(By Anthony Miller) As usual, I spent Xmas in Brazil with my wife's family, who yet again managed to ensure that we returned several pounds heavier and two waist sizes larger than when we arrived. In among all the festivities I had the opportunity to spend some time at TCS' offices in Sao Paulo and thought readers might be intersted to learn a little about this rather different and distant outpost of the Indian offshore services giant...
It’s home to TV and sports stars and many others who make up Sao Paulo’s elite. Alphaville is one of the commercial and residential satellite cities springing up on the outskirts of Brazil’s increasingly congested financial capital, Sao Paulo. The ultra-modern, high rise towers stand in stark contrast to the numerous favelas (shanty towns) I passed on my way to visit Cesar Castelli, President of TCS Brazil, whose headquarters are now based in Alphaville, though in functional rather than lavish offices, typical of the style of India’s largest IT services player.
A Uruguyan who has called Brazil home for the past thirty years, Castelli has been in the IT industry pretty much all his career. He worked at Unisys when it was still called Burroughs and, after a stint with Ernst & Young, launched his own software company, subsequently sold to a German firm. It was his ex-manager at Ernst & Young, Gabriel Rozman, who suggested Castelli joins him to establish TCS’ operations in Brazil, which were formally launched in 2002 via a controlling interest in a joint venture with Brazilian IT player, Grupo TBA. In May ’07, ‘TCS do Brasil’ became a 100% subsidiary of TCS, by which time it was recording revenues of $67m. Rozman, who was responsible for launching TCS’ operations across Latin America, now runs all of TCS’ Emerging Markets territories in Latam, Eastern Europe, and MEA.
Today almost all of TCS Brazil’s services revolve around application development and management (AD&M), mainly for the domestic subsidiaries of multinational companies such as Deutsche Bank, Equifax, Xerox and, of course, Spanish banking group Santander, which acquired ABN Amro’s Brazilian operations when the Dutch bank was dismembered in October 2007. TCS was one of the major beneficiaries when ABN Amro outsourced much of its Retail IT in Sep. ’05. Santander is now TCS Brazil’s largest client, and also includes Banco Real, which ABN Amro acquired in 1998. While the BFSI (banking, financial services & insurance) sector is TCS Brazil’s largest (as it is indeed for the whole of TCS), Telecoms and Manufacturing sectors are also significant contributors to TCS Brazil’s revenues. However, TCS has yet to penetrate the Brazilian public sector, where the likes of IBM, Accenture and other multinational IT services players still reign supreme. This is one of Castelli’s big challenges as some 40% of Brazilian IT spend comes from government institutions.
Castelli’s other main challenge is to take TCS Brazil from being just an AD&M player into a full service company. Roughly speaking, AD&M makes up about 40% of the Brazilian IT services market, with another 40% coming from infrastructure outsourcing and 20% from BPO. Castelli is already looking at offering F&A (finance and accounting) BPO services, though infrastructure management (IM) still appears some way off. It’s all a matter of priorities, of course, but I would think now would be a good time for TCS to look hard at introducing IM services into Brazil, especially while HP grapples with the EDS integration.
More onshore than offshore
One thing above all stood out for me about the TCS Brazil business model. Although it adheres to TCS’s global service delivery processes and methodologies, it is to all intents and purposes an entirely ‘onshore’ operation; no work is offshored to India and few Indians are brought in to work on Brazilian projects. There are good reasons for this. For one thing, although Brazilian IT wage costs are among the highest in the region, well above Indian levels, government taxes on imported services eat into the cost differential, giving little leverage for wage arbitrage. Secondly, it’s the language; there are not that many Indians (outside of Goa, I suppose) that can speak fluent Portuguese, and English is not yet widely spoken in Brazil, especially in domestic enterprises.
This puts TCS on a level playing field with archrivals Accenture, IBM, and European players such as Capgemini and Atos. Without offshore leverage, TCS has to match capability as well as cost. It appears to be able to do this for the service lines and sectors in which it chooses to operate. What TCS doesn’t yet have is the brand value that multinational rivals enjoy, and this is perhaps Castelli’s biggest challenge – to prove that TCS Brazil is every bit as competent and competitive as Accenture Brazil or IBM Brazil – and indeed, every bit as Brazilian! Perhaps not surprisingly, few other Indian SIs have tried to break into the Brazilian market. Castelli puts Satyam in second place at just 20% of TCS Brazil’s revenues and says he rarely sees the other Indian ‘usual suspects’.
More work to do
There’s no doubt in Castelli’s mind that Brazil will feel the impact of the economic downturn – indeed, many observers are already chalking down their 2009 Brazilian GDP forecasts to below 4%, but at least it’s still positive! Indeed, while I was in Brazil over Xmas (my sixth visit over the past five years) I saw little sign of any 'gloom and doom’, and consumer spending – at least as I observed it in the shopping centres – still looked pretty healthy. This is probably helped by the fact that almost every shop offers monthly payment terms on most items, even those costing just a few quid, rather reminiscent of the ‘never-never’ (for those old enough to remember hire purchase!). But it works well in Brazil, and has undoubtedly contributed to the increasing standard of living enjoyed by a growing middle class (indeed, including my wife’s family, who seem to be able to afford more ‘discretionary’ purchases than when I first met them!).
As for TCS, there’s clearly more work it has to do to broaden its operations in Brazil, and there’s plenty of opportunity if it can do so. I think it can. For me, meeting Castelli and the TCS Brazil team has put more substance behind TCS’ claim to be not just an India-centric offshore services player, but a true global IT services player, with a real local identity, not just a presence, in other country markets. If TCS can really capitalise on this hybrid business model – heavily India-centric for English-affinity markets, and heavily ‘localised’ for other markets – I see little reason why they couldn’t give Accenture, IBM and HP/EDS an even bigger run for their money!