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Infosys Technologies – International Strategy and Global Meltdown 2 | P a g e
6th Renvoi Case Study Presentation in Management
9th October, 2009
Registration Form
Last date of Receipt of Registration Form along with Abstract & Full Cases–18th September2009Registration:
1. As Case Author
Area of the Study: Strategy Management(Fin., Mktg, HR, IT etc.)
Title of Case Study: Infosys Technologies – International Strategy and Global MeltdownOrganization for Case Development:
First Author:Name: Vipul Kaushik Title/Designation: MrOrganization and address: c/o Ganpathy, NMP Office, Management Development Institute, Mehrauli Road Sukhrali, Gurgaon – 122007 , HaryanaEmail address: [email protected] No: 9958676776
Second Author:Name: Suryansh Manglik Title/Designation: MrOrganization and address: c/o Ganpathy, NMP Office, Management Development Institute, Mehrauli Road Sukhrali, Gurgaon – 122007 , HaryanaEmail address: [email protected] No: 9350672851
Declarations:a) The Case Study is original and unpublished.b) We alone are responsible for the correctness of events, data, source and ethicsc) We agree to abide by all the rules & the regulations of the Renvoi, awards and publications.d) Copyright of the Case Study, if accepted will vest with publishers/ Amity Business School Noida.
Signature:(First Author) (Second Author) Date: 14th September 2009
(c) [15th September 2009] [Vipul Kaushik and Suryansh Manglik, EPGPM, MDI Gurgaon] All rights reserved.
Infosys Technologies – International Strategy and Global Meltdown 3 | P a g e
INTRODUCTION
Infosys Technologies, India’s one of the top IT services company reported decline in
projected revenue for the first time since its inception to the global meltdown. The three
factors that will influence the company’s performance are decreasing volumes, competitive
pricing, threat from the competitors like TCS and Wipro and heightened volatility in the
current market.
“We have to wait and see whether we can revise our guidance upwards or downwards in the
coming quarters. The uncertainty is unprecedented,’ Gopalakrishnan, chief executive of
Infosys said”
Depreciating rupee in dollar terms is hitting the top line the most. Major part of revenue
comes from North American market, the fluctuation in currency decrease the profit further. In
last one year, rupee has depreciated by more than 22% from Rs. 39 to a dollar to Rs. 51 last
fiscal, as against 13% appreciation in last fiscal.
Clients are under pressure to cut back their IT spending in this downturn. As stated by
Gopalkrishnan, “Today’s signals are coming from analysts and economists and not from our
clients. About 60 percent of our clients have finalised their budgets, which are 10 percent
lower than in the past.”
Indian media was overwhelmed when Infosys reported revenue of Rs. 21,693 crore, a robust
growth of 30% YOY under the Indian accounting standard, the forcast for the next year is in
the range of Rs. 22000 – 22900 crore, which is meagre 1.7 to 5.7%. Mr. Gopalkrishnan has a
tough road to tread next year. The major challenge for CEO is to formalise a strategy, which
can bring Infosys out of this meltdown with flying colours and put Infosys in the league of
top three global IT companies.
(c) [15th September 2009] [Vipul Kaushik and Suryansh Manglik, EPGPM, MDI Gurgaon] All rights reserved.
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SOFTWARE INDUSTRY IN INDIA
The Indian software industry is India’s best success story in recent years. The industry has
established India's credentials globally as a supplier of trained IT engineers, designers and
consultants. The industry has become one of the top foreign exchange earners and a source of
lucrative employment to a large pool of young engineers and IT professionals in India. The
Indian IT industry has changed the global perception regarding India and has changed the
career options for an entire generation.
Over 75 per cent of the software industry’s revenues come from exports. The value of
software and services exports increased to $12.2 billion (IAS, 2009) in 2003.04 from $1.76
billion in 1997.981. America is by far the largest market for Indian software and services
exports, accounting for around 70 per cent of total exports. Other countries being pursued by
the Indian software industry are UK, Germany, Japan, Singapore, Netherlands, Belgium,
Canada, Australia and China.
The rise of the Indian software industry has attributed to the abundant availability of low cost
skilled labour, which has enabled Indian software companies to provide quality services to
overseas clients at much lower prices than available elsewhere. Realising the cost advantage
that India has to offer, global companies such as IBM, EDS, CSC and General Electric have
also set up shop in India.
Indian software companies have also gained by a sharp rise in the computerisation effort of
domestic banks. Select large corporate, financial markets, telecommunications and insurance
have been among the other major sources of growth in the domestic markets. Next big thing
in domestic area is Government spending on IT.
The Indian software panorama is dominated primarily by four large companies’ viz. Tata
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This analysis further puts emphasis on the share of Asia Pacific in global IT spending which
accounts for almost a quarter of share. Main players in this region are China, Japan,
Australia, India and South Korea. Top fifteen countries by projected IT spending is shown in
below figure9:
Country Estimated IT spending 2009(US $ Billions)
United States 546.11China 149.82Japan 129.81United Kingdom 72.25Germany 70.39France 64.98Canada 39.34Australia 34.73Brazil 34.25India 30.83Netherlands 23.77Mexico 19.85South Korea 16.00Switzerland 15.37Belgium 11.27Source@ Forrester report and Wikipedia page of countries GDP (Website mentioned in footnote)
Figure 9 - Project IT Spending in Top 10 Countries
Hence a combined IT spending for the year 2009 of China, Japan, Australia, India and South
Korea is $361 billion. This represents a huge opportunity which is largely untapped by most
of the Indian IT companies. Infosys has already established its delivery centers at China and
Australia to tap most of this market. Next logical step would be to go for Japan and South
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NEW OPPORTUNITIES
INDIA
Growth domestic product (GDP) of India is increasing at a steady rate of more than 7%. With
size of $1 trillion USD, IT industry contributed around 5% in 2008. Large government
project are in pipeline to be offered for IT sector in next few years.
Figure 10 - IT contribution as part of GDP
"There are large opportunities in India. So we are definitely going to go after these kinds of
businesses very aggressively in India," Binod Rangadore, Senior Vice President and Head
India Business, told Reuters in an interview on 20th August 2009. "We have a very healthy
pipeline right now."
Infosys Technologies, India's second-largest IT services exporter, has bid for more than 10
large government projects in India as part of a drive to lower its dependence on the US
market10.
Few large IT companies with few small and medium companies dominate Indian IT market.
Infosys has a tough competition with global as well as domestic IT companies in the
domestic turf. Being a late player in the domestic market, Infosys has lost first mover
advantage to global players like IBM, Accenture and domestic player like TCS.
10 REUTERS. (2009, 08 20). REUTERS News Report. Infosys trying hard to shed US dependence , p. 2.
(c) [15th September 2009] [Vipul Kaushik and Suryansh Manglik, EPGPM, MDI Gurgaon] All rights reserved.
Infosys Technologies – International Strategy and Global Meltdown 21 | P a g e
Figure 11 - Indian IT Industry Revenue break-up by company
According to recent study by lobby group NASSCOM and consultancy McKinsey, the
technology and business outsourcing services market in India will grow exponentially for
next 10 years. Indian market is expected to grow five-fold by 2020 to $90-$100 billion on the
back of a growing economy.
Rangadore said “The business from IT services in India was very small and bulk of the
revenue in India came from Finacle, the banking solutions and services unit of Infosys.”
Infosys won a contract to design, develop and support a portal for the ministry of commerce
and industry. The contract is valued at 150 million rupees ($3 million) for three years. It has
also won a project from the tax authorities for a project to enable electronic filing by
taxpayers.
Rangadore said, “Spending on technology by private companies was seeing a slowdown in
India due to the economic downturn, but investment by the government remained robust and
was likely to increase in the near term.”
Still there is a long way to go for Infosys. The Indian firms face competition from big global
players such as IBM Inc, Hewlett-Packard and Accenture that have raided their home turf as
they look for growth outside their mature markets. Infosys realised the importance on Indian
(c) [15th September 2009] [Vipul Kaushik and Suryansh Manglik, EPGPM, MDI Gurgaon] All rights reserved.
Infosys Technologies – International Strategy and Global Meltdown 22 | P a g e
market by late 2007 and setup its India business unit as part of strategy to diversify its
revenue base. However, a few large companies dominate Indian IT market with presence of
number of medium and small companies.
JAPAN
Japan’s IT services market at USD 108 Bn is the second biggest in the world. Indian
companies are finding it very difficult to penetrate. India’s share in the market is between 1-
1.5 Bn. Off shoring is limited to 8 – 10 % and china is the biggest off shoring partner with
more than 50% share.
Figure 12 - Japanese Market for Offshoring
Analysis of industry spending on IT reveals that BFSI and Manufacturing are the highest
spenders in Japan. Only 8-10% of IT services are off-shored. The biggest factor for choice of
China for off-shoring is the cultural homogeneity however, the services off-shored are low
end IT services of coding, testing and BPO.
(c) [15th September 2009] [Vipul Kaushik and Suryansh Manglik, EPGPM, MDI Gurgaon] All rights reserved.
Infosys Technologies – International Strategy and Global Meltdown 23 | P a g e
Figure 13 - IT Sector Analysis of Japan
The concerns over off-shoring to china are:
Limited capabilities to manage large complex projects.
Lack of high end domain and technical expertise
Concerns over data privacy and IP protection
High attrition
The key challenges Indian IT companies face in the Japan market are:
Struggling to offer the right value proposition and positioning themselves
Barriers to entry in terms of language & cultural compatibility.
o Low Japanese language skills available in India.
o There are around 71,000 Chinese students enrolled in Japanese universities as
against only 480 from India
Lack of focus: Far too busy serving US and UK
Struggling to cope with the perfectionist attitude of Japanese clients, long gestation
periods and undefined project management practices
Keiretsu11 Japanese business model doesn’t encourages entry of new players
An Indian company has below mentioned advantages for Japanese market:
Japan market is a prospective alternative to Indian IT industry to reduce its
dependence on US/European markets
Indian IT vendors are regarded high on technology & domain competence, with fast
ramp-up capabilities, low on cost and with a better IP protection environment.
11 A network of businesses that own stakes in one another as a means of mutual security, especially in Japan, and usually including large manufacturers and their suppliers of raw materials and components.
(c) [15th September 2009] [Vipul Kaushik and Suryansh Manglik, EPGPM, MDI Gurgaon] All rights reserved.
Infosys Technologies – International Strategy and Global Meltdown 24 | P a g e
Japan and China also suffer with the historical mistrust amongst the nations. Most
Japanese respect Indian culture and recognize the prowess of the Indian IT sector,
Indian IT companies have an opportunity to establish themselves as the high end
service providers, with service offerings differentiated from the low end Chinese
providers.
Indian IT companies and especially Infosys have high potential for success this market
because of its expertise in financial and manufacturing sector which constitutes major part of
Japan IT market. The major recommendations for Indian companies to succeed in this market
are:
1. Have a strategic long-term view of this market. Market is large and would need
patience to develop.
2. Establish right value proposition; start small and build trust. Understand the business
difference in contractual terms.
3. Showcase partnership based relationship for mutual advantage rather than client-
4. Localize, localize, localize; invest in understanding context
5. Develop strengths in Japanese language and be more sensitive to cultural issues
SOUTH KOREA
South Korea has developed an internationally recognized hi-tech industry. Korean
government is targeting a number of areas for industry development, supervised by Korea
Communications Commission (KCC) and Ministry of Knowledge Economy (MKE),
including Telecommunication, Information Security, E-Commerce, Wireless Technology,
Mobile Commerce, and Optical Fibre Technology, Software development, Circuit design and
Digital Content.
The rapid adoption of the Internet has generated a boom in Internet-related services. There
are over 100 registered Internet Service Providers, and companies offering web design and
(c) [15th September 2009] [Vipul Kaushik and Suryansh Manglik, EPGPM, MDI Gurgaon] All rights reserved.
Infosys Technologies – International Strategy and Global Meltdown 25 | P a g e
content, e-commerce solutions and ASP services are proliferating. The government and
industry are placing considerable emphasis on developing Korea's e-commerce capability,
both business to business (B2B) and business to customer (B2C) and while this sector has
undergone significant rationalisation since mid-2000, opportunities continue to emerge for
companies with sound business fundamentals.
Historically, Korea’s software industries have not been as strongly developed as its hardware
manufacturing. Korea has developed a sophisticated manufacturing base for computer and
telecommunications hardware and, with the rapid adoption of the Internet; it has become one
of the leading information economies in Asia. This has created opportunities in a range of
areas for foreign companies that have internationally recognised technology and IT services,
including:
Internet-related services
Wireless applications
E-commerce applications including payment solutions
IT security
Digital content, including e-games and animations
Financial services applications and other industry-specific software
Network and systems integration services
Smart-card and intelligent traffic systems
Australian, USA and European companies have successfully established a market presence in
a number of these areas. Indian companies are lagging behind because of its business model
that suits to provide low cost IT services instead of value added IT products for
manufacturing industry. The major recommendations for Indian IT companies for South
Korean Market are:
1. Invest in research and development for IT products.
2. Business Model restructures to facilitate innovations.
3. Showcase partnership based relationship for mutual advantage rather than client-
vendor model.
4. Market is large and continuously growing in fast pace. Need to invest in research
and development to keep pace with ever changing technology.
(c) [15th September 2009] [Vipul Kaushik and Suryansh Manglik, EPGPM, MDI Gurgaon] All rights reserved.
Infosys Technologies – International Strategy and Global Meltdown 26 | P a g e
Analysis Objective
“We want to be among the three largest IT services companies globally,” declares S. ‘Kris’ Gopalakrishnan, CEO& MD of Infosys. “We are changing the company to meet our ambitious goals.12”
In such a scenario when global market is in turmoil and clients are cutting on their IT spending, pricing is tough and tough competition from global as well as domestic IT competitions, what are the steps needs to be taken to realise the goal? Its a million dollar question for Kris.
1. Is the current business model still holds good?
2. Is International Strategy good enough to cater ambitious goal to enter in the league of top International IT companies?
3. How to compete with global players and capture new IT markets?
Summary: Case is to understand strategic issues in IT industry. It highlights the impact of global meltdown on Indian IT industry. Infosys was t as base company to understand issues an Indian IT company faces to compete with global players.
The Scope: Case primarily dealt with strategic issues in IT industry regarding International Strategy and Business Model. Case is suitable to teach in the class of Strategic Management with level of Medium to High.
12 http://businesstoday.intoday.in/index.php?option=com_content&issueid=11300&task=view&id=10025§ionid=25&Itemid=1 (Sachitanand, 2009) (Accessed on: 05/09/2009)
(c) [15th September 2009] [Vipul Kaushik and Suryansh Manglik, EPGPM, MDI Gurgaon] All rights reserved.
Infosys Technologies – International Strategy and Global Meltdown 27 | P a g e
Analysis and Recommendations
BHAG13 of chief executive of Infosys to make in the league of top three IT services companies will require strategic changes in business model and business process. Few recommendations from our team are:
Infosys needs to change its business model to achieve its ultimate goal as declared by its chief executive. Company prefers to play safe with striving for short term but high margin contracts instead of going for large-volume, multi-year but ultimately lower margin contracts. It provides base for quick growth while being bolstered by a stable, long-term revenue stream.
Figure 14 - Infosys and major international competitors
Infosys should look beyond its India based delivery, even at the cost of margins. Its
major rivals, IBM and Accenture, have shops around the world. IBM has 400,000-plus
people in the market, with 150,000 of them in the US alone and as many as 5,000 in Brazil.
Accenture has over 50,000 people in India. In order to become a truly global company, it
needs to expand its offices around the world and hire international talent.
Infosys have always been a cautious player in Mergers and Acquisitions. With a
headcount of 100,000, Infosys is only a quarter of the size of IBM, but remains wary of
13 Big Hairy Audacious Goal
(c) [15th September 2009] [Vipul Kaushik and Suryansh Manglik, EPGPM, MDI Gurgaon] All rights reserved.
Infosys Technologies – International Strategy and Global Meltdown 28 | P a g e
acquisitions— the only way for the company to achieve scale rapidly. Lost battle in AXON,
the German enterprise solutions vender, to its domestic rival HCL Technologies shows its
non-aggressive behaviour for inorganic growth.
“There is no point over-paying for assets…,” says Infosys CFO V. Balakrishnan. “We are not
a conservative company, we are realistic.”
Infosys should open up and be more aggressive on acquisitions and mergers to achieve
additional scale and its self-professed ambitions.
Infosys have been overly exploiting its Global delivery Model successfully since its
inception. It has given an edge to it in terms of cost effectiveness and availability of talented
manpower over its competitors but Infosys should look beyond this paradigm. As said by
Sudip Apte:
“We may be reaching the end of the current model favoured by Indian companies, who rely
on adding thousands of people to continue churning out projects and revenues. Companies
like Infosys need to delink headcount and revenue growth,” says Sudin Apte of Forrester
Research.
Infosys footprints are primarily in Western English speaking countries. The advantage of
English being a well-known language in India, global strategy proved successful until now.
To shed its overdependence on American and European market, Infosys needs to venture in
new emerging markets like India, Japan and South Korea. To go up the value chain and tap
opportunities in new markets, Infosys should change its business model from Global Strategy
to Multi-domestic Strategy. As the recommended markets are quite diverse politically and
culturally, global delivery model will not be able to fulfil customer expectations. Multi-
domestic strategy will unlock the hidden potential by decentralizing the strategic and
operating decisions making process. Strategic business units in each country can focus on
competition within each country by offering tailor made products to the local market.
(c) [15th September 2009] [Vipul Kaushik and Suryansh Manglik, EPGPM, MDI Gurgaon] All rights reserved.
Infosys Technologies – International Strategy and Global Meltdown 29 | P a g e
BIBLIOGRAPHY
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Capitaline. (2009, Aug 16). Capitaline Database.
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Forrester research. (n.d.). Retrieved 10 02, 2009, from Forrester: http://www.forrester.com/Research/Document/Excerpt/0,7211,46676,00.html
Hindu Newspaper. (n.d.). Retrieved 07 11, 2009, from The Hindu: http://www.thehindubusinessline.com/2009/07/11/stories/2009071151870400.htm
IAS. (2009). Basic Facts on Indian Software Industry. Industrial Analysis Services .
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REUTERS. (2009, 08 20). REUTERS News Report. Infosys trying hard to shed US dependence , p. 2.
Sachitanand, R. (2009, 2 4). Infosys Bold Global Ambition. Retrieved 11 12, 2009, from businessindiatoday: http://businesstoday.intoday.in/index.php?option=com_content&issueid=11300&task=view&id=10025§ionid=25&Itemid=1
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Times, E. (n.d.). Infosys-identifies-EU-SAP-firms-as-potential-targets. Retrieved from Economic Times News: http://economictimes.indiatimes.com/Infosys-identifies-EU-SAP-firms-as-potential-targets/articleshow/4172128.cms
Who We Are. (n.d.). Retrieved 08 20, 2009, from Infosys Technologies Corporate Website: http://www.infosys.com/about/who-we-are/default.asp
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