Description
It explains the Industry Trends of IT industry, PEST Analysis of IT Industry, Competitor Analysis of IT industry, SWOT analysis, Company Description, General Information about Infosys limited, it's Finance performance, SWOT analysis of Infosys and Various Strategies employed.
Infosys Technologies/BPO
Industry Analysis: A. Industry trends: Indian Perspectives: 1. India is known as the major IT enabled service provider in the world. It all started with success story of people with Indian origin in the United States of America. Their contribution was enormous in the IT revolution in US. With the emergence of IT hubs like Bangalore, India has occupied the dominant position in IT world. IT is playing a major role in Indian economic development. 2. While India still remains a poor country in terms of both Per Capita Income and Human Development Index, IT sector acts as the major hope economic growth. Though the year 2009 was tough due to Global financial meltdown Indian IT sector came back on track quickly and showed growth in 2010. It is expected that 2011 will be even more promising. Indian IT sector is poised to cross $70 billion-mark by the end of current fiscal. 3. The National Association of Software and Service Companies (NASSCOM) have played a key role in the popularization of IT in India. 4. The reason for India’s success in IT sector can be attributed to various economic and socioeconomic factors as described below:Low cost of labour: Cost of labour gives the major advantage to the sector. Large MNCs can outsource English proficient and technically competent workers from India at a very low cost. One important reason for low cost is that value of rupee is much less than most of the western countries. Employees also get the benefit of this especially when they get onsite. Quality of service: Technical skill, high commitment towards job and language skill has helped IT companies to provide high quality service. Growth in technical education sector has contributed to the high skill of the labour pool. India’s colonial past naturally makes Indian people comfortable with English. So in all Indian IT sector provides high quality service at a very low cost. Global delivery models: With a new global delivery model Indian IT companies focused on quality and innovation. Quality of service has now become the main reason overtaking the cost of service. IT companies have also entered into long-time customer engagement. Effective cost management is another great tool for them.
Global Perspectives: 1. Due to the presence of many players in the every sector, the environment has become
extremely competitive. In India only we can find so many close substitutes from each sector. Hence, to remain competitive, the companies need to be operationally efficient and innovative. 2. Value addition in the form of quality, service or price is the absolute necessity now. Innovation, however, is considered as the best way to capture the global market. And to be innovative a company should focus on its core competencies. 3. There are some tasks which can be more easily done by some contractors at a much lower cost. These tasks are being outsourced. Outsourcing is a win-win situation where both the parties get benefits. 4. Since all the companies have switched to extensive use of information technology within a very short period of time, most, if not all don’t have the proper IT infrastructure. So it has become a necessity for them to outsource all the IT related works. India is the favourite destination for all the multinational companies. 5. The changing global business scene is acting as the key demand driver for IT sector. This change in global business is again driven by lots of other factors. As more and more people are becoming computer literate throughout the world, need for IT enable services are increasing everywhere. People find IT enabled service more convenient. Online banking, e-Commerce, Online trading etc have become integral part of our daily lives. Demand for IT enabled services can only increase unless some unexpected events take place. 6. Outsourcing jobs in India has become a major issue in US recently. As the works are being outsourced in India local people are not able to get jobs. Since outsourcing jobs are profitable for companies in every respect, US government is going for different strategies, like VISA restriction, to restrict outsourcing. If US government sticks to these rules, Indian IT sector will definitely be affected as the major revenues come from US. 7. There has been a tremendous improvement in computer technology. Evolution of high performing personal computers has made it an integral part of the people of developed nation and urban people of developing nation. Computer users prefer to use computer wherever possible. 8. Improvement of internet technology and internet speed has helped people to go for online method for payment, ordering, banking etc. 9. Increased competition among the MNCs has forced them to focus on operational efficiency. Enterprise Resource Planning or ERP has become an integral part of companies. A significant number of IT projects are ERP based. 10. Banks, Retailers and many other service sectors consider use of IT as the most effective way of customer care. Most, if not all, take the help of IT to remain competitive.
11. There are strong complementarities between IT and the rest of economy. IT can improve efficiency and productivity. This complementary nature makes IT sector dependent on other sectors and hence, the demand IT sector is hugely affected in case of any downturn of those sectors. Major industry developments: 1. Business Process Outsourcing is the fastest growing sector in IT-ITeS industry. BPOs led to the evolution of KPOs, RPOs, HROs, LPOs etc. BPOs have come a long way from first generation, second generation to third generation of BPOs. 2. BPOs are no more just associated with answering calls and data entry. It has spread its wings into knowledge processes. 3. The BPO sector is creating job opportunities for freshers. Six million jobs are expected in this sector by 2015. BPO sector in India is growing at a tremendous pace. New dimensions are being added everyday to the kind of work being done in BPOs. New developments take place every now and then, which results in the overall development of the sector. 4. The latest mantra of BPOs to overcome talent shortage, sky high real estate costs, wage inflation and high attrition rates is to move to tier-II (Chennai, Hyderabad and Pune) and tier-III cities (Jaipur, Chandigarh, Mysore and Ahmedabad). Smaller cities also have a good mix of talent. WNS has already setup its center in Nasik, a tier-II city and it has 1200 employees in it. Also, India has a large pool of talent, reason being the demographic spread in India. In 2007, Tata Consultancy Services carried out 30% campus recruitments from tier-I cities, 15-20 % from tier-II and the rest from tier-III cities. 5. Many organizations have been recognized to receive awards from the online community Outsourcing Center. Everest Group and business magazine Forbes had sponsored the awards. The formal presentation of these awards was done in a ceremony in New York in August 2007. ? Wipro, Bharti Airtel and Bank of India got the Outsourcing Excellence Awards, dubbed as 'Oscars of Outsourcing'. ? Wipro-Nortel got the "Best Offshore" award for their 15-year old partnership. ? BoI-HP got the 'Best IT Infrastructure' award for completing the implementation of core banking solution much before its original deadline of 1 year. ? Bharti-Nortel got the "Best First Steps" award for best practices in outsourcing. 6. To ensure availability of trained manpower, spread of IT education has been given the necessary impetus both at the government and private level. Significant is the opening of Indian Institutes of Information Technology (IIITs) on the lines of Indian Institutes of Technology (IITs).
B. PEST Analysis: Political, economic, social and technical aspects related to the industry: Political Factors: 1. Information Technology Act 2000 has been strengthened by GoI to provide a secure legal environment to companies in the IT sector. Information Technology Act 2000 addressed the following issues: Legal Recognition of Electronic Documents Legal Recognition of Digital Signatures Offenses and Contraventions Justice Dispensation Systems for Cybercrimes ITAA 2008 (Information Technology Amendment Act 2008) as the new version of Information Technology Act 2000 is often referred has provided additional focus on Information Security. It has added several new sections on offences including Cyber Terrorism and Data Protection. 2. Indian Copyright Act 1957 under whose provision, the copyright of computer software is protected. The Copyright Act, 1957 governs the laws & applicable rules related to the subject of copyrights in India. 3. U.S government declared that IT jobs outsourced outside USA will not get any tax benefits. This has caused reduction in the BPO contracts from USA thus reducing revenue from the US. 4. GoI has decided to contract IT jobs to Indian IT companies like Infosys etc. thus creating more job opportunities in India itself.
Economic Factors: 1. Low cost advantage and suitable geographical location makes India an economic attraction for US and European companies. 2. IT sector contributes to 7.5% of GDP in India. 3. IT sector is expected to create over 2 lac jobs in 2012. 4. Indian IT sector has tough competition from China and Philippines. 5. Debt crisis in Europe has caused Indian IT sector to lose its clients. 6. Devaluation of the Rupee against the Dollar had mitigated the adverse effects of of the financial crisis in USA and Europe.
Social Factors :
1. English being widely spoken in India, it helps in fostering the Indian IT sector’s relationship and interaction on global stage. 2. A large number of institutes are offering IT courses due to availability of a large number of IT professors and students interested in IT services. 3. Indian labour is technically skilled to the world class level and also cheap. Technological Factors: Evolution of technologies like Web 2.0, Software Oriented Architectures and Cloud Computing has improved the quality of services that are provided to the customers.
C. Competitor Analysis: Analyze pricing, quality, distribution and partnerships of the nearest competitor of the company: In India, Infosys Limited has two major competitors Tata Consultancy Services and Wipro. Tata Consultancy Services: TCS is an Indian provider of information technology (IT) services, business solutions and outsourcing services headquartered in Mumbai, Maharashtra, India. It is a subsidiary of Tata Group conglomerate. TCS is one of the largest publicly traded companies in India by market capitalization. It is also the largest IT services company in India by revenue and profit. The revenue generated by TCS is US $ 10.17 Billion (2012) and the profit earned is US $ 2.2 Billion (2012), with an employee strength of 2, 43,545 (2012). TCS BPO is the second leading player in the outsourcing industry in India behind Genpact according to Dataquest survey in August 2011. TCS's BPO arm had revenues of $925 million in the year that ended in March, and 34,000 employees . Other than major Indian cities, TCS BPO is also present in Tier-II locations like Pune. TCS is also expanding its BPO Centre in Kolkata, where it already employs 2,000 people. Tata Consultancy Services has opened a business process outsourcing facility in the Philippines following the path of India-based BPO companies which have operations in that country. Wipro: Wipro Limited (formerly Western India Products Limited) is an Indian multinational provider of Information technology (IT) services, consulting and outsourcing services. It is headquartered in Bangalore, India. As of 2012, the company has over 130,000 employees and a worldwide presence with global centers across 54 countries. The company operates in four segments: IT products and services, Consumer care and lighting, Healthcare and Infrastructure engineering. . The revenue generated by Wipro is US $ 7.3 Billion (2012) and the profit earned is US $ 1.09 Billion (2012), with an employee strength of 1, 35,920 (2012).
D. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the industry: Strengths: 1. Human resource - India has one of the largest pool of technically qualified people with low wages. The number of IT professionals in India reached 520,000 by 2002. A large proportion of Indian graduates are proficient in English, ideally suited to the growth of ITES industry 2. Management experience - India is experienced in software development and has been in the industry since late 1980s. India possesses good management and process skills and has a strong business school network. 3. Government support - Quality telecom infrastructure has been put in place over past few years. Intellectual Property Right laws have been implemented to improve compliance with intellectual property rights 4. Growing domestic market
1. 2. 3. 4. 5.
Weaknesses: The Indian IT sector is largely dependent on its clients in the US and Europe. Economic recession in these countries causes a loss of business to the IT sector here. Scarce foreign language skills other than English. Lack of customer service culture Expensive and poor quality telecom infrastructure High attrition rates, therefore less no. of people with extensive call centre experience
Opportunities: 1. Increased off-shoring -There is a heavy downward pressure on IT budgets resulting in increase in off-shoring by companies. Business Process Outsourcing, and particularly, off-shoring is increasing in order to reduce process costs. Big MNCs (multi-national corporations) such as Accenture, CGEY, CSC are also establishing offshore development centers in India. Demand from rural markets is a rising trend due to an increase in farm and non-farm income and will be about 50 % of the demand by 2015. 2. Increasing awareness of outsourcing services Threats: 1. Competition: Philippines and China
2. Increasing public opposition to off-shoring in higher-wage countries - Legislation against off-shoring by governments in client markets, to save jobs for local population, may result in reduced off-shoring to India. Labor union pressures on companies (in the developed countries) may compel companies against outsourcing. 3. Reducing margins - With increasing competition, margins are reducing for Indian IT firms as they try to retain business
Company Analysis: 1. Company description (a brief introduction regarding what businesses the company is into): Infosys Limited formerly Infosys Technologies Limited is an Indian provider of business consulting, technology, engineering and outsourcing services. It belongs to the IT services and IT consulting industry. Infosys' IT solutions and services help accelerate innovation, increase productivity, reduce costs, and optimize asset utilization. Infosys' industry solutions help customers derive maximum value from IT investments in sectors like aerospace, defense,
airlines, communication services, education, energy, financial services, healthcare, hospitality, insurance, retail etc. The various services provided by Infosys are Managemnet Consulting Services, Business Application Services, Business It Services, BPO Services, Cloud and Mobility Services. Infosys’ products and platforms are focused on innovation-led business growth for its clients. Infosys’ cater to market needs driven by global mega trends, including digital consumers, emerging economies, new commerce and healthcare. Infosys’ offerings leverage latest technologies in cloud computing, mobility, big data, rich media and social to provide guaranteed business outcomes. Finacle- A Universal Banking Solution is the most popular product of Infosys.
2. General information about the company: location of the headquarters, year of founding, shareholding pattern, number of employees, top management, etc. Headquarters: Plot No. 44 & 97A Electronics City , Hosur Road, Bangalore - 560 100 Karnataka, India
Year of Founding: 1981 Shareholding pattern: Life Insurance Corporation of India has 5.17%. Abu Dhabi Investment Authority, a sovereign wealth fund owned by Abu Dhabi, and the Government of Singapore also hold significant shareholdings as on December 2011. The remaining public shares are owned by financial institutions and individual investors. Number of Employees: 1,51,151 (2012) Top management: 1. S. Gopalakrishnan Co-Founder Executive Co-Chairman 2. S. D. Shibulal Co-Founder Chief Executive Officer and Managing Director 3. V. Balakrishnan Member of the Board
Chief Financial Officer 4. Srinath Batni Member of the Board Head of Delivery Excellence 5. Nandita Gurjar Senior Vice President Group Head of Human Resources Member - Executive Council 6. Chandrashekar Kakal Senior Vice President Global Head of Business IT Services Member, Executive Council 7. Basab Pradhan Senior Vice President Head of Global Sales, Marketing and Alliances Member, Executive Council 8. Stephen R. Pratt Global Head of Consulting and Systems Integration Member, Executive Council 9. Pravin Rao Senior Vice President Global Head of Retail, Consumer Packaged Goods, Logistics and Life Sciences Member, Executive Council 10. B. G. Srinivas Member of the Board Head of Europe and Global Head of Financial Services & Insurance
11. Prasad Thrikutam Senior Vice President Global Head of Energy, Utilities, Communications and Services Member, Executive Council
12. Ramadas Kamath U. Senior Vice President Head of Infrastructure, Commercial, Facilities, Administration and Security Member, Executive Council 13. Ashok Vemuri Member of the Board Head of Americas and Global Head of Manufacturing, and Engineering Services
3. Financial performance of the company: Sales, net profit, segment wise performance of the past 1 year: The Revenue generated increased from US $ 6041(2011) to US $ 6994(2012). The Gross Profit obtained has increased from US $ 2544(2011) to US $ 2876(2012). The Operating Income obtained has increased from US $ 1779(2011) to US $ 2013(2012). Balance Sheet - IFRS USD Unaudited Condensed Consolidated Balance Sheets as of March 31, (Dollars in millions except share data) ASSETS Current Assets Cash and cash equivalents Available-for-sale financial assets Investment in certificates of deposit Trade receivables Unbilled revenue Derivative financial instruments Prepayments and other current assets $4,047 6 68 1,156 368 300 $3,737 5 27 1,043 279 15 206
March 31, 2012
March 31, 2011
Total current assets Non-current assets Property, plant and equipment Goodwill Intangible assets Available-for-sale financial assets Deferred income tax assets Income tax assets Other non-current assets Total non-current assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Derivative financial instruments Trade payables Current income tax liabilities Client deposits Unearned revenue Employee benefit obligations Provisions Other current liabilities Total current liabilities Non-current liabilities Deferred income tax liabilities Employee benefit obligations Other non-current liabilities
5,945
5,312
1,063 195 34 2 62 204 32 1,592 $7,537
1,086 185 11 5 85 223 103 1,698 $7,010
$9 5 207 3 107 98 26 482 937
10 183 5 116 31 20 451 816
2 22
58 14
Total liabilities Equity Share capital- 5 ($0.16) par value 600,000,000 equity shares authorized, issued and outstanding 571,396,401 and 571,317,959, net of 2,833,600 treasury shares each as of March 31, 2012 and March 31, 2011, respectively Share premium Retained earnings Other components of equity Total equity attributable to equity holders of the company Non-controlling interests Total equity Total liabilities and equity Commitments and contingent liabilities
961
888
64 703 6,509 (700) 6,576 6,576 $7,537
64 702 5,294 62 6,122 6,122 $7,010
Industry segments (USD Million) - (the numbers in blue represent FY 11) FY12 Revenues FSI 2,453 2,166 Identifiable operating expenses 1,047 905 Allocated expenses 616 539 Segmental operating income 790 MFG 1,438 1,185 631 508 378 302 429 ECS 1,500 1,451 625 613 396 369 479 RCL 1,603 1,239 668 523 424 313 511 Total 6,994 6,041 2,971 2,549 1,814 1,523 2209
722 Unallowable expenses
375
469
403
1,969 196 190
Operating profit
2,013 1,779
Other income
397 267
Profit before income taxes
2,410 2,046
Income tax expense
694 547
Net profit
1,716 1,499
Depreciation and amortization
195 189
Non-cash expenses other than depreciation and amortization
1 1
Geographic segments (USD Million) - (the numbers in blue represent FY 11) FY12 Revenues North America 4,468 3,944 Identifiable operating expenses 1,892 1,683 Allocated expenses 1,177 Europe 1,532 1,303 668 541 397 India 155 132 77 61 35 Rest of the world 839 662 334 264 205 Total 6,994 6,041 2,971 2,549 1,814
1,001 Segmental operating income 1,399 1,260 Unallowable expenses
327 467 435
32 43 39
163 300 235
1,523 2,209 1,969 196 190
Operating profit
2,013 1,779
Other income
397 267
Profit before income taxes
2,410 2,046
Income tax expense
694 547
Net profit
1,716 1,499
Depreciation and amortization
195 189
Non-cash expenses other than depreciation and amortization
1 1
4. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the company Strengths: 1. Since the company is based in India its competitive advantage is enhanced. The Indian economy, despite weak economic indicators such as relatively high rates of inflation, has low labour costs. The workforce has relatively high skills levels in Information Technology. Couple these two elements together and you have an operational basis that
offers low-cost based, highly skilled competitive advantage. Trained Indian personnel often speak very good English and are sensitive to Western culture, underpinned by India's colonial past.
2.
Infosys is in a strong financial position. The business turned over more than $4 billion in 2008. This means that it has the capital to expand, and also the basis to leverage potential investors. The company has bases in 44 global development centres, most of which are located in India, although the company has offices in many developed and developing nations. This means not only that Infosys is becoming a global brand but also that it has the capability to support the global operations of multinational clients.
3.
Weaknesses: 1. Infosys on occasion struggles in the US markets, and has particular problems in securing United States Federal Government contracts in North America. Since these contracts are highly profitable and tend to run for long periods of time, Infosys is missing out on lucrative business. Added to this is the fact that its competitors do well in terms of securing the same Federal business (and one should also take into account that many of its competitors are domiciled in the US and there could be political pressure on the US Government to award contracts to domestic organizations).
2.
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).
3.
It is sometimes argued that Infosys is weaker when it comes to high-end management consultancy, since it tends to work at the level of operational value creation. Competitors such as IBM and Accenture tend to dominate this space.
Opportunities: 1. At a time of recession in the global economy, it may appear that some companies will reduce take up of services that Infosys offers. However, in tough times clients tend to focus upon cost reduction and outsourcing - with are strategies that Infosys offers. So hard times could be profitable for Infosys.
2.
There is a new and emerging market in China as the country undergoes a huge industrial revolution. The strategic alliance between Infosys and Schlumberger gives the IT company access to lucrative business in the gas and oil industries. There has been a trend over recent years for European and North American companies to base some or all of their operation in India. This is called an offshore service. Essentially there is a seamless link between domestic operations and services hosted in India. Examples include telecommunications companies such as British Telecom and banks such as HSBC that have customer service and support centres based in India. Think about the times that you have made calls to a support line to find that the adviser is in Mumbai or Bangalore and not in your home market.
3.
4.
Threats: 1. India is not the only country that is undergoing rapid industrial expansion. Competitors may come from countries such as China or Korea where there are large pools of low-cost labor, and developing educational infrastructures such as universities and technology colleges. 2. Customers may switch to other offshore service companies in other countries such as China or Korea. 3. 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 IT players, Infosys has to compete for skilled labor and this may have the effect of driving up wage levels, and making it more difficult to recruit and retain staff.
5. Various strategies employed by the company in the course of conducting business (in the form of alliances, joint ventures, product innovation/ expansion strategies, acquisitions/ divestitures and any such strategies that you think may affect the business of the company) in past 2 years. (Make intelligent use of above points while trying to understand the strategies used by the company) 1. The first acquisition was of Expert Information Services in Australia for around Rs 104 crore ($22.9 million) in 2003.
2. In 2005, Infosys attempted to add higher business focused consulting capabilities and leverage its successful lower cost offshore resources as a part of its future growth strategy. Infosys consulting attracted an impressive number of management consultants and systems integrators. The company had 2 goals:? To create new revenue sources by showcasing consulting as part of its overall value proposition. To increase its presence in USA where firms like IBM Global Services (IGS) and Accenture were dominant consultant forces.
?
3. Infosys wanted to acquire Axon Group, a leading UK-based SAP consulting company. Founded in 1994, Axon provided consultancy services to global companies that had chosen SAP as their enterprise platform. The company focused on technology-enabled transformation programs by leveraging its in-depth industry expertise and functional knowledge. Infosys' acquisition of Axon valued at £ 407.1 million (INR 33.1 billion; US$ 753.1 million) was supposed to be completed by November 2008. Axon had 2,000 employees located at offices in United Kingdom, North America, Malaysia, and Australia. For the year ended 31 December, 2007, Axon reported profit after taxation of £ 20.2 million (INR 1.6 billion; US$ 37.4 million) on revenue of £ 204.5 million (INR 16.6 billion; US$ 378.3 million). But, later Infosys walked away from its plan to acquire Axon Group. 4. In 2007,in one of the largest acquisition cum outsourcing deals by Infosys Technologies it bagged a $250-million (around Rs 1,010 crore) contract from Royal Philips Electronics. It took over Philip’s finance and accounts business process outsourcing (BPO) centres, which was spread across three countries in the process. It had paid $28 million (around Rs 110 crore) to Philips to take over its BPO assets (infrastructure, processes and intellectual property) from October 1, 2007.
5. Despite having economic slowdown and money depreciation in 2008, Infosys introduced a new business model to enhance revenue productivity. Infosys created more industry specific solutions where it could sell the intellectual property rights based on transaction or use. Infosys started charging the client based on transaction and the revenue productivity became higher in these kinds of deals.
Infosys has developed solutions for different verticals like retail and financial services. In each vertical, the company is tried to develop solutions that were domain specific. In the BPO sector also, Infosys has introduced the platform BPO concept that allowed the customers to follow the pay-as-you-go pricing mode.
doc_570719227.docx
It explains the Industry Trends of IT industry, PEST Analysis of IT Industry, Competitor Analysis of IT industry, SWOT analysis, Company Description, General Information about Infosys limited, it's Finance performance, SWOT analysis of Infosys and Various Strategies employed.
Infosys Technologies/BPO
Industry Analysis: A. Industry trends: Indian Perspectives: 1. India is known as the major IT enabled service provider in the world. It all started with success story of people with Indian origin in the United States of America. Their contribution was enormous in the IT revolution in US. With the emergence of IT hubs like Bangalore, India has occupied the dominant position in IT world. IT is playing a major role in Indian economic development. 2. While India still remains a poor country in terms of both Per Capita Income and Human Development Index, IT sector acts as the major hope economic growth. Though the year 2009 was tough due to Global financial meltdown Indian IT sector came back on track quickly and showed growth in 2010. It is expected that 2011 will be even more promising. Indian IT sector is poised to cross $70 billion-mark by the end of current fiscal. 3. The National Association of Software and Service Companies (NASSCOM) have played a key role in the popularization of IT in India. 4. The reason for India’s success in IT sector can be attributed to various economic and socioeconomic factors as described below:Low cost of labour: Cost of labour gives the major advantage to the sector. Large MNCs can outsource English proficient and technically competent workers from India at a very low cost. One important reason for low cost is that value of rupee is much less than most of the western countries. Employees also get the benefit of this especially when they get onsite. Quality of service: Technical skill, high commitment towards job and language skill has helped IT companies to provide high quality service. Growth in technical education sector has contributed to the high skill of the labour pool. India’s colonial past naturally makes Indian people comfortable with English. So in all Indian IT sector provides high quality service at a very low cost. Global delivery models: With a new global delivery model Indian IT companies focused on quality and innovation. Quality of service has now become the main reason overtaking the cost of service. IT companies have also entered into long-time customer engagement. Effective cost management is another great tool for them.
Global Perspectives: 1. Due to the presence of many players in the every sector, the environment has become
extremely competitive. In India only we can find so many close substitutes from each sector. Hence, to remain competitive, the companies need to be operationally efficient and innovative. 2. Value addition in the form of quality, service or price is the absolute necessity now. Innovation, however, is considered as the best way to capture the global market. And to be innovative a company should focus on its core competencies. 3. There are some tasks which can be more easily done by some contractors at a much lower cost. These tasks are being outsourced. Outsourcing is a win-win situation where both the parties get benefits. 4. Since all the companies have switched to extensive use of information technology within a very short period of time, most, if not all don’t have the proper IT infrastructure. So it has become a necessity for them to outsource all the IT related works. India is the favourite destination for all the multinational companies. 5. The changing global business scene is acting as the key demand driver for IT sector. This change in global business is again driven by lots of other factors. As more and more people are becoming computer literate throughout the world, need for IT enable services are increasing everywhere. People find IT enabled service more convenient. Online banking, e-Commerce, Online trading etc have become integral part of our daily lives. Demand for IT enabled services can only increase unless some unexpected events take place. 6. Outsourcing jobs in India has become a major issue in US recently. As the works are being outsourced in India local people are not able to get jobs. Since outsourcing jobs are profitable for companies in every respect, US government is going for different strategies, like VISA restriction, to restrict outsourcing. If US government sticks to these rules, Indian IT sector will definitely be affected as the major revenues come from US. 7. There has been a tremendous improvement in computer technology. Evolution of high performing personal computers has made it an integral part of the people of developed nation and urban people of developing nation. Computer users prefer to use computer wherever possible. 8. Improvement of internet technology and internet speed has helped people to go for online method for payment, ordering, banking etc. 9. Increased competition among the MNCs has forced them to focus on operational efficiency. Enterprise Resource Planning or ERP has become an integral part of companies. A significant number of IT projects are ERP based. 10. Banks, Retailers and many other service sectors consider use of IT as the most effective way of customer care. Most, if not all, take the help of IT to remain competitive.
11. There are strong complementarities between IT and the rest of economy. IT can improve efficiency and productivity. This complementary nature makes IT sector dependent on other sectors and hence, the demand IT sector is hugely affected in case of any downturn of those sectors. Major industry developments: 1. Business Process Outsourcing is the fastest growing sector in IT-ITeS industry. BPOs led to the evolution of KPOs, RPOs, HROs, LPOs etc. BPOs have come a long way from first generation, second generation to third generation of BPOs. 2. BPOs are no more just associated with answering calls and data entry. It has spread its wings into knowledge processes. 3. The BPO sector is creating job opportunities for freshers. Six million jobs are expected in this sector by 2015. BPO sector in India is growing at a tremendous pace. New dimensions are being added everyday to the kind of work being done in BPOs. New developments take place every now and then, which results in the overall development of the sector. 4. The latest mantra of BPOs to overcome talent shortage, sky high real estate costs, wage inflation and high attrition rates is to move to tier-II (Chennai, Hyderabad and Pune) and tier-III cities (Jaipur, Chandigarh, Mysore and Ahmedabad). Smaller cities also have a good mix of talent. WNS has already setup its center in Nasik, a tier-II city and it has 1200 employees in it. Also, India has a large pool of talent, reason being the demographic spread in India. In 2007, Tata Consultancy Services carried out 30% campus recruitments from tier-I cities, 15-20 % from tier-II and the rest from tier-III cities. 5. Many organizations have been recognized to receive awards from the online community Outsourcing Center. Everest Group and business magazine Forbes had sponsored the awards. The formal presentation of these awards was done in a ceremony in New York in August 2007. ? Wipro, Bharti Airtel and Bank of India got the Outsourcing Excellence Awards, dubbed as 'Oscars of Outsourcing'. ? Wipro-Nortel got the "Best Offshore" award for their 15-year old partnership. ? BoI-HP got the 'Best IT Infrastructure' award for completing the implementation of core banking solution much before its original deadline of 1 year. ? Bharti-Nortel got the "Best First Steps" award for best practices in outsourcing. 6. To ensure availability of trained manpower, spread of IT education has been given the necessary impetus both at the government and private level. Significant is the opening of Indian Institutes of Information Technology (IIITs) on the lines of Indian Institutes of Technology (IITs).
B. PEST Analysis: Political, economic, social and technical aspects related to the industry: Political Factors: 1. Information Technology Act 2000 has been strengthened by GoI to provide a secure legal environment to companies in the IT sector. Information Technology Act 2000 addressed the following issues: Legal Recognition of Electronic Documents Legal Recognition of Digital Signatures Offenses and Contraventions Justice Dispensation Systems for Cybercrimes ITAA 2008 (Information Technology Amendment Act 2008) as the new version of Information Technology Act 2000 is often referred has provided additional focus on Information Security. It has added several new sections on offences including Cyber Terrorism and Data Protection. 2. Indian Copyright Act 1957 under whose provision, the copyright of computer software is protected. The Copyright Act, 1957 governs the laws & applicable rules related to the subject of copyrights in India. 3. U.S government declared that IT jobs outsourced outside USA will not get any tax benefits. This has caused reduction in the BPO contracts from USA thus reducing revenue from the US. 4. GoI has decided to contract IT jobs to Indian IT companies like Infosys etc. thus creating more job opportunities in India itself.
Economic Factors: 1. Low cost advantage and suitable geographical location makes India an economic attraction for US and European companies. 2. IT sector contributes to 7.5% of GDP in India. 3. IT sector is expected to create over 2 lac jobs in 2012. 4. Indian IT sector has tough competition from China and Philippines. 5. Debt crisis in Europe has caused Indian IT sector to lose its clients. 6. Devaluation of the Rupee against the Dollar had mitigated the adverse effects of of the financial crisis in USA and Europe.
Social Factors :
1. English being widely spoken in India, it helps in fostering the Indian IT sector’s relationship and interaction on global stage. 2. A large number of institutes are offering IT courses due to availability of a large number of IT professors and students interested in IT services. 3. Indian labour is technically skilled to the world class level and also cheap. Technological Factors: Evolution of technologies like Web 2.0, Software Oriented Architectures and Cloud Computing has improved the quality of services that are provided to the customers.
C. Competitor Analysis: Analyze pricing, quality, distribution and partnerships of the nearest competitor of the company: In India, Infosys Limited has two major competitors Tata Consultancy Services and Wipro. Tata Consultancy Services: TCS is an Indian provider of information technology (IT) services, business solutions and outsourcing services headquartered in Mumbai, Maharashtra, India. It is a subsidiary of Tata Group conglomerate. TCS is one of the largest publicly traded companies in India by market capitalization. It is also the largest IT services company in India by revenue and profit. The revenue generated by TCS is US $ 10.17 Billion (2012) and the profit earned is US $ 2.2 Billion (2012), with an employee strength of 2, 43,545 (2012). TCS BPO is the second leading player in the outsourcing industry in India behind Genpact according to Dataquest survey in August 2011. TCS's BPO arm had revenues of $925 million in the year that ended in March, and 34,000 employees . Other than major Indian cities, TCS BPO is also present in Tier-II locations like Pune. TCS is also expanding its BPO Centre in Kolkata, where it already employs 2,000 people. Tata Consultancy Services has opened a business process outsourcing facility in the Philippines following the path of India-based BPO companies which have operations in that country. Wipro: Wipro Limited (formerly Western India Products Limited) is an Indian multinational provider of Information technology (IT) services, consulting and outsourcing services. It is headquartered in Bangalore, India. As of 2012, the company has over 130,000 employees and a worldwide presence with global centers across 54 countries. The company operates in four segments: IT products and services, Consumer care and lighting, Healthcare and Infrastructure engineering. . The revenue generated by Wipro is US $ 7.3 Billion (2012) and the profit earned is US $ 1.09 Billion (2012), with an employee strength of 1, 35,920 (2012).
D. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the industry: Strengths: 1. Human resource - India has one of the largest pool of technically qualified people with low wages. The number of IT professionals in India reached 520,000 by 2002. A large proportion of Indian graduates are proficient in English, ideally suited to the growth of ITES industry 2. Management experience - India is experienced in software development and has been in the industry since late 1980s. India possesses good management and process skills and has a strong business school network. 3. Government support - Quality telecom infrastructure has been put in place over past few years. Intellectual Property Right laws have been implemented to improve compliance with intellectual property rights 4. Growing domestic market
1. 2. 3. 4. 5.
Weaknesses: The Indian IT sector is largely dependent on its clients in the US and Europe. Economic recession in these countries causes a loss of business to the IT sector here. Scarce foreign language skills other than English. Lack of customer service culture Expensive and poor quality telecom infrastructure High attrition rates, therefore less no. of people with extensive call centre experience
Opportunities: 1. Increased off-shoring -There is a heavy downward pressure on IT budgets resulting in increase in off-shoring by companies. Business Process Outsourcing, and particularly, off-shoring is increasing in order to reduce process costs. Big MNCs (multi-national corporations) such as Accenture, CGEY, CSC are also establishing offshore development centers in India. Demand from rural markets is a rising trend due to an increase in farm and non-farm income and will be about 50 % of the demand by 2015. 2. Increasing awareness of outsourcing services Threats: 1. Competition: Philippines and China
2. Increasing public opposition to off-shoring in higher-wage countries - Legislation against off-shoring by governments in client markets, to save jobs for local population, may result in reduced off-shoring to India. Labor union pressures on companies (in the developed countries) may compel companies against outsourcing. 3. Reducing margins - With increasing competition, margins are reducing for Indian IT firms as they try to retain business
Company Analysis: 1. Company description (a brief introduction regarding what businesses the company is into): Infosys Limited formerly Infosys Technologies Limited is an Indian provider of business consulting, technology, engineering and outsourcing services. It belongs to the IT services and IT consulting industry. Infosys' IT solutions and services help accelerate innovation, increase productivity, reduce costs, and optimize asset utilization. Infosys' industry solutions help customers derive maximum value from IT investments in sectors like aerospace, defense,
airlines, communication services, education, energy, financial services, healthcare, hospitality, insurance, retail etc. The various services provided by Infosys are Managemnet Consulting Services, Business Application Services, Business It Services, BPO Services, Cloud and Mobility Services. Infosys’ products and platforms are focused on innovation-led business growth for its clients. Infosys’ cater to market needs driven by global mega trends, including digital consumers, emerging economies, new commerce and healthcare. Infosys’ offerings leverage latest technologies in cloud computing, mobility, big data, rich media and social to provide guaranteed business outcomes. Finacle- A Universal Banking Solution is the most popular product of Infosys.
2. General information about the company: location of the headquarters, year of founding, shareholding pattern, number of employees, top management, etc. Headquarters: Plot No. 44 & 97A Electronics City , Hosur Road, Bangalore - 560 100 Karnataka, India
Year of Founding: 1981 Shareholding pattern: Life Insurance Corporation of India has 5.17%. Abu Dhabi Investment Authority, a sovereign wealth fund owned by Abu Dhabi, and the Government of Singapore also hold significant shareholdings as on December 2011. The remaining public shares are owned by financial institutions and individual investors. Number of Employees: 1,51,151 (2012) Top management: 1. S. Gopalakrishnan Co-Founder Executive Co-Chairman 2. S. D. Shibulal Co-Founder Chief Executive Officer and Managing Director 3. V. Balakrishnan Member of the Board
Chief Financial Officer 4. Srinath Batni Member of the Board Head of Delivery Excellence 5. Nandita Gurjar Senior Vice President Group Head of Human Resources Member - Executive Council 6. Chandrashekar Kakal Senior Vice President Global Head of Business IT Services Member, Executive Council 7. Basab Pradhan Senior Vice President Head of Global Sales, Marketing and Alliances Member, Executive Council 8. Stephen R. Pratt Global Head of Consulting and Systems Integration Member, Executive Council 9. Pravin Rao Senior Vice President Global Head of Retail, Consumer Packaged Goods, Logistics and Life Sciences Member, Executive Council 10. B. G. Srinivas Member of the Board Head of Europe and Global Head of Financial Services & Insurance
11. Prasad Thrikutam Senior Vice President Global Head of Energy, Utilities, Communications and Services Member, Executive Council
12. Ramadas Kamath U. Senior Vice President Head of Infrastructure, Commercial, Facilities, Administration and Security Member, Executive Council 13. Ashok Vemuri Member of the Board Head of Americas and Global Head of Manufacturing, and Engineering Services
3. Financial performance of the company: Sales, net profit, segment wise performance of the past 1 year: The Revenue generated increased from US $ 6041(2011) to US $ 6994(2012). The Gross Profit obtained has increased from US $ 2544(2011) to US $ 2876(2012). The Operating Income obtained has increased from US $ 1779(2011) to US $ 2013(2012). Balance Sheet - IFRS USD Unaudited Condensed Consolidated Balance Sheets as of March 31, (Dollars in millions except share data) ASSETS Current Assets Cash and cash equivalents Available-for-sale financial assets Investment in certificates of deposit Trade receivables Unbilled revenue Derivative financial instruments Prepayments and other current assets $4,047 6 68 1,156 368 300 $3,737 5 27 1,043 279 15 206
March 31, 2012
March 31, 2011
Total current assets Non-current assets Property, plant and equipment Goodwill Intangible assets Available-for-sale financial assets Deferred income tax assets Income tax assets Other non-current assets Total non-current assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Derivative financial instruments Trade payables Current income tax liabilities Client deposits Unearned revenue Employee benefit obligations Provisions Other current liabilities Total current liabilities Non-current liabilities Deferred income tax liabilities Employee benefit obligations Other non-current liabilities
5,945
5,312
1,063 195 34 2 62 204 32 1,592 $7,537
1,086 185 11 5 85 223 103 1,698 $7,010
$9 5 207 3 107 98 26 482 937
10 183 5 116 31 20 451 816
2 22
58 14
Total liabilities Equity Share capital- 5 ($0.16) par value 600,000,000 equity shares authorized, issued and outstanding 571,396,401 and 571,317,959, net of 2,833,600 treasury shares each as of March 31, 2012 and March 31, 2011, respectively Share premium Retained earnings Other components of equity Total equity attributable to equity holders of the company Non-controlling interests Total equity Total liabilities and equity Commitments and contingent liabilities
961
888
64 703 6,509 (700) 6,576 6,576 $7,537
64 702 5,294 62 6,122 6,122 $7,010
Industry segments (USD Million) - (the numbers in blue represent FY 11) FY12 Revenues FSI 2,453 2,166 Identifiable operating expenses 1,047 905 Allocated expenses 616 539 Segmental operating income 790 MFG 1,438 1,185 631 508 378 302 429 ECS 1,500 1,451 625 613 396 369 479 RCL 1,603 1,239 668 523 424 313 511 Total 6,994 6,041 2,971 2,549 1,814 1,523 2209
722 Unallowable expenses
375
469
403
1,969 196 190
Operating profit
2,013 1,779
Other income
397 267
Profit before income taxes
2,410 2,046
Income tax expense
694 547
Net profit
1,716 1,499
Depreciation and amortization
195 189
Non-cash expenses other than depreciation and amortization
1 1
Geographic segments (USD Million) - (the numbers in blue represent FY 11) FY12 Revenues North America 4,468 3,944 Identifiable operating expenses 1,892 1,683 Allocated expenses 1,177 Europe 1,532 1,303 668 541 397 India 155 132 77 61 35 Rest of the world 839 662 334 264 205 Total 6,994 6,041 2,971 2,549 1,814
1,001 Segmental operating income 1,399 1,260 Unallowable expenses
327 467 435
32 43 39
163 300 235
1,523 2,209 1,969 196 190
Operating profit
2,013 1,779
Other income
397 267
Profit before income taxes
2,410 2,046
Income tax expense
694 547
Net profit
1,716 1,499
Depreciation and amortization
195 189
Non-cash expenses other than depreciation and amortization
1 1
4. SWOT Analysis: Strengths, weakness, opportunities and threats faced by the company Strengths: 1. Since the company is based in India its competitive advantage is enhanced. The Indian economy, despite weak economic indicators such as relatively high rates of inflation, has low labour costs. The workforce has relatively high skills levels in Information Technology. Couple these two elements together and you have an operational basis that
offers low-cost based, highly skilled competitive advantage. Trained Indian personnel often speak very good English and are sensitive to Western culture, underpinned by India's colonial past.
2.
Infosys is in a strong financial position. The business turned over more than $4 billion in 2008. This means that it has the capital to expand, and also the basis to leverage potential investors. The company has bases in 44 global development centres, most of which are located in India, although the company has offices in many developed and developing nations. This means not only that Infosys is becoming a global brand but also that it has the capability to support the global operations of multinational clients.
3.
Weaknesses: 1. Infosys on occasion struggles in the US markets, and has particular problems in securing United States Federal Government contracts in North America. Since these contracts are highly profitable and tend to run for long periods of time, Infosys is missing out on lucrative business. Added to this is the fact that its competitors do well in terms of securing the same Federal business (and one should also take into account that many of its competitors are domiciled in the US and there could be political pressure on the US Government to award contracts to domestic organizations).
2.
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).
3.
It is sometimes argued that Infosys is weaker when it comes to high-end management consultancy, since it tends to work at the level of operational value creation. Competitors such as IBM and Accenture tend to dominate this space.
Opportunities: 1. At a time of recession in the global economy, it may appear that some companies will reduce take up of services that Infosys offers. However, in tough times clients tend to focus upon cost reduction and outsourcing - with are strategies that Infosys offers. So hard times could be profitable for Infosys.
2.
There is a new and emerging market in China as the country undergoes a huge industrial revolution. The strategic alliance between Infosys and Schlumberger gives the IT company access to lucrative business in the gas and oil industries. There has been a trend over recent years for European and North American companies to base some or all of their operation in India. This is called an offshore service. Essentially there is a seamless link between domestic operations and services hosted in India. Examples include telecommunications companies such as British Telecom and banks such as HSBC that have customer service and support centres based in India. Think about the times that you have made calls to a support line to find that the adviser is in Mumbai or Bangalore and not in your home market.
3.
4.
Threats: 1. India is not the only country that is undergoing rapid industrial expansion. Competitors may come from countries such as China or Korea where there are large pools of low-cost labor, and developing educational infrastructures such as universities and technology colleges. 2. Customers may switch to other offshore service companies in other countries such as China or Korea. 3. 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 IT players, Infosys has to compete for skilled labor and this may have the effect of driving up wage levels, and making it more difficult to recruit and retain staff.
5. Various strategies employed by the company in the course of conducting business (in the form of alliances, joint ventures, product innovation/ expansion strategies, acquisitions/ divestitures and any such strategies that you think may affect the business of the company) in past 2 years. (Make intelligent use of above points while trying to understand the strategies used by the company) 1. The first acquisition was of Expert Information Services in Australia for around Rs 104 crore ($22.9 million) in 2003.
2. In 2005, Infosys attempted to add higher business focused consulting capabilities and leverage its successful lower cost offshore resources as a part of its future growth strategy. Infosys consulting attracted an impressive number of management consultants and systems integrators. The company had 2 goals:? To create new revenue sources by showcasing consulting as part of its overall value proposition. To increase its presence in USA where firms like IBM Global Services (IGS) and Accenture were dominant consultant forces.
?
3. Infosys wanted to acquire Axon Group, a leading UK-based SAP consulting company. Founded in 1994, Axon provided consultancy services to global companies that had chosen SAP as their enterprise platform. The company focused on technology-enabled transformation programs by leveraging its in-depth industry expertise and functional knowledge. Infosys' acquisition of Axon valued at £ 407.1 million (INR 33.1 billion; US$ 753.1 million) was supposed to be completed by November 2008. Axon had 2,000 employees located at offices in United Kingdom, North America, Malaysia, and Australia. For the year ended 31 December, 2007, Axon reported profit after taxation of £ 20.2 million (INR 1.6 billion; US$ 37.4 million) on revenue of £ 204.5 million (INR 16.6 billion; US$ 378.3 million). But, later Infosys walked away from its plan to acquire Axon Group. 4. In 2007,in one of the largest acquisition cum outsourcing deals by Infosys Technologies it bagged a $250-million (around Rs 1,010 crore) contract from Royal Philips Electronics. It took over Philip’s finance and accounts business process outsourcing (BPO) centres, which was spread across three countries in the process. It had paid $28 million (around Rs 110 crore) to Philips to take over its BPO assets (infrastructure, processes and intellectual property) from October 1, 2007.
5. Despite having economic slowdown and money depreciation in 2008, Infosys introduced a new business model to enhance revenue productivity. Infosys created more industry specific solutions where it could sell the intellectual property rights based on transaction or use. Infosys started charging the client based on transaction and the revenue productivity became higher in these kinds of deals.
Infosys has developed solutions for different verticals like retail and financial services. In each vertical, the company is tried to develop solutions that were domain specific. In the BPO sector also, Infosys has introduced the platform BPO concept that allowed the customers to follow the pay-as-you-go pricing mode.
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