Indiaâ€™s largest IT company this week received shareholder approval to extend its operations in the $30 billion Chinese software market.
Tata Consultancy Services Ltd.(TCS) announced Monday that a shareholder promotersâ€™ agreement (SPA) was signed, bringing closer to reality its bid to develop China as its second largest market.
Under the agreement, TCS takes a 72 percent controlling interest in a previously announced joint venture with the three Chinese software firms. In addition, it is expected that American software maker Microsoft will be allowed to take a 10 percent stake in the company within several months.
â€œThis venture is a significant business opportunity, which has global appeal in terms of its customer offerings and is capable of creating a Chinese domestic business of increasing scale,â€ said CEO of Tata Consultancy Services Ltd. S. Ramadorai.
The move by TCS is part of its global expansion strategy. In addition to China, the company expects regions such as Eastern Europe, Latin America to fuel future growth.
If the companyâ€™s expected growth materializes, the company would become Chinaâ€™s largest foreign IT employer in four years. The company currently has a market capitalization $20 billion with over 71,000 employees in 32 countries worldwide.
The three Chinese partners are Beijing Zhongguancun Software Park Development Co., Uniware Co. and Tianjin Huayuan Software Area Construction & Development Co.
As part of the deal, TCS will make an investment of $12.6 million, while the Chinese companies will provide $15 million. Following Microsoftâ€™s entry, the TCS stake will fall to 65 percent and the Chinese companies' holdings will be reduced to 25 percent.
Ramadorai states that it could eventually end up buying out the other partners or decide to take the website public.
The company will begin to operate in September, serving the Chinese market, but will also be able to provide other regions across the globe.
The JV, if successful, could establish Chinaâ€™s first industrial scale software company.
â€œTCS will help develop best-in-class core competencies in software engineering, processes, scalable software development by using our unique and world-renowned learning and development model that will create new opportunities for IT professionals and the industry in China,â€ Ramadorai said.
â€œThis venture is a significant business opportunity, which has global appeal in terms of its customer offerings and is capable of creating a Chinese domestic business of increasing scale, he added.
He added that companyâ€™s key objective is to make the venture a model for the growing Chinese software industry, stating that the partnersâ€™ strengths in software development management, talent acquisition and training would create a world-class IT operation.
The Chinese counterparts are expected to help the company by providing infrastructure support, easy access to Chinese universities for hiring, government approvals and brand recognition.
TCSâ€™ existing Chinese arm, Tata Consultancy Services (China) Co., which currently employs over 500 people, will be merged into it.
TCS has recently signed several significant deals, including a $33 million outsourcing contract from Saudi Telecommunications Co. for integrating the companyâ€™s billing and customer relations services. It is also in contention for an $80 million applications services account with Australian airline Qantas.
Founded in 1968, TCS, which pioneered the concept of outsourcing software development jobs to India ahead of competitors such as Infosys or Wipro, recorded a 33 percent surge in its April-June quarterly net income on a strong growth in outsourcing orders.