TCS reported strong earnings growth in 2Q09, much better than its peer and nearest competitor Infosys. Unlike Infosys, TCS is more diversified in terms of its geographical presence. TCS bids and competes against IBM and other multinational companies for services contracts in the domestic market, unlike Infosys which has been completely missing from the large Indian market. With IBM winning multi-billion dollar deals from companies like Airtel, Indian software companies cannot afford to ignore domestic market anymore.
TCS has done a better job of spreading its development resources across the globe, for example, it has a subsidiary in China. Longer term, Indian software service companies need to spread development resources across all major low cost countries, India, China, Poland, Russia, Brazil and so on. This will become important as currencies become more volatile and pricing becomes uncertain. Currency hedging provides only short term respite, building capabilities across new geographies is the only long term solution. Let's take Walmart or Pharmaceutical companies for comparison, these companies use multiple sourcing base which gives them huge advantage. Indian software service companies should stop being India centric if they want to survive, grow and prosper in the longer term.
TCS is best positioned to take this challenge of geographic diversification. It is time to forego margins for a few years in order to build a global delivery model - not just India based delivery model. If you want a software exposure and believe that Rupee will touch 39 again, TCS is your best bet...... My personal view - as always consult your investment advisor before you make investment decisions.
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