TCS Plans To Expand In Coimbatore

India’s largest computer services firm by revenue, Tata Consultancy Services Ltd, or TCS, plans to cut land and rental costs by expanding centres in smaller cities such as Bhubaneswar and Coimbatore and consolidating its real estate holdings in major cities.

The bulk of the TCS workforce in India is concentrated in five large cities—Mumbai, Chennai, Bangalore, Hyderabad and Pune—where its employees work from multiple centres that are either owned or leased by the firm. “We are taking a hard look (at real estate costs),” Vish Iyer, chief financial officer of global business for TCS, said in a phone interview. IT firms could save 20-40% on salary and real estate costs by expanding in tier II cities. TCS did not quantify the savings targeted from the measures to be implemented over two years. The company has a global workforce of 121,610, of which 15,787 are based overseas.

Indian information technology (IT) firms are engaged in a drive to reduce costs as the US, their largest market, battles recession. They are postponing replacement of IT equipment, trying to reduce electricity bills, and cutting air travel and hotel stays by employees. For TCS, such short-term measures could reduce sales, general and administrative (SG&A) expenses by as much as 10%, said Iyer. TCS’ operational expenses, which include SG&A costs, in the first six months of the current fiscal year reached Rs5,205.84 crore on total income of Rs13,239.07 crore.

Analysts say high real estate and salary costs in large cities have already made Indian technology firms look at setting up development centres in tier II cities, which host a number of engineering colleges they could tap as a source of employees. “Quality of people may be an issue, but with training, hopefully, it could be addressed,” said Harit Shah, equity analyst tracking the technology sector at Mumbai-based Angel Broking Ltd. The difference in salary and real estate costs in small cities, compared with larger metros, could be between 20% and 40%, he said. Governments in states such as Karnataka and Tamil Nadu are also encouraging technology firms to expand in smaller cities to decongest their capitals and create jobs.

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