Infosys Technologies-International Strategy and Global Meltdown

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Infosys Technologies
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International Strategy and Global
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Meltdown
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STRATEGY MANAGEMENT
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Author: Vipul Kaushik
Second Author: Suryansh Manglik
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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–18 th September2009
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Area of the Study: Strategy Management

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Title of Case Study: Infosys Technologies – International Strategy and Global Meltdown
Organization for Case Development:
First Author:
Name: Vipul Kaushik Title/Designation: Mr
Organization and address: c/o Ganpathy, NMP Office, Management Development Institute, Mehrauli Road
Sukhrali, Gurgaon – 122007 , Haryana
Email address: mr.vipulkaushik@gmail.com
Mobile No: 9958676776
Second Author:
Name: Suryansh Manglik Title/Designation: Mr
Organization and address: c/o Ganpathy, NMP Office, Management Development Institute, Mehrauli Road
Sukhrali, Gurgaon – 122007 , Haryana
Email address: suryansh.manglik@gmail.com
Mobile No: 9350672851
Declarations:
a) The Case Study is original and unpublished.
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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.
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.
reserved.
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
Consultancy Service, Infosys Technologies, Wipro Ltd and Mahindra Satyam Computer ltd.
This group of companies’, together, account for more than half of the total business. Each has
a turnover in excess of a thousand crore rupees. While they shaped their growth on the
foundation of the global or offshore delivery model, all these four and a few others like
Ramco and IFlex are moving up the value chain by developing proprietary software products
and offering high end consulting services. So far, despite the huge opportunity in product
1
IAS – Industrial Analysis Services Database (MDI Online Library) (Accessed on: 05/09/2009)
reserved.
development, Indian companies have been hesitant in concentrating on exploiting the

domestic markets. They have preferred to work on projects rather than develop products. An
exception is in the case of finance (mostly banking) and accounting where most of the
software packages sold in the domestic market are made by Indian software companies. Tally
from Peutronics and Finacle from Infosys are some examples.
reserved.
INFOSYS TECHNOLOGIES
VISION
“To be a globally respected corporation that provides best-of-breed business solutions,
leveraging technology, delivered by best-in-class people.”
MISSION
"To achieve our objectives in an environment of fairness, honesty, and courtesy towards our
clients, employees, vendors and society at large."
COMPANY BACKGROUND
Infosys Technologies Limited is a public limited and India's second largest software exporter
company. On July 2nd 1981 the company was incorporated as Infosys Consultants Private
Limited at Mumbai. It was promoted by software professionals, viz. Mr. S. Gopalakrishnan,
Mr. K. Dinesh, Nandan M Nilekani, Mr. S. D. Shibulal, Mr. N.R. Narayana Murthy & Mr. N
S Raghavan. The company became a public limited company in the year 1992 under the
name Infosys Technologies Limited.
Infosys, the country’s second-biggest IT/ITES services companies, was the first Indian
company to be listed on the NASDAQ in the year 1999. Infosys also forms a part of the
NASDAQ-100 index. Continuously through the years 2001, 2002 and 2003 company won
National award for excellence in corporate governance conferred by the Govt. of India.
reserved.
Figure 1 - Infosys Campus
Infosys Technologies Ltd

Industry :Computers - Software – Large
Incorporation Year 1981
Chairman the Board and Chief Mentor N R Narayana Murthy
CEO and MD S.Gopalakrishnan
COO S.D.Shibulal
CFO V.Balakrishnan
Website http://www.infosys.com
Source@Capitaline
Table 1 - Infosys Top management
GROWTH PATH
Infosys is a groundbreaking company in the field of information technology and it enjoys the
privilege of being a debt free company. Infosys used Global delivery Model (GDM) as a
strategic outsourcing tool and by using it; the company could take the work to the place
where it could be best performed at lowest cost with minimum risk. GDM provided a
superior value proposition at higher quality and lower cost. Company offers the services of
business and technology consulting, application services, systems integration, product
engineering, custom software development, maintenance, process re-engineering,
reserved.
independent testing and validation services, IT infrastructure services, modular global

sourcing and Business Process Outsourcing services. It has developed Finacle, a universal
banking solution to large and medium size banks across India and oversees. The company has
entered in marketing and technical alliance with FileNet, IBM, Intel, Microsoft, Oracle and
System Application Products.
Total Revenue Growth

25000
20000
15000
10000
5000
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Total Revenue (Rs)
Figure 2 - Revenue Growth
REVENUE BY INDUSTRY
The company’s operations predominantly relate to providing end-to-end business solutions
that leverage technology, thereby enabling clients to enhance business performance delivered
to customers globally operating in various industry segments.
Industry segments at the company are primarily financial services comprising customers
providing banking, finance and insurance services; manufacturing companies; companies in
the telecommunications and the retail industry; and others such as utilities, transportation and
logistics companies.
reserved.
Industry Wise Revenue Contribution

40.00%
35.00%
30.00%
25.00%
Percentage
20.00%
15.00%
10.00%
5.00%
0.00%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Figure 3 - Industry wise Revenue Contribution
REVENUE BY GEOGRAPHICAL REGION

Customer relationship is driven based on the location of the respective client. North America
comprises the United States of America, Canada and Mexico; Europe includes Continental
Europe (Bothe the East and the West), Ireland and The United Kingdom; and the Rest of the
World comprises all other places except those mentioned and India.
Geographical Segment
25000
20000
Revenue (Rs Crore)
15000
10000
5000
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Figure 4 - Revenue by Geographical Segment
reserved.
Infosys Technologies – International Strategy and Global Meltdown 10 | P a g e
Major contribution towards revenue is primarily from North America. As depicted in figure
5, around 65 percentage revenue is coming from North America. After IT bubble burst of
year 2000, Infosys started diversifying its business in Europe and other geographical areas to
minimize its dependence on American market. Fructified efforts brought down share of
American market from 80% to 65% by 2009 and share of Europe market from 9% to 25%.
Further, As part of a drive to decrease the dependence on the US market, Infosys
Technologies has bid for more than 10 large government projects in India, as reported by
Business Standard on August 20, 2009.
Geographical Segmentation
100.00%
80.00%
Revenue (%)
60.00%
40.00%
20.00%
0.00%
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Figure 5 - Revenue in Geographical Segments (Percentage)
reserved.
MERGERS AND ACQUISITIONS

“Every morning in Africa, a gazelle wakes up.
It knows it must run faster than the fastest lion or it will be killed.
Every morning a lion wakes up.
It knows it must outrun the slowest gazelle or it will starve to death.
It doesn’t matter whether you are a lion or a gazelle.
When the sun comes up, you better start running.”
In the year 2003 Infosys acquired Expert Information Services Pty. Limited, Australia for
$24.3 million and renamed it as Infosys Technologies (Australia) Pty. Limited. This
acquisition was primarily done due to market position of the company in Australia, skilled
employees, experts in telecom industry and potential to serve as a platform for enhancing
business opportunities in Australia. Infosys Australia currently has 48 clients and Rs. 549
crore in revenue and Rs. 46 crore in profit. On 1 st April 2008, Infosys Australia acquired
100% of the equity shares of Mainstream Software Pty. Limited for a cash consideration of
Rs. 12 crore2.
In 2007 Infosys acquired the 23% stake Citibank had in its BPO offshoot Progeon, making it
a wholly owned subsidiary of Infosys and changed the name to Infosys BPO Ltd.
In July 2007, Infosys took over Philips' finance and administration business process
outsourcing (BPO) centres spread across India, Poland and Thailand for $28 million. This
acquisition has proved beneficial to Infosys. First, it helped the company to establish
presence in important markets in Europe. Second, as part of agreement Philips awarded $250
million seven year contract to Infosys to provide Finance & Accounting (F&A) services and
the processing of purchasing orders3.
Recently, Infosys has been looking to increase revenues from SAP based services and
compete more effectively. In 2008, Infosys agreed to buy UK-based SAP consulting
company, Axon Group for 407 million pounds ($753 million), but HCL Technologies outbid
2
Infosys Annual Report - 2009
3
http://www.cio-weblog.com/50226711/infosys_acquires_philips_bpo.php (Accessed on : 01/09/2009)
reserved.
Infosys for 441 million pounds. Now, Infosys has identified other European SAP services
firms BCC and Ciber Novasoft, among other as potential acquisition targets. Headquartered
in Poland and with a significant presence in the German market, BCC is expected to help
Infosys address the local market as well. Ciber Novasoft, a German SAP firm, has almost $75
million in revenues from the country and is a part of the US headquartered Ciber. Ciber
acquired Novasoft in August 2004 for an undisclosed sum4.
(Times)In a recent interview, Mr. S. Gopalakrishnan, CEO Infosys has stated that Infosys is
looking at acquisitions for strategic reasons - to fill a gap in our service portfolio, enter a new
market or a new industry. On the kind of prospects, Infosys is looking at Kris replies “We
have stated that a typical size or the cut-off limit will be 10 per cent of our revenue.
Therefore, we can look at acquisitions of $400 million to $500 million in revenue. That is
something that we can manage; it will not increase the risk too much. However, it does not
mean that we will not do something smaller or bigger. We may look at multiple acquisitions
because there are needs in different parts of the organizations. We can look at acquisitions in
BPO, consulting, enterprise solutions, and in Europe because we want to grow Europe
faster. We will look at whichever comes first. If two or three comes together, we will look at
it.” He further elaborates that Infosys wants to expand its footprint in healthcare, government
and public sector, utilities, energy, pharmacy5.
The long-term strategy of the company is to expand in the developing economies and change
the business landscape with help of accessible talent pools and the adoption of non-linear
growth model.
YEAR 2009 AT A GLANCE

Total income increased to Rs 20, 264 crore from 15,648 crore in the previous year, at a
growth rate of 29.5%. The revenue from rest of the world increased from Rs 1,821 crore to
Rs 1,349 crore, with a growth rate of 35% which is higher than other regions. Infosys
continued to reap benefit of economies of scale. The net profit after tax was Rs 5,189 crore
(28.7% of revenue) as against Rs 4,470 crore (28.6% of revenue) in the previous year. The
net profit for the year included a net tax reversal of Rs. 108 crore (Previous year Rs. 121
crore). The tax provisions were reversed as it was not required in various overseas
jurisdictions.
4
Economic Times (Accessed on: 05/09/2009)
5
http://www.thehindubusinessline.com/2009/07/11/stories/2009071151870400.htm(Accessed on:
05/09/2009)
reserved.
Infosys seek long term relationship with clients while addressing their IT requirements. The
customer centric approach has resulted in high levels of satisfaction. Repeat business
contributed up to 97.6% of revenue. Total 156 new clients were added, with a substantial
number of large global corporations. The total client base at the end of the year stood at 579.
In Rs Crore In Rs Crore
*Source@Infosys Annual Report 2009

Figure 6 - Profit, Market Capitalization, EPS
reserved.
SWOT ANALYSIS – INFOSYS TECHNOLOGIES
STRENGTHS
Leadership position in providing sophisticated services solutions in areas like Finance,
Technology, Manufacturing etc. Availability of vast talent pool provides flexibility of
executing large clients.
Infosys enjoys competitive advantage because of its India based delivery model. The low
labor cost and relatively high skills level of Information Technology makes India an
attractive place to do business for IT related companies. It offers low-cost based, highly
skilled competitive advantage.
Strong financial position of Infosys, as indicated in figure-2, is a positive indication. The

business turnover was more than 20,000 crore Rs (Approx 4.6 $ billion) in 2009. It indicates
the availability of available capital to expand, and also the basis to leverage potential
customers.
Infosys has 48 sales offices, 54 global development centers operating in 26 countries which
make it a global brand with capability to support the global operations of multinational
clients.
WEAKNESS
Being an Indian company, Infosys struggles in US to acquire new projects, particularly in
securing United States Federal Government contracts in North America. Since these contracts
are highly profitable with long project time, Infosys is missing out on a lucrative business
opportunity. US domestic organizations acquire these contracts easily.
Despite being a huge IT company in relation to its Indian competitors, Infosys is much
smaller than its global competitors. As discussed above, Infosys generated $4 billion in 2008,
which is relatively low in comparison with large global competitors such as Hewlett-Packard
($91 billion), IBM ($91 billion), EDS ($21 billion) and Accenture ($18 billion).
Infosys has developed capability at the level of operation value creation but lacks in high end
services like management consulting. Competitors like IBM and Accenture dominates this
space. Low spending in R&D in comparison to its foreign competitors is a drawback to it.
reserved.
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OPPORTUNITIES
Infosys Technologies – International Strategy and Global Meltdown
During global recession, it appears that companies will reduce the spending on IT and ITES
activities, which Infosys offers. However, in tough times companies try to cut cost and will
be more willing to adopt outsourcing model, which Infosys offers.
Infosys is spending in new markets of Europe and Middle East. Asian countries like China is
also immerging as a lucrative market because of the industrial revolution in last few years.
The strategic alliance between Infosys and Schlumberger gives the IT company access to
lucrative business in the gas and oil industries.
Infosys is cash rich (Around US $1 Billion) – Acquiring companies to increase expertise in

consultancy, KPO and package implementation capabilities.
THREATS
China and Korea are emerging as major competitors with low-cost labor, and developing
capabilities in education through universities and technology colleges. This poses threat of
customers shifting to companies of these countries with offshore capability.
Other global players have realised that India has the benefit of low-cost, highly skilled labor
that often speaks English and is culturally sensitive to Western practices. As with all global
reserved.
15 | P a g e
IT players, Infosys has to compete for skilled labour and this may have the effect of driving
up wage levels, and making it more difficult to recruit and retain staff.
Rising wage rates is hitting its bottom-line and global meltdown is negatively impacting its
top-line.
Currency fluctuation threatens the company’s bottom-line and pressurise it to hedge the risk
in money market.
High dependence on a small number of large clients makes it dependent on them. Loss of any
of such client can cause big business loss.
GLOBAL MELTDOWN – IMPACT ON INFOSYS

“Yes, this is the first time for the full year we have given a guidance of de-growth year-on-
year (YoY), as we have never faced this kind of uncertainty, which comes across once in a
lifetime,” Infosys chief executive S. Gopalakrishnan told IANS.
Infosys Technologies (Infosys) held its conference call after it announcing its first quarter
results on 10 July 2009. CEO and Managing Director S. Gopalkrishnan along with other
management members addressed the call. The call highlights the impact of global meltdown
on Infosys and its key performance figures in the quarter.
Consolidated operating profit dipped 3% to Rs 5,472 crore in the June 2009 quarter over the
March 2009 quarter and volume was down 1.1%. Rupee appreciation impacted negatively by
about 2.8%. Operating Profit Margin (OPM) improved 50 basis points (bps) to 34.1%,
benefited by higher revenue productivity and reduction in headcount. The bottom line was
down 5% to Rs 1527 crore6. Both revenue and the bottom line were above market
expectation.
Infosys is cautious for the short term as uncertainty still persists. However, the company is
prepared for growth in medium and long term. The macro environment is challenging.
Discretionary spend was down and talks with customers indicates recovery by mid 2010.
Research firms indicate that IT spent would be down 6% - 11%.
6
Infosys Technologies Annual Report - 09
reserved.
The pipeline is looking good but decision making is slow. Infosys has guided for a 5%
decline in pricing as against a 6% dip guided earlier. The company has revised its guidance
for OPM to a 150-bp dip in FY 2010 as against a 300-bp fall guided earlier.
GLOBAL MELTDOWN – IMPACT ON IT SPENDING – 2009
Global economy is continuously eroding giving signal for prospects of negative GDP growth
in major countries, which will influence the IT spending in 2009. According to the forecast
by IDC Black Book, the worldwide IT spending will grow by just 0.5 % year on year in 2009
and will be total nearly $1.44 trillion.
The greatest impact will be felt in global hardware markets, where overall spending growth
will be -3.6% this year, led by a steep decline in outlays for servers, PCs, and printers/MFPs.
In contrast, worldwide spending on software and IT services are each expected to grow 3.4%
in 2009, down from 4.6% and 3.7% growth respectively in the previous forecast.
Acknowledging this trend John Gantz, chief research officer at IDC says, "The data also
provides a clearer picture of how companies are curbing their expenditures. Investments in
software and services are being maintained in pursuit of productivity and efficiency gains
while hardware spending is being slashed in an attempt to stretch refresh cycles and squeeze
more out of existing assets."
Region wise impact of meltdown on IT spending on various economies is summarized below:
 In the United States, the forecast is of year-over-year growth of 0.1% in overall IT

spending, down from the November forecast of 0.9% growth. U.S. IT spending will
total nearly $491 billion in 2009.
 Overall, IT spending in Western Europe is expected to grow 0.1% year over year in
2009, down from the November forecast of 1.2% growth. IT spending in Germany
and the United Kingdom to remain essentially flat in 2009, while France and Italy
will experience negative growth.
 The forecast for IT spending growth in Asia/Pacific (excluding Japan) has also been
reduced, with overall growth now expected to be 1.4%, down from the earlier
reserved.
forecast of 4% growth. IT spending in China is expected to grow 6.5%, down from

9.1%, and India's growth has been reduced to 5.7% from 10%.
 Japan will experience year-over-year IT spending growth of -1.8% in 2009, down

from the previous forecast of 1.0% growth.
 Latin America will enjoy overall IT spending growth of 4% growth in 2009, down
from the November forecast of 8%. IT spending in Brazil will grow by 6% in 2009,
down somewhat from the 9% forecast in November.
 In Central and Eastern Europe, IT spending will grow -7.5% in 20097.
Two major themes which emerge from above data are:
1. The focus of most of the IT spending worldwide will be on software and IT services.
2. China, India and Brazil are seen to be having highest growth rate in terms of IT
spending.
A further analysis of global IT spending by region is provided in Forrester report 8 “Global IT

Market Outlook: 2009” as shown below.
7
The IDC report, Economic Crisis Response: Worldwide IT Spending 2008-2012 Forecast Update --
February 2009 Revision (IDC #216909)
8
http://www.forrester.com/Research/Document/Excerpt/0,7211,46676,00.html(Accessed on: 05/09/2009)
reserved.
Figure 8 - Global IT Purchases by Region
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 546.11
China 149.82
Japan 129.81
United Kingdom 72.25
Germany 70.39
France 64.98
Canada 39.34
Australia 34.73
Brazil 34.25
India 30.83
9
http://blogs.zdnet.com/BTL/?p=11484&tag=rbxccnbzd1
http://en.wikipedia.org/wiki/List_of_countries_by_future_GDP_(nominal)_estimates(Accessed on: 05/09/2009)
reserved.
Netherlands 23.77
Mexico 19.85
South Korea 16.00
Switzerland 15.37
Belgium 11.27
Source@ 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
Korea market as well as domestic Indian market.
reserved.
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 20 th 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.
reserved.
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
reserved.
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.
reserved.
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.
reserved.
 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-
vendor model. Target transformational change projects
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
reserved.
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.
reserved.
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&sectionid=25&Itemid=1 (Sachitanand, 2009)
(Accessed on: 05/09/2009)
reserved.
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
reserved.
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.
reserved.
BIBLIOGRAPHY
About Us: Infosys. (n.d.). Retrieved from Infosys Website: http://www.infosys.com/about/what-we-

do/default.asp
Capitaline. (2009, Aug 16). Capitaline Database.
Cha, B.-S. (n.d.). Opportunities in Korea. Retrieved 08 24, 2009, from Autralia Govt Site:
http://www.austrade.gov.au/ICT-to-Korea/default.aspx
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 .
IDC. (2009). Worldwide IT Spending 2008-2012. The IDC report, Economic Crisis Response: Forecast
Update -- February 2009 Revision (IDC #216909) .
IDC, M. (n.d.). Article on World IT Spending. Retrieved 08 24, 2009, from IDC:
http://findarticles.com/p/articles/mi_m0EIN/is_2009_Feb_25/ai_n31378627/?tag=content;col1
Infosys Technologies. (1999 - 2009). Annual Report. Bangalore.
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&sectionid=25&Itemid=1
Tech, I. (n.d.). Core Banking. Retrieved from Infosys Technologies:

http://www.infosys.com/finacle/solutions/solutions_corebanking.asp
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
reserved.

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Infosys Technologies-International Strategy and Global Meltdown

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Area of the Study: Strategy Management

SOFTWARE INDUSTRY IN INDIA

development, Indian companies have been hesitant in concentrating on exploiting the

Figure 1 - Infosys Campus

Infosys Technologies Ltd

independent testing and validation services, IT infrastructure services, modular global

Total Revenue Growth

Total Revenue (Rs)

Figure 2 - Revenue Growth

Industry Wise Revenue Contribution

Figure 3 - Industry wise Revenue Contribution

REVENUE BY GEOGRAPHICAL REGION

Figure 4 - Revenue by Geographical Segment

Figure 5 - Revenue in Geographical Segments (Percentage)

MERGERS AND ACQUISITIONS

Every morning a lion wakes up.

It knows it must outrun the slowest gazelle or it will starve to death.

It doesn’t matter whether you are a lion or a gazelle.

When the sun comes up, you better start running.”

YEAR 2009 AT A GLANCE

*Source@Infosys Annual Report 2009

SWOT ANALYSIS – INFOSYS TECHNOLOGIES

Strong financial position of Infosys, as indicated in figure-2, is a positive indication. The

Infosys is cash rich (Around US $1 Billion) – Acquiring companies to increase expertise in

GLOBAL MELTDOWN – IMPACT ON INFOSYS

GLOBAL MELTDOWN – IMPACT ON IT SPENDING – 2009

Region wise impact of meltdown on IT spending on various economies is summarized below:

 In the United States, the forecast is of year-over-year growth of 0.1% in overall IT

forecast of 4% growth. IT spending in China is expected to grow 6.5%, down from

 Japan will experience year-over-year IT spending growth of -1.8% in 2009, down

 In Central and Eastern Europe, IT spending will grow -7.5% in 20097.

Two major themes which emerge from above data are:

A further analysis of global IT spending by region is provided in Forrester report 8 “Global IT

Figure 8 - Global IT Purchases by Region

Country Estimated IT spending 2009

http://en.wikipedia.org/wiki/List_of_countries_by_future_GDP_(nominal)_estimates(Accessed on: 05/09/2009)

Figure 10 - IT contribution as part of GDP

Figure 11 - Indian IT Industry Revenue break-up by company

Rangadore said, “Spending on technology by private companies was seeing a slowdown in

Figure 12 - Japanese Market for Offshoring

Figure 13 - IT Sector Analysis of Japan

The concerns over off-shoring to china are:

 Limited capabilities to manage large complex projects.

An Indian company has below mentioned advantages for Japanese market:

 Japan market is a prospective alternative to Indian IT industry to reduce its

 Indian IT companies have an opportunity to establish themselves as the high end

4. Localize, localize, localize; invest in understanding context

5. Develop strengths in Japanese language and be more sensitive to cultural issues

1. Is the current business model still holds good?

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

Analysis and Recommendations

Figure 14 - Infosys and major international competitors

About Us: Infosys. (n.d.). Retrieved from Infosys Website: http://www.infosys.com/about/what-we-

Capitaline. (2009, Aug 16). Capitaline Database.

Forrester research. (n.d.). Retrieved 10 02, 2009, from Forrester:

Hindu Newspaper. (n.d.). Retrieved 07 11, 2009, from The Hindu:

Infosys Technologies. (1999 - 2009). Annual Report. Bangalore.

Tech, I. (n.d.). Core Banking. Retrieved from Infosys Technologies:

Times, E. (n.d.). Infosys-identifies-EU-SAP-firms-as-potential-targets. Retrieved from Economic Times

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