Mumbai: Tata Consultancy Services will merge its two units in Japan with Mitsubishi Corp’s IT subsidiary to create a joint venture company with a revenue base of $600 million in the world’s second-largest market for software services.
Two of TCS’ existing units, Nippon TCS Solution Center Ltd (NTSC) and TCS Japan, will be consolidated with IT Frontier Corp (ITF), the $500-million IT subsidiary of Tokyo-based Mitsubishi Corp.
The new entity, TCS Japan, will have annual revenues of $600 million and a headcount of 2,400. TCS will invest about $50 million ( Rs. 300 crore) to acquire a 51 per cent stake in TCS Japan, with Mitsubishi owning the rest, N Chandrasekaran, TCS Chief Executive Officer and Managing Director, said at a news conference here on Monday.
Scaling up
The joint venture firm will help TCS build scale and acquire new clients in Japan, he added. Before the merger, TCS’ Japan revenues amounted to $100 million.
The Japanese IT services market is worth $100 billion but it accounts for less than 2 per cent of India’s software exports. None of the home-bred IT firms has crossed the $150-million-revenue threshold in Japan, said Arup Roy, Research Director at advisory firm Gartner. Japanese companies have traditionally preferred either local or Chinese firms for technology outsourcing work. The Mumbai-based company will have the option of raising its stake in TCS Japan to 65 per cent at the end of five years, said TCS’ Chief Financial Officer Rajesh Gopinathan.
Mitsubishi, a diversified conglomerate, will contribute about $250 million to the joint venture’s revenue. Tata Japan will get access to several of ITF’s customers in sectors such as financial services, retail, hi-tech and manufacturing, Chandrasekaran said.
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