Having operated in Brazil for about five years, Tech Mahindra – which offers IT services in consulting, enterprise business solutions, Business Process Outsourcing (BPO) and business re-engineering – is seeking new acquisitions or joint ventures with local partners in order to grow in the country. The company is part of the Indian conglomerate Mahindra Group, one of the largest global IT services providers. According to Alberto Rosati, CEO at Tech Mahindra in Brazil, the company should show a 30% increase in turnover in 2014 and has an ambitious growth target of 45% for 2015. Rosati talked to Nearshore Americas about Tech Mahindra’s plans for the Brazilian market.
Nearshore Americas: What are the strategic business areas for Tech Mahindra in Brazil?
Alberto Rosati: Brazil is a very diversified market. The company has a strong presence in Enterprise Business Solution offerings, where we manage the SAP and Oracle practices, and operate in the BPO segment. We are also investing in other fronts, for example, in infrastructures such as Email Management Systems (EMS). In 2014, all the infrastructure of the FIFA World Cup event, which was held in Brazil, was provided by Tech Mahindra. Furthermore, we have grown significantly in Application Development Management Services (ADMS) and outsourcing applications. Besides that, we have two companies, Comviva and Canvas, which offer mobile solutions. In dedicated cloud computing or where processes are held outside the customer’s environment, we have a partnership with Equinix. Nowadays everything is integrated, you use a cloud solution, a tool that carries out a different process, but if the customer prefers to outsource this process, we also have this know-how.
NSAM: Tech Mahindra acquired a 51% stake in the Brazilian SAP consulting company, Complex IT, in 2013. Is the company considering any new acquisitions to grow in Brazil?
Rosati: The acquisition of Complex IT brought with it a good customer portfolio, but it is very focused on SAP practice. Before we discuss new acquisitions, the strategy is to broadly work our customers’ portfolio. However, other acquisitions are on the radar. BPO is an interesting area for us and where we need a joint venture, because it’s a specific market and requires knowledge of local management. In this segment, we also looked at some shared service centers from large national groups. There are conversations with certain groups. Nowadays, these service centers are cost centers and our proposal is to turn them into profit centers through a possible joint venture or business partnership with Tech Mahindra. Another thing that we are analyzing is some niche companies, which would speed up our service offering, especially in the cloud computing segment, in infrastructure, and in the specific solutions that may involve Microsoft and Oracle technology.
NSAM: Which sectors are strategic priorities for Tech Mahindra?
Rosati: Currently, we have a stronger presence in the manufacturing sector. Nevertheless, the company has identified four main areas of operation. The first is banking, finance services and insurance. Another important sector is telecom. Overall, 50% of Tech Mahindra’s revenue came from the telecom segment. In contrast, in Latin America this sector accounts for less than five percent of revenue and we intend to raise this level to around 10-15% this year. We are also investing in agribusiness. It is a segment that has been going well for many years and the dollar appreciation will benefit it again. The fourth segment is utilities. Apart from that, Tech Mahindra has also worked for the retail and logistics segments.
NSAM: What is Tech Mahindra’s growth outlook for 2015?
Rosati: We are finishing the 2014 fiscal year in April and we may end it with growth of around 30%, with turnover totaling US$ 165 million. Despite the economic slowdown in Brazil, we intend to accelerate growth this year. Of course, it won’t be easy, but we believe in partnerships with customers to reach that. We need to grow 25% in dollar terms, so we must grow at least 45% in BRL.
NSAM: What percentage does the Brazilian subsidiary represent for Tech Mahindra group?
Rosati: The Brazilian subsidiary accounts for two percent of total revenue and the goal for Latin America is for the region to achieve 10% of revenues by 2018; Brazil should represent half that. Our growth strategy in Latin America considers Brazil as the number one priority, due to it being the largest IT market in the region and considering our localization needs for our operation. After that, we have a very strong investment in Mexico this year because of the domestic economy and also because it is very well positioned as the first door to the nearshore markets of the USA and Canada. Finally, a third goal is to seek an alternative low-cost country , eventually complementing Brazil and Mexico in the services offered, one which has a different time zone , and in this context, Peru and Colombia are well positioned.
NSAM : What percentage do international operations represent for Tech Mahindra Brazil? What are the main difficulties for export services?
Rosati: Currently about 20% of our revenue comes from services to countries such as the USA, Canada and Europe, but it can be more. Even now, the devaluation of the BRL makes Brazil a little more competitive. The point is that we have high labor costs in Brazil and there are few professionals who speak more than one language, especially English and Spanish. So, we have to invest in education. Another thing is to try to break the barrier for import and export IT services. If it were to make Brazil a service hub, importing services probably first from India, we would have to reduce tax. So, I think there is the opportunity to export, but for this, government and private sector efforts are required.
NSAM: What is the advantage of belonging to an Indian multinational?
Rosati: We import and export services from India. Eventually, if we don’t have expertise available in Brazil, or if the cost is too expensive in the country, we can seek it abroad. When we work with India or other markets in which our company operates, we seek two things. First, we seek to gain competence in innovation in the application of new technologies which are not available in Brazil. So, we look for experts abroad who can transfer know-how to our local team and help accelerate the technical training process and improve our offering. On the other hand, in markets such as India and Malaysia, we can also seek for more competitive services. And in this context, there are several opportunities in the SAP and Oracle segment, in which the cost of professionals is very expensive in Brazil. In the computer programming area it also makes sense. It allows us to accelerate the process. For example, we can work on a program in Brazil during the day and at night transfer it to India for finalizing, and the next day we will have the system ready. It is faster for the customer.