TCS Globally: High Market Cap, High Brand Value

With over $15bn in revenues in CY 2014 (and FY 2015 revenues likely to be in the region of $15.5bn) TCS is not only one of the largest, fastest growing and most profitable service providers but is now also a top 5 IT services player (*) on the global stage. And TCS is also the most profitable of the Top 5, with an EBIT margin currently tracking at 27%.

Another stat which shows the stature of TCS today is its market capitalization (standing at $83bn currently), placing it second only to IBM in the Top 5 IT services provider league table.

When NelsonHall recently attended a TCS analyst event in Paris, France, we expected the event to focus on how Alti has boosted its presence in France – and we did hear about this – but one aspect that TCS was keen for us to hear about was the extent to which its brand value has accelerated in the last five years, with a spectacular 58% increase in FY 14 to $8.3bn, placing it firmly in the top 4 of the global IT services industry.  According to brand valuation consultancy BrandFinance, TCS has an AA+ brand strength rating with a score of 78%, one of just three IT services vendors to have an AA+ rating.

So why is this significant?

• Firstly, the combination of the high market cap and brand strength shows TCS is delivering on shareholder value
• Secondly, TCS’ brand strength reflects the extent to which IT services and BPO buyers’ levels of awareness of the distinctive qualities of TCS have increased in the last few years A range of marketing initiatives, such as sponsoring of major international marathons (New York, Amsterdam, Berlin, Singapore) are helping raise wider public awareness of the TCS name. The fact that CEO Chandra is a keen marathon runner may have helped in the selection of the sponsorship sport! Marathon sponsorship is a cost effective way of raising general awareness in the major cities of the world. Tata Group is simultaneously positioning as a major global brand rather than an Indian brand: both Tata Group and TCS are investing in changing their brand image.

This does not mean there is no more work for TCS to do in Europe: there is still a sizeable proportion of CEOs who have never heard of TCS, or who may have heard about TCS but know little or nothing about the company. It may be a top 5 global IT services player, but TCS is not yet front of mind for all CIOs or LOB heads thinking about a suitable IT services or BPO partner. The percentage of CXOs that are aware of TCS has increased, helping the company sign some marquee names as new clients, but there is still more work to be done.

What has TCS been doing to increase brand awareness in Continental Europe?

This is not about building presence: TCS already has scale in Continental Europe. It has been growing its presence in the region for years and Continental Europe has been contributing quarterly revenues of over $250m since Q2 FY12 (September 2011). FY15 revenues are likely to be over $1.8bn.  (As I have noted before, TCS in Continental Europe is larger than local champions such as Steria - now merged with Sopra). Where TCS initially targeted English speaking countries in the Nordics and Benelux, its focus in Continental Europe in recent years has been building its local presence in the key markets of Germany and France. To reach this scale, TCS has made just one sizeable acquisition – that in 2013 of Alti, which added over 1,000 local specialists in France and 200 in Belgium & Switzerland and delivery centers in Paris, Lille and Poitiers.

The integration of Alti appears to have gone smoothly. Attrition has been low, and TCS points to high CSAT scores in a customer satisfaction market survey of CXOs done in France by an independent firm while the integration was on. Since the acquisition, TCS has engaged on localized employer branding and recruitment campaigns - it has hired over 500 locals since July 2013.  Keen to be seen as an employer of choice in France (as it clearly is in India), TCS has introduced a ‘Fast Track to Success program’ for young French graduates joining the company.

Other branding initiatives across Europe include a Europe youth study on the digital enterprise and the workplace of the future. Similar to many of its peers, TCS also has a presence at the World Economic Forum in Davos and runs its own customer event called TCS Summit.

Two in a box approach to integrate Alti/foster growth in France

For Alti personnel to become fully integrated in TCS and be able to quickly adopt TCS tools and methods, TCS colleagues in India also need to interact with them - - - in French. To support this, TCS has set up a French language development program in India, with Alliance Francaise.

Alti brought in local capabilities in SAP, ADM, Digital (mobility), Microsoft & Java technologies, testing, and analytics. TCS has brought resources from India to France to facilitate connection with the global units. Dedicated account teams for 30+ strategic accounts include a mix of local and TCS India resources. This dual approach also currently extends to practice heads. Having dual heads of country practice leads in France for areas such as SAP and Digital is a level of investment that TCS is prepared to make to ensure it manages in its French operations to combine local relationships and knowledge with TCS way of working and TCS IP. One assumes this practice will reduce as TCS gains confidence in its local French capabilities.

New SAP Innovation Center in Paris

On the back of Alti, TCS opened a SAP innovation center in its Paris La Defense HQ last May. As well as being a showcase, this center is acting as an incubation center for SAP consultants in France. Focus areas include HANA, hybris, FIORI, SuccessFactors, also accelerators and productivity tools.

What next for TCS France?

Several clients spoke at the event, including one who selected TCS after TCS and Alti partnered in H1 2013 to bid for a SAP services contract: Alti was a known local supplier to the client while TCS offered both India delivery and sector-specific domain knowledge (both TCS and Alti have SAP-ISU expertise). So clearly there have been some early successes.

This year, TCS will shortly be opening a ‘TCS Digital Reimagination Center’ in the Paris center, its first in Europe. ‘Digital Reimagination’ is one of three key umbrella themes in TCS’ current positioning, and we would expect to see a similar UX design center opening up in the U.K

We should expect to see TCS further expand its service offerings into the French market to include more of its established areas of its portfolio: the most obvious area of expansion in the short term is IT infrastructure services (globally a growth engine for TCS), where local language requirements are less onerous. We may also see TCS launch a French-language CoIN (Co-Innovation center) as it has done in Peterborough.

All in all, over the next few years, TCS France is likely to build up a much broader services portfolio for both projects and outsourcing.

In its Q3 FY15 (ended December 31, 2014) TCS achieved revenues of ~$460m in Continental Europe, a y/y growth (as reported) of ~15%. This level of organic growth is a clear indicator of TCS winning new business on the back of Alti. With a broader portfolio, TCS in France will continue to grow at market leading growth rates.

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* Ahead of TCS on the global stage (in terms of revenues) are:

• IBM (Services): CY 2014 revenues just under $57bn
• Accenture: FY 2014 revenues (to end August 2014): $30bn
• Fujitsu (Services): CY 2014 revenues likely to be in the region of $23bn
• HP (Services): FY 2014 revenues (to end October 2014): $22.4bn

In the last few years, TCS has overtaken the likes of Capgemini, CSC and T-Systems. And NTT Data, enjoying similar levels of acquisition-led growth, is likely to deliver revenues slightly below that of TCS in CY 2014.

See also here for an “at a glance” comparison of TCS, Infosys, and Wipro Q3 FY 2015 financial performance.