations in China?
We see China as a market with huge domestic opportunities and phenomenal infrastructure. We are implementing a three-pronged strategy to expand business; service the multinational clients which have expanded operations in China and need support; create China as sourcing base for servicing neighbouring market such as Japan, Korea and Taiwan; tap the domestic market which has demand for services and solutions.

How big is the presence there?
TCS currently has 250 staff in China of which nearly 90% are local  Chinese staff. We hope to go to 350 by March next year. In addition, TCS has signed an MoU with the Chinese government and Microsoft for a new joint venture which will create a broad-based IT/ITES company in China — a role model for IT companies in China. Our current investment in China is $2 million, which will go up substantially in the joint venture.

What is the mandate for the joint venture?
On June 30 this year, TCS and Microsoft were selected as strategic partners by Sino-India Cooperative Office (SICO) of the Chinese government. As part of this strategic partnership, TCS, Microsoft, and Beijing Zhongguancun Software Park Development Co Ltd, Uniware Co Ltd, and Tianjin Huayuan Software Park Construction and Development Co, Ltd, had announced that the parties intend to establish a software joint venture company to provide IT outsourcing services and solutions to both the global market and domestic market.

Does the venture expect to have an early-mover advantage?
It will definitely have an edge, as we will leverage our strong delivery foundation that we created in China - we are the first and only CMMI and PCMM level 5 certified company in China. The JV has been set up with world-class and proven delivery and quality methodologies since its inception with the full support from the partners.

What’s in there for TCS?
This joint venture is about creating a business and a market together — it’s about cooperation rather than competition.

When Chinese Premier Wen Jiabao visited our TCS facilities in India earlier this year, he spoke of China and India being “two pagodas”, saying that a merging of Chinese and Indian skills could produce an unbeatable combination. TCS' operations in China is a prime example of this as we have successfully established ourselves as a pioneer in China.

TCS China is the only company assessed at CMMI and P-CMM Level 5 and is the first WOFE (Wholly Owned Foreign Enterprise) in China. The Chinese government recognises the pioneering role that TCS has played, making S Ramadorai an honorary IT advisor to the government of Hangzhou and Qingdao.

What about the other focus areas for TCS?
TCS has been focusing on creating other intellectual investments by bringing the TCS-pioneered offshore development methodology into China. We are also engaged in training local professionals on software project management in China.

How does China compare with India in the area of software services?
The Chinese market offers a huge opportunity but the domestic market is too fragmented — China has around 8,000 IT companies where, as per the statistics, more than 70% of them have less than 100 employees. This creates more pricing pressures — but now the market is getting more mature and customers are realising that they should go for global products.