TCS: Now one of the Top 10 IT Service Players in Europe February 2015 By Katharina Grimme, Principal Consultant Klaus Holzhauser, Managing Director PAC Germany
TCS in Europe 2 1. INTRODUCTION Over the past decade, Tata Consultancy Services (TCS) has evolved in Europe from an ADM provider with prime focus on offshore delivery to an end-to-end service provider with the capability to accompany its customers IT transformation. The company has reached significant size in its local focus markets to be able to start large projects with a high share of onsite resources. The sheer scale of the global organization, with total revenues of $13.4bn ( 11.7bn; FY 2013) making it a global top 6 IT service player and currently 313,000+ employees, backed by the $130bn ( 113.5bn) Tata Group, makes TCS a strong and stable player also in the years to come. Europe is an increasingly important market for TCS, accounting for just under 30% of total revenues today. This report analyzes and evaluates TCS positioning and strategic development in Europe. 2. DEVELOPMENT OF TCS IN EUROPE 2.1 Strong financial performance in Europe TCS has now for the first time gained a position among the top 10 players in Europe. TCS, the IT arm of global conglomerate Tata Group, has been active in Europe since 1975, so it is clearly not a newcomer. But it is really over the past five years that TCS has more rapidly emerged to one of the leading end-to-end IT service providers for the European market. Some 70,000 TCS employees currently service the European client base which comprises more than 350 companies. Based on the financial results for FY 2014 (ended March 31, 2014), TCS has for the first time gained a position among the top 10 players in Europe alongside long-established competitors such as IBM, Accenture, T-Systems, Capgemini etc. It is notable that TCS is the only Indian-origin player in this top league.
TCS in Europe 3 8% 7% IBM 6% Market Share 2013 5% 4% 3% 2% HP Accenture Atos Capgemini T-Systems 1% CGI Fujitsu Capita TCS 0% -15% -10% -5% 0% 5% 10% 15% 20% Growth 2012/13 PAC, April 2014 Figure 1: Positioning of the leading IT services providers by market share 2013 and growth 2012/13 As illustrated in figure 1, with annual growth rates in Europe around the 20% mark (and even higher in Continental Europe), and with few of the other players coming anywhere near such growth rates, it can be expected that TCS will rapidly advance further. Interestingly, TCS achieves most of this growth organically, however, is also conducting acquisitions, albeit selectively, where it makes sense within its overall strategy. 2.2 An end-to-end integrated solutions portfolio TCS initially emerged in Europe as an ADM player with a core focus on costeffective offshore delivery capability. Over the past years, however, it has aggressively built up domain skills and expertise for higher-value services, with the capability for IT transformation projects. With its full suite of services and solutions, TCS is able to address the entire value chain of IT and operations for its customers. TCS today has a very comprehensive and integrated product and service portfolio including services such as consulting, system integration, outsourcing, business solutions, business process outsourcing, supply chain, engineering and industrial services. In addition, its software assets includes financial solutions under the TCS BaNCS brand, technological products, and industry-specific products for companies in the insurance, health, life science sectors etc. With this full suite of services and solutions, TCS is able to address the entire value chain of IT and operations for its customers. Having evolved from being a CIO-centric organization to a CXO-centric (CMOs, CFOs, COOs, supply chain heads, CDOs, CROs, etc.) player, TCS now caters to a wide variety of lines of
TCS in Europe 4 business. Combined with its global delivery capability and comprehensive skills in all regions of the world, TCS has positioned as a credible and reliable partner to its Europe-based as well as large multinational clients. 3. TCS LOCALIZATION STRATEGY 3.1. Established position in key growth markets As illustrated in figure 2, TCS has grown rapidly over the past five years. At country level, TCS prime market within Europe is clearly the UK. Here, TCS has around 10,000 employees across 24 locations and generates well above 1.5bn ( 1.9bn) in annual revenues, and with this, it has for a while already been comfortably ranked among the top 10 IT service providers (according to PAC figures). Further key countries include the Nordics, Benelux, France, Germany, Switzerland, as well as Spain, Italy and Portugal. As illustrated below, TCS has achieved healthy growth in all of its key geographies. 1,800 TCS - IT Services Revenues* in selected European countries 1,600 UK 1,400 Revenue 2013 in m EUR 1,200 1,000 800 600 400 Netherlands Germany Nordics 200 Switzerland France Belgium 0 0% 10% 20% 30% 40% 50% 60% CAGR 2008/2013 in % *PAC estimates Figure 2: TCS IT services growth in select European countries over the past five years (PAC estimates) TCS is the only Indian player with significant UK public sector business. Over the past years, TCS has invested in building up local delivery capabilities and expertise in its key growth markets. In the UK, for example, it gained substantial expertise in life & pensions BPO through the set-up of Diligenta in 2006, which today administers over 6.5m insurance policies for clients such as The Phoenix Group, Friends Life, Sun Life Financial of Canada UK, Old Mutual
TCS in Europe 5 International and Guardian Financial Services. Furthermore, TCS is the only Indian player with significant UK public sector business, most notably here its involvement in the NHS and NEST projects. But TCS also has a range of private sector clients including Diageo, Southern Water, BP, Volkswagen UK, and Network Rail. 3.2. Adapting to local market demand in Continental Europe In Continental Europe, where customers are generally less open to Indian offshore players (and the English language) TCS has established a localization strategy for its key growth markets. It essentially consists of three elements: Locations adapted to local market requirements (proximity to customers); Adaptation of the service portfolio to local markets; Increasing onsite capabilities (especially through hiring of natives) and acceleration of the localization and integration of teams/processes through stronger local teams for sales/pre-sales, solutions and delivery within countries. TCS responds to the demands of Continental European customers for proximity as well as flexibility with regards to onsite, onshore or nearshore delivery. Similarly, TCS responds to the demands of Continental European customers for proximity as well as flexibility with regards to onsite, onshore or nearshore delivery. To this end, TCS has set up local delivery centers, among others, in Lille (France), Madrid (Spain), Peterborough, Liverpool (UK) and Düsseldorf (Germany). Its nearshore delivery center in Budapest (Hungary), established in 2001, today has 1,300+ FTEs and provides services primarily for, among others, BFSI, telecom, manufacturing customers in 33 languages, and is also a Microsoft Center of Excellence. In the Nordics, TCS has managed to win large (in some cases pan-nordic) outsourcing deals in the past two years with clients including Nokia, Scandinavian Airlines, TDC, DNB and Norway Post. The combination of local Nordic presence and its global delivery network has proven a strong proposition for pan-nordic organizations with global reach. Benelux, has historically been an important market for TCS (with the Continental European headquarter established in Amsterdam in 1992). Today, there are approx. 1,000 employees in this geography. Key clients include ABN Amro, Royal Haskoning, NXP, ING, and Rabobank. In France, TCS acquired the French/Swiss firm TKS in 2006 and, more recently, local IT service player Alti in 2013. The latter gave TCS a boost: Alti is wellpositioned in the national large accounts, which are also the preferred targets for
TCS in Europe 6 TCS. With the 1,200+ Alti employees (1,000 in France, the remainder in Belgium and Switzerland), TCS also obtains a very well spread client front-end and local proximity with its French clients, including additional SAP service skills. In Germany, in contrast, TCS has so far grown organically, with a focus on hiring experienced consultants, managers and solution architects (native speakers). The knowledge transfer of TCS methodologies and working culture to these new employees has a very high priority. A further part of the localization strategy is local proximity: in Germany, with its decentralized geography, TCS has set up seven regional offices, as well as a local delivery center in Düsseldorf which acts as a gateway to low-risk offshoring with capabilities in architecting, developing, testing, delivering and supporting solutions rapidly and efficiently. Key clients include Bombardier Transportation, DHL and SAP. In most of its local focus markets in Europe, TCS has reached critical mass to be able to start large projects with a high share of onsite resources which often forms one of the key requirements of Continental European customers. In Switzerland, TCS has been active since 1985, with offices in Zurich and Nyon and some 350+ local consultants. TCS still has a special position in the banking sector due to the takeover of local specialist TKS back in 2006 and due to its own banking suite TCS BaNCS. Here, the company is also active in the manufacturing sector. Localization was achieved here through local country management and a certain degree of local entrenchment (e.g. through local partners such as Finaclear, EveryWare or Avaloq and engagement with local universities such as ETH Zurich and University of St. Gallen). Clients include Roche, Panalpina, ABB, Pilaturs Aircraft, Swiss Re, PostFinance. In further markets such as Italy, Spain and Portugal, TCS is as yet a smaller player, but has gained awareness through clients such as Ferrari Scuderia, and continues on its growth path. In most of its local focus markets in Europe, TCS has reached critical mass to be able to start large projects with a high share of onsite resources which often forms one of the key requirements of Continental European customers. This makes it a serious contender for large, complex project service or outsourcing engagements.
TCS in Europe 7 4. TALENT MANAGEMENT AND BRAND AWARENESS PAC expects that TCS will continue to look for selective strategic acquisitions to gain a foothold in its focus markets and to strengthen current offerings and vertical capabilities. But first and foremost, it will continue to pursue organic growth. With the increasing war for talent, coupled with the growing skills shortage in Europe, this forms a challenge for any IT service provider. TCS has been successful to establish itself as a top employer, having been ranked as the No. 1 Employer in Europe by the Top Employers Institute and achieved certification as leading employer in eight European countries (Belgium, Denmark, France, Germany, the Netherlands, Sweden, Switzerland and the UK). This will help the company to attract and retain the best skills. Moreover, TCS is using its recognition as the world's fastest growing global IT services brand (by Brand Finance, a brand valuation firm) as a marketing tool to gain or improve visibility within its customer base. Probably more important, however, is TCS impressive record as regards customer satisfaction. Highest client satisfaction has been accredited to TCS by 1,470 CXOs interviewed by Whitelane in the Nordics, Benelux, France, Germany, Switzerland and the UK, both in applications as well as for infrastructure services for two years in a row. These accreditations help to firmly position TCS as a stable and reliable IT service partner for European companies.
TCS in Europe 8 5. PAC S EVALUATION AND OUTLOOK With its flexibility, transformation capability and dedication to success, TCS increasingly forms an alternative to the established Western tier-1 players. Through its local adaptation and dedicated, ongoing growth strategy TCS has been successful in establishing a firm position as a key European IT services player. With its flexibility, transformation capability and dedication to success, TCS increasingly forms a credible alternative to the established Western tier-1 players. This is proven by its large number of blue-chip reference clients across Europe as well as high client satisfaction rates. TCS has built deep vertical expertise in its focus industries, including banking and financial services, insurance, manufacturing, transportation, consumer packaged goods, telecommunications, life science and energy & utilities. A high level of flexibility in contracts (with high fixed-price components and a clear dedication to on-time/on-budget delivery) TCS comes across in a more agile and reliable way than competitors which is gaining positive sentiment from customers. What does TCS need to do to continue on its European growth path? The challenge is to become a global player with a multinational DNA, rather than an Indian company with a strong global presence. In PAC s opinion, TCS is on a good track but needs to continue its localization strategy possibly with an even stronger focus on cultural characteristics in local markets: The challenge is to become a global player with a multinational DNA, rather than an Indian company with a strong global presence. This implies continuous adaptation to local markets and characteristics, with a view especially to respecting cultural requirements of customers but also of employees (e.g. with respect to working habits, expense rules, IT support etc.) so as to retain its attraction also for employees. In the medium to long term, the implications of digital transformation will have a major impact on TCS clients. While currently only an evolving topic with limited investment, it will be important for TCS to continue to position itself as a strong partner towards the digital transformation roadmap. In the first instance, this means a strong focus on consulting services for topics around social, mobile, analytics and cloud. A particularly important and sensitive topic especially in Continental Europe and especially in the context of digital transformation is IT security. Here, TCS has to illustrate an understanding of customer requirements and has to be able to offer workable solutions. Investments in its Enterprise Security and Risk Management practice are clearly steps in the right direction. Please also see: TCS as a Digital Transformation Partner for European Customers
TCS in Europe 9 About Pierre Audoin Consultants From strategy to execution, PAC delivers focused and objective responses to the growth challenges of Information and Communication Technology (ICT) players. Founded in 1976, PAC is a privately held research and consulting firm for the software and ICT services market. PAC helps ICT vendors to optimize their strategies by providing quantitative and qualitative market analysis as well as operational and strategic consulting. PAC advises Chief Information Officers (CIOs) and financial investors in evaluating ICT vendors and solutions and supports their investment decisions. Public institutions and organizations also rely on PAC s key analyses to develop and shape their ICT policies. For more information, please visit www.pac-online.com. Pierre Audoin Consultants (PAC) GmbH, Holzstr. 26, 80469 Munich, Germany