TCS Set To Launch Chinese Operations, Counts Microsoft As Investor And CustomerTCS Set To Launch Chinese Operations, Counts Microsoft As Investor And Customer

With salaries in its home country on the rise and competition for talent there increasing, Indian outsourcer TCS is staking a claim to a new frontier—China.

The company on Monday said it has reached agreements with shareholders from three Chinese firms with whom it will in September launch a Beijing-based joint venture company called Tata Consultancy Services (China) Co. Microsoft is a minority investor in the venture company, as well as one of its first customers. "We cannot afford to ignore the Chinese market," says TCS CEO S Ramadorai.

TCS first announced its intent to launch the company last year. Participating in the venture along with TCS and Microsoft are Chinese tech companies Beijing Zhongguancun Software Park Development Co., Tianjin Huayuan Software Area Construction and Development Co., and enterprise software developer Uniware Co. The latter, says Ramadorai, "brings knowledge of the local market."

With tech salaries rising in India at about 15% per year, even Indian outsourcers are looking to expand their operations into new markets to ensure a steady supply of low-cost talent. A strong Chinese operation also would meet customer demands for greater geographic diversity, Ramadorai says. TCS's Chinese operations will employ about 5,000 workers by 2010. Ramadorai concedes that staffing up won't be easy in the early going. "An enormous amount of talent and an enormous amount of institution building capabilities will have to be brought in," he says.

TCS's majority investment in Tata Consultancy Services (China) Co. is $12.6 million. The company will specialize in providing offshore services for companies in banking, financial services, and other specialized industries, says Ramadorai. It will also provide testing and quality assurance services for Microsoft, which is investing about $2 million in the project.