Newsmaker: How king of outsourcing plans to keep his crown

Nearly four decades after its founding, Tata Consultancy Services is one of the largest tech services company in the world.

Every quarter, the company totes up revenue of more than $1 billion and new hires by the thousands. It's become one of the largest divisions of the sprawling Tata conglomerate, which also makes steel, trucks, tea, chemicals and luxury hotels.

Although TCS has largely grown through outsourcing, the company plans to expand into consulting and contract manufacturing, essentially serving as a full-service engineering conglomerate of its own.

Subramaniam Ramadorai joined the company in 1972 and became CEO in 1996, just as the Y2K bug was putting the Indian software industry on the map. Ramadorai sat down with CNET News.com to talk about technology in the emerging world, TCS's next moves, and what the company plans to do with those 30,000 people a year it's hiring.

Q: A lot of emerging countries have seen what India has accomplished and say they will try to replicate some of its success. What do they need to do?
Ramadorai: I think Rule No. 1 is that there should be no involvement of the government. The destinations that they have to set up in terms of export promotion zones are areas like Silicon Valley where free movement of people and ideas should be encouraged a lot. They've got to remove all the barriers and restrictions, and spell out what it mean in terms of tax simplifications or real estate.

Finally, countries have to invest seriously in their educational system. That's the most difficult part. Infrastructure can be created with money, but the educational system and transformation of the workforce, and with the passion for doing things beyond the call of duty, that's the most important dimension. That's what differentiates India from the others, or Silicon Valley. Nobody tells you to work extra hours. You are self-driven to a large extent here.

Revenue and income have been rising in the 40 to 50 percent range every quarter. How long can that continue?
Ramadorai: The whole idea is to make sure that your offerings are very well understood by the customers. We try to align our businesses with the businesses of our prospects, our customers, and try to showcase the value proposition where it has a revenue impact or cost impact. And when we can engage with them, we'll grow at 25 percent, 30 percent or 35 percent or 40 percent. We never give any future guidance but we must do better than the industry average.

But when people look at your business these days, I think they believe there has got to be a finite growth level somewhere. Corporations have already outsourced a lot of functions, so are you gaining customers from competitors or selling new services?
Ramadorai: It's a number of things. They want things like infrastructure and server consolidation. On a global basis, in manufacturing some customers may have 300 or 400 instances of ERP (enterprise resource planning). How do you consolidate that?

Those situations still exist?
Ramadorai: Yes. Some industries are very slow to transform or they want to combine operations and IT services together. After mergers and acquisitions, they may want to streamline to a single instance. If you take industries like the utilities industries, they are very much behind us.

TCS has been hiring large numbers of employees every year. You're at the point now where you're hiring the equivalent of a small town annually. How do you keep control of the process?
Ramadorai: We are hiring this year 30,000 (employees). The last quarter we took in at somewhere around 7,000 or 8,000. That's the biggest challenge for companies like us: when you have a diverse workforce from different parts of the world, how do you integrate them, how do you train them, how do you deploy them, how do you manage their culture? What kind of intervention is required, what is the mentoring that needs to take place?

Nobody tells you to work extra hours. You are self-driven to a large extent here.

That's been our biggest learning experience over the years. We started small, recruiting 100 people a year, then to 500 people, to 2,000 to 5,000 to 10,000 to 20,000 or whatever it is.

How many are based in India and how many are outside?
Ramadorai: Out of 83,000 (employees), 7,000-plus are international workforce. I think we will take it to about 10 percent of our workforce.

Speaking of utilities, energy consumption has become a big issue. Do IT managers raise it more than in the past?
Ramadorai: I think energy consumption is a big challenge, and you can look at server consolidation from an energy consumption reduction point of view. We have aligned with a start-up company called Cassatt, and worked together with them on consolidation.

I think climatic change, the implications, and the technology intervention systems are going to be significant issues. What kind of embedded systems or monitoring systems will be required to reduce consumption? We are getting into hardware, software integration. We are getting into engineering design. We are getting into design-to-manufacturing.

The (outsourcing) industry itself is just not coding, or programming, or only financial services or banking. It's going into areas of manufacturing, healthcare, retail, government, transportation, travel and hospitality, life sciences.

More Newsmakers

[ogman]

No wonder...

...CNET readership is so low.

Okay, you asked for it...outsourcing is killing business, not because it is taking jobs away from perfectly qualified people for no reason other than making CEOs a little richer, but because the workers now doing the job are incompetent and lack people skills. Most of these jobs are customer service oriented and the workers performing them hang up on clients when the job becomes difficult. They lack knowledge of anything beyond the manual. In fact, they are less competent than the people they replaced.

On the plus side, I've saved a lot of money over the last couple of years, because I refuse to purchase anything from a company that uses outsourced support. My software budget is down 80% and I build my own hardware now. I'm also reconsidering open source software, since the support is actually better and a greater benefit for the cost.

[bradyme]

Next Stop - CNET

America Online outsourced their media and new content to India to maintain news information on their service. Heck! You guys could be next! Don't shoot yourself in the foot. You will be like me. Struggling business wondering when the next time you can eat 3 meals a day. :(

[flow779]

RE: Next Stop - CNET

So, your doing the "should i have internet or should i have food" model. Good for you.

[Macsaresafer]

Outsourcing: The New Feudalism.

The CEO is now the Lord of the Manor, and he has easy access
to cheap labor all around the world, thanks to the US Military
and undevelped countries eager to grow. Does that mean
cheaper products and better customer support for us peasants?
Certainly not! It means even more obscene profits for the Lords,
who've figured out how to get around Anti Trust laws by
manipulating job markets.

They even do it here at home, by employing illegal immigrants
and claiming that they can't get Americans to take the jobs. Sure
they can't, but that's because the jobs don't pay enough. If we
had true Capitalism, they'd have to increase the pay until they
were able to find enough Americans to take the jobs.

[perfrog]

Outsourcing

I agree with the comments. When a company outsources, and saves money, the savings never seems to be reflected in the price of the company's product.
Too bad we can not outsource all of Congress, and the President. Then laws would be passed to stop outsourcing dead in its tracks.
Imagine, for a minute, we are going to spend another 176 Billion on Iraq; What if we gave every man, woman, and child 2 million out of the Iraq money? There are 300 million people in the U.S., so there would still be money left over. If we did this, we could dismantle all Social Services, welcome all the illegals(because all Americans would be millionaires and not have to work), even the minimum wage could be a thing of the past. The money is better spent on the Citizens of the U.S., and NOT Iraq.
Wow! What a concept!!!

[The_Nirvana]

It already does reflect in the low product pricing

You can buy a DVD player for $50 a laptop computer for $600, toys at throw-away-prices. The bright side of this that people can afford to buy more goods for the same money. But the problem is this encourages throw-away culture where a people no longer want fix stuff that is broken and instead buy a new one.

[YankeePoodle]

IBM

IBM has laid the foundation and footprint in India. It is just matter of time they are going to gobble these three Indian companies. People are leaving these 3 companies in droves to IBM, Accenture and other Non-Indian companies for better pay and work culture.

They recruit 30000 a year and have a work force of 83000? Do the math, only few continue with these guys beyond 3 years and the rest realize they are exploited and leave the company with disdain.

[PatrickSc]

IBM and others

Do the math yourself..from the info given in a news article.

"TCS, which at present has a staff-strength of 83,500 will increase the headcount to 100,000 by March next year. TCS has the lowest attrition rate of 10.8 per cent in the industry. Non-Indians comprise 8.8 per cent of the workforce while 25 per cent employees are women."

If a company has 50,000 people and recruits 30,000, then the added sum is 80,000.

As for the IBM remark, I wish you knew more about how the global IT industry works.

And for the others: ever tried counting on your fingers the number of Indian software professionals in the Valley. For that matter, ever been to the Valley? It will help open your eyes.

[jlc112800]

India of low IQ 81 will be a 3rd world wasteland forever!

Come on guy! The article is so meaningless and author is recruited by Indian NASSCOM to mislead us to think Indian can be competitive. The ugly truth is that thousands years of inbreed by the stupid caste discrimination produced the largest number of low IQ people. The only castes that are competitive compared to the west are the upper caste s. Those upper castes Indians normally emigrate here via H1. They usually have the self-granted and undeserved arrogance like some of the posters here. They are the only Indians of high IQ. Fortunately, they always abandon India for better bucks here. As a result, India is full of low IQs, essentially hopeless to get out of 3rd world country status forever! The stats is at http://en.wikipedia.org/wiki/IQ_and_the_Wealth_of_Nations