Global Business Plan for Infosys Technologies Ltd - Case Study Example

Global business plan Global Business Plan for Infosys Technologies Ltd. Executive summary Since its inception in 1981, Infosys Technologies Ltd. has made pioneering efforts in providing software services to a number of countries across the globe. Annual growth and profitability performance on the one hand, and setting standards of corporate governance and management practices on the other, earned Infosys a reputation as one of the most respected firms around the world. Its revenues crossed $ 4 billion during 2007-‘08 and are slated to cross $ 5 billion in the current year. Software industry has grown through the stages of in-house development of hardware companies, local subcontracting and finally global outsourcing. Revolution in information and communication technologies has widened the scope of software services. USA and other developed nations have come to depend heavily on the services of companies / professionals from English speaking countries, who could be hired at highly competitive rates. Inevitably there has been a backlash for this global outsourcing phenomenon with political and social groups agitating against job losses. Recent developments in the US like the depreciation of dollar and economic downturn are also impacting growth of companies like Infosys. Competition from Indian companies like TCS, Wipro and Satyam and from global consulting firms like Microsoft, Deloitte, SAP, Oracle, Dell and Accenture with bases in India has to be taken into the future business plans of Infosys. Having attained status as a global company, Infosys’ future business plans should include lessening the dependence on the US market and spreading to more geographical areas, particularly the fast developing countries of Brazil, China and Russia. While organic growth by spreading to new locations is appropriate in its home market, it should take the current opportunity of the weak US dollar and economic downturn to expand its global business through acquisitions. Infosys should also exploit its management capabilities to become a major consulting firm in frontier technologies being developed for defence, space exploration, pharmaceutical and life sciences. To this extent it should expand its portfolio of services to research and development work of these sectors. Introduction Software technology services provider Infosys Technologies Ltd. (Infosys) is an India based company with clients all over the world. Over the past two and half decades (incorporated in 1981), it has grown from a small team of first-time entrepreneurs to become a global player commanding respect for its services and management philosophy, particularly in corporate governance. Infosys is a classic case of being in the right place at the right time, exploiting the opportunities in the services sector and moving up in the value chain to sustain its business Global business plan 2 growth. Infosys employs over 80,500 people (with over 1000 in Australia); its revenues crossed $4 billion during 2007-’08 and set to cross $5 billion during 2008-’09 (Infosys.com). In the process, it has earned reputation as a trend setter in corporate governance norms, HR practices, developing newer areas of service offerings and at the same time handsomely rewarding its shareholders. This report takes a look at Infosys success story in the background of the information technology industry and makes recommendations for its future global business plans. Industry analysis & current business environment for Infosys The advent of computers, related software products, Internet and the revolution in the communication technologies have opened up new business opportunities in the past few decades. Information and communications technologies grew alongside, each depending on the other for growth as well as ideas for growth and in the process relegating traditionally dominant manufacturing industry and agriculture sectors of national economies to second or lower importance. Leading industrial countries like the USA, Japan, and the European countries were in the forefront of IT industry comprising of the hardware, software and related services before IT and ICT became global phenomena. They were the main markets for hardware products, and till about 1990 hardware sales dominated the industry with software needs being merely appendages to help in installation, operation and maintenance of the hardware. Software and services comprise of i) Packaged software products ii) Professional services and iii) Operation / back office services. Hardware manufacturers were developing the operation and application software programs for their products and also undertaking installation / Global business plan 3 maintenance services. This was followed by the growth of service providers for customized software development, data processing, installation, systems integration, training and maintenance (Singh, Infosys Technologies, 1999). The demand for customised software services arising from the rapid growth in the usage of computers, advent of the Internet, revolution in the communication technologies, development of software products for management of manufacturing operations, banking / insurance / financial sector activities etc. have all further led to growth of this sector. This service sector has become the hub of the new knowledge society dominated by English speaking educated and trained persons. This was the opportunity that Infosys recognised and made the basis for its coming into being. In a mode that came to be called the on-site services in the industry, its personnel were being stationed at the clients’ premises to write software codes and to provide installation and maintenance services. It offered its manpower services to the US based clientele at a fraction of the costs that would otherwise be spent. Programming knowledge and economy of operations was at the core of this business and once this was successfully established, the phenomenon of outsourcing and off-shoring followed naturally. Rapid growth of data transmission technologies and availability of cheap trained manpower in the English speaking world ensured success of the ‘outsourcing and off-shoring’ business model in the services sector. It has also attracted many other low cost regional countries like Philippines, Pakistan and Bangladesh as well as even the non-English speaking countries of China and Russia to successfully offer similar manpower services at competitive prices. Thus, intense competition among developing nations, growing restrictions on outsourcing due to political and social factors vie with the economical and technological factors to influence Global business plan 4 the software services industry. Large volumes of business demand maintenance of a huge manpower whose costs are also on the rise. Major technology and consulting companies like Microsoft, SAP, Oracle, IBM, Dell, Accenture and Deloitte recognized the advantage of setting up their own centers of development in these countries. Business process outsourcing (BPO), an off-shoot of the ICT revolution, has become the norm for any number of banking, financial, insurance and investment companies and the trend is spreading to all manufacturing companies as well. While on the one hand there is growing business volume, there are serious threats as well for Infosys, which had over-dependence on the US market. Realising this, Infosys has already spread its operations to nearly 23 countries spanning several regional markets like the Europe, Far East and Australia. Political and social concerns on immigrant work force, dollar depreciation and the current economic downturn are impacting the future business prospects in the US while customers in the regional markets themselves are facing similar situation. Thus, in the past one year, Infosys faced dollar depreciation, rupee appreciation, pressure on operating margins for both onsite as well as offsite services and to a lesser extent reduced growth rate. Target markets and opportunities for Infosys Having reached a stage of development in client base, business volumes and internal resources, Infosys has to face up to the challenge of sustaining its growth in the coming years. It has to vacate the space of offering cheap manpower services and exploit the emerging opportunities in higher value added services – technology aided engineering and consulting services. In the fields of banking, financial and insurance sectors it has already made significant progress by offering software products specifically tailored to suit individual customer needs. Global business plan 5 These are mainly process management packages to facilitate operations of service industries. Contrary to this, a great deal of research and development work takes place in practically all industry sectors like automobiles, space exploration, defence, pharmaceuticals, chemicals etc. to name a few. These research opportunities provide avenues for Infosys to exploit its management capabilities and build expertise in those fields. In other words, Infosys has a business opportunity wherever there is a need for high quality manpower backed by expert management. These target markets are again mainly in the most developed western world nations of the USA, UK, France, Germany and other West European countries and in the Asian region countries like Singapore, Taiwan, South Korea, China and Malaysia. Geographically speaking, in its field of business distances do not matter. To this extent, the emphasis for Infosys should be more on identifying relative operational advantages of a particular location rather than reaching a market by being located there. Entry modes for business growth In the light of the above discussion and as per the already existing practice, future growth of Infosys should be largely based on organic growth locally and inorganic growth, globally. In India it has spread its operations to a number of second and third tier cities and towns, mainly with a view to contain costs on establishment and manpower, since real estate prices in places like Bangalore and Hyderabad have become expensive. Similarly, in foreign locations with high business potential, it has set up its own offices and is manning them with a mix of local and foreign employees. True to its vision statement that says, "To be a globally respected corporation that provides best-of-breed business solutions, leveraging technology, delivered by best-in-class people", Infosys developed its organisation locally and globally with a vision Global business plan 6 unmatched by any of its rivals in India or abroad (Infosys website). This has been largely a strategy of organic growth so far, although it has a couple of acquisitions under its belt. While considering expansion into new avenues of business, one considers the options of starting grassroots units / acquisition / forming joint ventures or mergers. In the case of Infosys, acquisition route is considered more appropriate for more than one reason. Firstly, with the decline of the US dollar, acquisition costs are reducing. Secondly, Infosys has built up sufficient cash reserves that can be deployed for funding acquisitions. Thirdly, plenty of opportunities are available now in the global market. According to a report by Virtus Global Partners, 51% share of the total 42 acquisitions during 2007 and 7 out of 10 acquisitions during the first two months of 2008, made in the US by the Indian companies are in the IT / IT enabled services (Virtus global partners, 2008). Hence for the US market, acquisition route is appropriate for Infosys. In addition, Infosys has already acquired reputation as a major global consultant for engineering and process development while its competitors are still to reach that stage. Once again, the US market with its high investments in research and development, especially in frontier technology areas offers possibilities for Infosys to build consulting business. The areas are defence, space, life sciences and energy. It has the reputation as well as capabilities to quickly develop the required additional manpower, wherever required. Coming to other geographical areas, Infosys needs to spread its business risks by reducing its dependence on the US software market and acquiring clients in other countries, not presently being serviced by it in a major way. Major growth markets like China, Russia, and Brazil offer opportunities for Infosys to acquire new clients but language barriers remain an issue. Global business plan 7 Competition Infosys faces competitive forces in India and abroad. IT companies like Tata Consultancy Services, Satyam Computers & Wipro from India, and global IT / Consulting firms like Microsoft, IBM, Dell, SAP, Oracle & Accenture offer similar services. These companies adopt global business strategies, instead of just being multi-location ‘national businesses’. As stated by Schell, “Globalization should mean adoption of a global strategy” (Schell, 2006, p.4). Thus, globalization involves strategically different approach to doing business, be it in localizing the product or organizing the process or managing the environment or reorganizing the structure of a company. Acquisitions, cross-border mergers, strategic alliances are all different winning strategies of globalization. Porter describes strategy as ‘an internally consistent configuration of activities that distinguishes a firm from its rivals’, and goes on to add that strategy is ‘the particular combination of activities a firm adopts compared to its rivals’ (Porter, 2004, pp. xvi - xviii). Strategy is implied in three generic forms viz., cost leadership, product differentiation and focus. It is the analysis of the activities that determine the competitive advantages, and leads to decisions for business expansion / diversification and therefore, in expansion into national or international operations. Global strategy, “…is a process of continuous revitalization of a firm’s activities that aims at solidifying its present and future competitive position” (Ali, 2006, p.172). The several steps that are usually identified with the global strategy include, “Organizational restructuring and programs designed to push responsibility closer to customers and consumers” (Artzt, 1990). Niche products, competence in technology, global presence and quality of services give Infosys the edge over its rivals. Its website states: Global business plan 8 “We provide solutions for a dynamic environment where business and technology strategies converge. Our approach focuses on new ways of business combining IT innovation and adoption while also leveraging an organizations current IT assets. We work with large global corporations and new generation technology companies - to build new products or services and to implement prudent business and technology strategies in todays dynamic digital environment.” Recommendation and conclusion As identified earlier, Infosys should expand its business operations into research and development areas of frontier technologies and keep ahead of competition both locally and globally. These areas will be of high value and long duration, apart from the prospect of continuously emerging newer opportunities. At the same time, tackling these newer opportunities with manpower of diverse cultural background will pose unknown challenges. From out of these challenges and opportunities, Infosys can become a trend setter for knowledge companies of the 21st century in view of its demonstrated path breaking efforts in the past quarter century. It pioneered ‘global delivery mode’ of offering services and built a reputation for management practices and corporate governance. Infosys’ success story of a technology and value driven enterprise should be taken forward to newer areas of consulting services in research and development apart from spreading geographically to the fast developing countries. Global business plan 9 References Academic cases on Infosys, Available at: http://www.infosys.com/about/what-we-do/default.asp [accessed on 9 April 2008]. Ali A J. (2006), “Globalization of business”, Haworth Press, New York. Arakali H, (2008), Infosys Sales Growth May Accelerate, Bloomberg.com. Available at: http://www.bloomberg.com/apps/news?pid=20601091&sid=a617boj9PIog&refer=india [accessed on 15 April 2008]. Artzt E L. (1990), “Strategies for global growth”, (Speech delivered at P&G meeting 21st May, 1990, as quoted by Abbas Ali in Globalization of business, p.174). Raghuram S, (2001), Case study: Management of human asset at Infosys, Fordham Univeristy, New York. Porter ME (2004), “Competitive advantage”, Free Press, New York. Schell C. (2006), Study guide unit 1, “International business strategy: The international business environment”, Manchester Business School Worldwide, UK. Sigh J V, (1999), Case study: Infosys Technologies Ltd., (A) Management department, Wharton School, University of Pennsylvania. Virtus Global Partners, http://www.virtusglobal.com/india_reports/VGP%20Report%20-%20US-bound%20Acquisitions%20by%20Indian%20Companies.pdf Wharton School, Case study: Infosys Technologies Ltd., (B), Management department, University of Pennsylvania. Read More