Tata
Consultancy Services (TCS), Asia’s biggest employer of software
developers, will shift hiring to low-cost cities in India as it
struggles to maintain profitability amid spiralling labour costs. The
company, based in Mumbai, is building campuses and adding workers in
cities including Ahmedabad, Pune, Bhubaneswar, Nagpur, Indore and
Cochin, chief financial officer S Mahalingam said in an interview.
The company’s shares plunged the most in more than two years on Tuesday after earnings missed analysts’ estimates amid rising costs.
Employee costs at Tata Consultancy, which spent $2.8 billion on salaries in the year-ending March, rose 27% last quarter exceeding the 15% increase in profit. While expanding in cheaper cities will help reduce costs, lack of infrastructure and quality of employees may create new challenges, according to Vihang Naik, an analyst at MF Global Sify Securities.
“The biggest campuses that we’re building now are in Pune and Ahmedabad,” Mahalingam said in Mumbai on Tuesday. “At the same time we are putting pressure on the system and the government to upgrade the infrastructure in these places.”
TCS gained 1.47% to . 1,048.7 at 12:30 pm in Mumbai after plunging 7.7% on Tuesday after profit missed analysts’ estimates by 3%. The company’s operating margin narrowed by 1 percentage point in the three months ended September 30.
India’s inflation exceeded 9% for a 10th straight month in September, reducing room for the central bank to pause its record interest rate increases and maintaining pressure on wages. Salaries in India are set to rise the most in the Asia-Pacific region this year, according to an Aon-Hewitt survey released on March 8. Wages are likely to rise at an average of 12.9% in 2011, compared with 11.7% last year, according to the survey of 531 organisations from 18 primary industry
sectors in December and January. Chinese salaries may rise 9%, while
those in the Philippines 7%, Aon Hewitt said. Tata Consultancy and other Indian software developers “hardly have a choice in terms of this expansion,” Naik said. “It has to happen in smaller towns.”
Second-tier cities like Jaipur and Ahmedabad have operating costs that are 20-30% lower than established technology hubs like Bangalore, according to a May report from Everest Group, a Dallas-based firm that advises companies on outsourcing strategies.
TCS, which has 20,000 workers and 17 offices in Mumbai, will increase its workforce in Ahmedabad to 12,000 from 2,000, and add to its “small presence” in Pune with a new facility that can hold 17,000 workers, Mahalingam said. — Bloomberg
The company’s shares plunged the most in more than two years on Tuesday after earnings missed analysts’ estimates amid rising costs.
Employee costs at Tata Consultancy, which spent $2.8 billion on salaries in the year-ending March, rose 27% last quarter exceeding the 15% increase in profit. While expanding in cheaper cities will help reduce costs, lack of infrastructure and quality of employees may create new challenges, according to Vihang Naik, an analyst at MF Global Sify Securities.
“The biggest campuses that we’re building now are in Pune and Ahmedabad,” Mahalingam said in Mumbai on Tuesday. “At the same time we are putting pressure on the system and the government to upgrade the infrastructure in these places.”
TCS gained 1.47% to . 1,048.7 at 12:30 pm in Mumbai after plunging 7.7% on Tuesday after profit missed analysts’ estimates by 3%. The company’s operating margin narrowed by 1 percentage point in the three months ended September 30.
India’s inflation exceeded 9% for a 10th straight month in September, reducing room for the central bank to pause its record interest rate increases and maintaining pressure on wages. Salaries in India are set to rise the most in the Asia-Pacific region this year, according to an Aon-Hewitt survey released on March 8. Wages are likely to rise at an average of 12.9% in 2011, compared with 11.7% last year, according to the survey of 531 organisations from 18 primary industry
sectors in December and January. Chinese salaries may rise 9%, while
those in the Philippines 7%, Aon Hewitt said. Tata Consultancy and other Indian software developers “hardly have a choice in terms of this expansion,” Naik said. “It has to happen in smaller towns.”
Second-tier cities like Jaipur and Ahmedabad have operating costs that are 20-30% lower than established technology hubs like Bangalore, according to a May report from Everest Group, a Dallas-based firm that advises companies on outsourcing strategies.
TCS, which has 20,000 workers and 17 offices in Mumbai, will increase its workforce in Ahmedabad to 12,000 from 2,000, and add to its “small presence” in Pune with a new facility that can hold 17,000 workers, Mahalingam said. — Bloomberg
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