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Lehman Brothers crash helped TCS prepare for recession

When investment bank Lehman Brothers went bankrupt it owed Indian IT service provider Tata Consultancy Services (TCS) tens of millions of pounds.

But the company has as a result changed the way it services its customers which has in turn helped it amid the current recession, according to the company’s global head of communications Pradipta Baghi.

Lehmans went bankrupt in September when the financial services sector went into meltdown. The company, which had a massive IT infrastructure supporting its business, relied on services from a large number of suppliers.

TCS was a major supplier of IT services to Lehmans.

"We learned a lesson from the Lehmans bankruptcy. This was that you have to be closer to your customers to make sure you are going to get your money," said Baghi. "When a customer goes bankrupt you just join a queue to get your money back."

TCS is in the process of recovering the money it is owed from Lehmans. Nomura and Barclays, which took over different parts of Lehmans' business, have kept TCS on.

Robert Morgan, director at Hamilton Bailey, which advises outsourcing services suppliers, said suppliers have been "a bit cavalier" when agreeing to deals. "But they are tightening up now."

"There is a heightened risk of losing money through customers going bankrupt at the moment and this can run into hundreds of millions of pounds," added Morgan.

He said suppliers can protect themselves by understanding where the project they are working on fits into the company's strategy.

 


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