Description
Strategic assessment Tech mahindra
STRATEGIC ASSESMENT of
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Tech Mahindra
1. Introduction The Mahindra Group The Mahindra group is one of the largest industrial conglomerates of India with diverse business interests such as automotive, farm equipment, trade and logistics, hospitality, information technology, infrastructure and financial services. The US $6.7 billion group has a global presence with operations in every continent (except Antarctica) and it is ranked amongst Forbes Top 200 list of the World's Most Reputable Companies and in the Top 10 list of Most Reputable Indian companies. The origins of Mahindra Group can be traced back to 1945 when Mahindra brothers had a desire to set up a franchise to produce the celebrated Willy’s Jeep (USA). They joined hands with Ghulam Mohammad and the company was incorporated as Mahindra & Mohammed on October 2nd 1945. After India’s independence, Ghulam Mohammad migrated to Pakistan, and the name of the company was renamed to Mahindra & Mahindra. Over the next 60 years, the company diversified its operations, engaging in numerous joint ventures and building expertise across various sectors.
2. History of the Firm’s Industry IT Services industry in India The seeds of Indian IT industry were laid way back in 1960, when India thought of being self sufficient in handling national security concerns. The Indian government first tried to have an agreement with IBM to share the new technologies. This agreement did not proceed in the right direction and forced the Indian government to set up a new commission called Department of Electronics (DOE). It was responsible for importing of computers and initial development of IT sector.[1] The first software by India was exported in the mid 1970s by Tata Consulting Services (TCS). By early 1980 the export had reached USD 12 million in spite of the regulations on import of hardware and software. The mid 1980s saw emergence of new companies like Infosys, Satyam, Mastek, etc. Most of the growth in the initial years was through “body-shopping” i.e. a transfer of programmer from India to a foreign company. The liberalization of laws in 1991 gave the right impetus to the IT industry. This allowed the companies to import hardware/software at the same time laying of
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optical fiber for fast communication. It shifted the focus from “body-shopping” to working from offshore. Along with it the strict US immigration laws slowed down the “body-shopping”. The Indian IT companies came up with a new business model wherein 1-2 programmers will be at client location and the rest of the team will work from India. The geographic location of India allowed US companies to continue work on the projects throughout the whole day. The 1990s was dominated by the high technology jobs that required a sophisticated enough skill-set to write software and maintain computer systems. As the decade came to an end the ‘Y2K’ problem along with internet telecom boom created a lot of demand for outsourcing. Most of the software which had prospects of ‘Y2K’ problem was written in COBOL language. The COBOL language was not taught in US universities anymore but was still prevalent in Indian colleges. Thus, the companies found the right resources in India who were also fluent in English. Along with the growth was also augmented by steps taken by Indian government like forming Software Technology Park, etc. In STP scheme the companies were assured continuous power, high speed satellite communication, allowed import duty free, reduction of tax, etc. The government also allowed foreign companies to have 100% ownership in Indian firms. In March of 2000 the US companies saw their market capital erode significantly due to dot com bubble burst. This made the US companies more conscious of their spending. The US companies looked for more and more avenues to off shore their work to Indian companies. The annual revenues of Indian IT companies touched US $ 8 billion by 2002. From 2001 onwards India had become the leader of “outsourcing” revolution and captured 70% of the total spending on outsourcing. According to an IDC (International Data Corporation) study, India had emerged as the fastest growing and the fourth largest IT market in Asia-Pacific. A few large firms controlled much of the exports of the Indian software industry. About 32% of total software exports were controlled by the top five firms. During the late 1990s, the Indian software industry showed a CAGR of 50% which was reduced to 32% after 2000. Initially the Indian software industry was mainly confined to producing and exporting low-end software services. They gradually moved into high-end software services catering business in BFSI, telecom, retailing and automotive segments. Over the years, sectors like BFSI, telecom emerged as the key growth sectors. Along with software services the business like Business Process Outsourcing, Key Process Outsourcing, Infrastructure Management Services, etc have increased the share of Indian export market in the current decade.
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As per the study by Motilal Oswal in July 2006, the software and IT services spending by Telecom Service Providers (TSP) was expected to grow at 5.8% CAGR and touch US $ 38 billion by 2009. Another study by Data Monitor showed that the global wireless telecom services industry is expected to grow at 11.8% CAGR and reach US $ 969 billion by 2009. A similar study about the global fixed line telecom services showed a growth at a CAGR at 4.6% and reach US $ 696 billion by 2009. The global recession of 2008 had an adverse affect on Indian IT export. The US market on which the Indian IT industries relied heavily, around 58%, went into a deep recession. Moreover, the financial sector generated 41% of the revenues, which was most severely affected. The companies in US started slashing their IT spending by a large margin. This resulted in the CAGR of just 20% for Indian IT companies. The Indian IT industry could maintain the growth because of factors like higher dollar-rupee exchange rate, where in the dollar reached close to Rs 50 from earlier rate of Rs 40. The advantages the industry had still prevailed like cost advantage, breadth of services offered, new product development, quality maturity of process and ease of scalability. To maintain the growth levels the Indian IT players are looking to file patents, new model for generating revenue, focusing on process benchmarking and enhanced utilization of infrastructure and talent.
3. Temporal Evolution of Firm and Its Strategy Tech Mahindra’s History[2] Mahindra-British Telecom (1986 – 2006) In 1986, Mahindra group entered into IT sector when it formed a joint venture with British Telecommunications plc. The company was named Mahindra-British Telecom (MBT) and started operations in 1987. Expanding Operations Since the early 1990s, MBT began to expand its geographic presence. The company incorporated its first overseas subsidiary, MBT International Inc in 1993. In 1994, the company was awarded the ISO 9001 certification by BVQI (Bureau Veritas Quality International, a France based multinational organization offering third-party certification services of quality management systems). MBT established its first UK branch office in 1995 and six years later in 2001, it incorporated MBT GmbH, Germany incorporated.
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In the year 2001, Mahindra-British Telecom and the US-based Rockwell Electronic Commerce entered into a 5-year strategic alliance and set-up an offshore software development centre involving total capital cost of $4.5 million. In 2002, the company incorporated MBT Software Technologies Pte. Limited, Singapore. During the same year, MBT was assessed at Level 5 of SEI CMM by KPMG and the following year it re-certified to ISO 9001:2000 by RWTUV now known as TUV Nord. In 2005, MBT continued its global expansion and acquired Axes Technologies (India) Private Limited, including its US and Singapore subsidiaries. MBT was certified to BS 7799-2:2002 (Information Security Management Framework) by RWTUV and assessed at Level 5 of SEI CMMI by KPMG. Tech Mahindra- Post 2006 In 2006, the name of the company was changed from Mahindra-British Telecom to Tech Mahindra Limited in order to reflect the diversification and growth of the client base and the increased breadth of the service offerings. . The company continued to diversify its operations and engage into various joint ventures. In 2007, Tech Mahindra Ltd announced their participation in Microsoft's Connected Services Sandbox a new program that brings together systems integrators (SIs) independent software vendors (ISVs) developers’ network equipment providers and telecommunications service providers in a collaborative environment to develop and test new communications services. JV with Motorola Inc. Tech Mahindra formed a JV with Motorola Inc. under the name CanvasM in 2006. Tech Mahindra held 80% in the joint venture. Tech Mahindra had deep expertise across a range of telecom technologies and through the joint venture Motorola gained access to more than 11,000 professional service experts and could leverage their expertise. For Tech Mahindra, Motorola’s large sales force and presence in North America provided an important channel for expanding operations beyond Asia. Access to Motorola’s R&D activities around emerging wireless broadband technologies enabled Tech Mahindra to establish competency and ultimately develop technical credibility around areas such as WiMAX. CanvasM became a key player in the mobile VAS space, focused on developing and deploying solutions and applications for media, operators and enterprises across the globe. It was awarded the title of Best Start-Up Company at the Mobile Content Awards ’08 held in London. As recently as August 2009, CanvasM bagged a multi-million dollar deal from Bahrain's Aytaf Telecom to provide value added services.
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Acquiring iPolicy Networks Private Limited On 18th January, 2007 Tech Mahindra entered into an agreement to acquire Noida based iPolicy Networks Private Limited ("iPolicy"). This acquisition was complementary to Tech Mahindra’s strong security services capabilities. iPolicy provided next-generation, carrier-grade integrated network security solutions for enterprise and service provider customers. iPolicy’ capabilities enhanced Tech Mahindra's security service offerings and enabled it to offer end to end security services to its customers.[3] Satyam Acquisition On 13th April, 2009, Tech Mahindra acquired a 31 percent stake in the 'fraud hit' Satyam Computers after a long process of bidding. With a subsequent open offer, the company planned to raise its stake to 51%. Tech Mahindra bid for Satyam at Rs 58 per share, while Larsen & Toubro, the other player in the fray, bid at Rs 45.90 per share. “This is a landmark development for Tech Mahindra and I am delighted that we are the highest bidder for Satyam,” said Anand Mahindra, Chairman, Tech Mahindra. However, Tech Mahindra’s acquisition of Satyam is not without challenges. It remains to be seen how well Tech Mahindra executes the integration process and there lies the source of Satyam’s vulnerability and sustenance. On 21 June, 2006, Satyam Computers was renamed and the new brand, “Mahindra Satyam” was launched. Tie-up with WIN in July 2009 Tech Mahindra announced a new strategic tie-up with leading provider of interactive mobile information and entertainment services, WIN whereby Tech Mahindra would develop a next generation mobile platform for WIN. The tie-up focuses on building a new platform to provide increased functionality and faster transactions across a broad range of media services particularly targeting the Asian markets. Welcoming the alliance, Jagdish Mitra, CEO CanvasM (Tech Mahindra’s VAS subsidiary) commented: “WIN has been a leader in providing VAS services in Europe and their expertise in delivering information and entertainment to mobile phone users in Europe has great replication potential and can be integrated into broader outsourced service offerings and other efficiency tools for large enterprises.” Opportunities & Challenges[4]
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Leaders don't look behind, they don't look to the side; they look ahead. So as far as I am concerned we are looking to be the best telecommunication service provider in the world. We have been recognized by major agencies in the world as being amongst the top and we are ranked with the best in the world. So we benchmark not just with our peers here, but we benchmark with the best in the world. Anand Mahindra, Chairman, Tech Mahindra Ltd. (in Aug,2006)
Tech Mahindra always had a very clear focus on the telecommunication industry, which according to Anand Mahindra, had been done for two reasons. “There is a very clear objective and a strategic alignment that comes when you say that you are going to focus on one segment of the industry, and our goal becomes extremely clear when we say we want to become the number one telecommunication solutions provider in the world,” said Mahindra. Since mid 2000s, there had been growing concerns in terms of a slowdown in global spending. The one risk that people associated Mahindra Tech with was the large proportion of revenues, which came from British Telecom and the very large proportion, which came from telecom verticals. In an interview with CNBC-TV18 in August 2006, Vineet Nayyar, CEO, Tech Mahindra explained, “As far as proportion of business from BT is concerned, it is coming down, but we have always argued that BT really is not one company. These are four separate companies with separate objectives and separate targets. We have been working with three companies, and we now want to work with the fourth. I do believe that in absolute terms, our business with BT will grow. I do believe that the proportion will come down because businesses from other areas will grow at a faster pace.” He added: To the other point as to whether telecom kind of places a restriction or a ceiling on us, all I would say is to please look at the business numbers of the telecom industry, both in the equipment manufacturers space and also in the service provider space. The market is close to $60 billion as against which the telecom industry in India is getting only about $1.7 billion. So we have huge headroom. Second, please recognize that the concept of telecom has changed; the definition of telecom has changed. It now includes media, it includes content, and it includes a host of other things which are coming in. So I think there is enough headroom for us to play and grow still. Tech Mahindra continues to be endorsed as a thought leader in telecom industry. Frost & Sullivan awards, which recognize outstanding global industry achievements, awarded Tech Mahindra the ‘Vertical Market Penetration Leadership Award in
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Telecom Vertical for 2006' and the 'Market Leadership Award for Offshore Security Consulting for Next Generation Network and Applications for 2006'.[5] In August 2009, Tech Mahindra bagged a Rs. 1500 crores IT outsourcing contract from Etisalat, a UAE based Telecom Company. This win for Tech Mahindra may shift its focus in the domestic market. Tech Mahindra is already an established player in the global OSS/BSS space. But with the global market reeling under recession, focus on domestic market appears to be the most logical strategy. Tech Mahindra is also committed to corporate social responsibility. In 2007, the company launched the Tech Mahindra Foundation to address the needs of the underprivileged in society, especially children. The company has key focus on the areas of Education, Women empowerment & Computer donations.
4. Critical Assessment of the Past Strategies Internal Environment Initial Strategy Adopted Mahindra British Telecom was formed as a result of a Joint Venture between Mahindra and Mahindra and British telecom. The company primarily operated as a software development centre for British telecom. With this Joint venture British Telecom could avail in house software support and developments for its Telecom services, while Mahindra and Mahindra could develop the expertise of providing I.T. services to a telecom Industry. Ever since its incorporation Tech Mahindra’s singular focus has been the telecom domain. Tech Mahindra’s core competence has been executing critical telecom transformational projects. Tech Mahindra’s focus on the telecommunications industry has enabled the company to develop domain knowledge that spans the breadth of solutions that telecommunication companies require. This has in turn allowed Tech Mahindra to steadily advance its offerings from the provision of conventional IT services to high end, higher value added services such as managed platforms and managed services and consulting, resulting in a deeper involvement in the clients’ businesses. The long term focus on telecom industry has allowed Tech Mahindra to develop many unique insights about the telecom sector and thus provide differentiated services and flexible partnering models. Thus, these features provide the source of competitive advantage for Tech Mahindra over its competitors.
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Tech Mahindra’s strategy decisions and reasons Table 1 - Tech Mahindra’s strategy decisions and reasons
YEAR
DECISIONS
REASONING
Mahindra – Mahindra Strategic preemption – to enter into the IT/ITES business by British group forming JV with British Telecom which had a foothold in the Telecom entered into industry. (1986 – IT sector 2006) when it Though Mahindra wanted to enter into the business directly formed a it found the resource & expertise brought by British telecom joint venture to contribute towards growth in Indian Software Industry. with British Telecommun ications Pvt. Ltd 2006 JV with Motorola Inc. under the brand name CanvasM Tech Mahindra found forming JV with a telephone manufacturer as an important decision. This was mainly because that particular field of telephone software was booming & providing expertise in that domain would decrease the institutional voids. As recently as August 2009, CanvasM successfully bid a multi-million dollar deal from Bahrain's Aytaf Telecom to provide value added services. Post 2006 MBT began Incorporation of MBT GMBH (Germany) Re-certified to ISO to expand its 9001:1994 by BVQI. geographic In 2007, Tech Mahindra Ltd announced their participation in presence Microsoft's Connected Services Sandbox a new program that brings together systems integrators (SIs) independent software vendors (ISVs) developers’ network equipment providers and telecommunications service providers in a collaborative environment to develop and test new communications services. Acquiring iPolicy Networks Private This acquisition was complementary to Tech Mahindra’s strong security services capabilities. iPolicy’ capabilities enhanced Tech Mahindra's security service offerings and enabled it to offer end to end security services to its
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2007
Limited
customers. It got a core competency different from its existent core competencies. This helped it to gain momentum in the long run, which in turn stabilized the growth rate of the Company. This strategic move paves the way for the emergence of a robust brand, which draws from the core values of the Mahindra Group and the inherent strength of the Satyam brand. The Satyam acquisition will help Tech Mahindra diversify its software services business, and compete aggressively with bigger rivals such as Tata Consultancy Services, IBM, Infosys and Wipro. Satyam, which serves customers such as General Electric, General Motors and Ford, will also help Tech Mahindra acquire a better portfolio of customers. The deal allows Tech Mahindra Ltd to reduce the dependence on telecom clients. Tech Mahindra has the opportunity to rationalize shared functions such as accounting, human resources and other support functions. The acquisition of Satyam will help Mahindra to increase its foreign presence in North America and other Asian markets.
2009
Satyam Acquisition
2009
Tie-up with The tie-up focuses on building a new platform to provide WIN increased functionality and faster transactions across a broad range of media services particularly targeting the Asian markets. The initial project with Tech Mahindra will extend WIN’s market leadership by providing improved service set-up and monitoring capabilities, enhanced transaction reporting and analysis with significant improvements in capacity and throughput to support even more media and feature rich services. The new platform will also provide increased functionality and new payments solutions. To begin with, the tie-up will formulate a go-tomarket strategy in key territories particularly targeting the Asian markets.
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External Environment PESTEL Analyses: Political Factors: India has a majority government at the centre which is source of stability for the political system. Information technology Industry in India is highly dependent on outsourcing from US, Europe and other countries. Similarly, Tech Mahindra is also an export oriented company . 61.2% of the revenues are from Europe and 29% are from the United States. This makes the company vulnerable for changes in political factors in these regions. The recent drive against outsourcing in the US, supported by the ruling party may cause a threat to IT industry in India. The government of India on the other hand has been a constant source of support to the IT industry. The IT industry continues to enjoy tax exemptions and is recognized as “sunrise industry” by the government of India. Economic Factors: Exchange rates have a strong bearing on the earnings of Tech Mahindra and other companies in the IT industry. Hence exchange rate fluctuations, dollar inflows and outflows in to India would affect the performance of the company. Extension of the STP tax relaxations by the Government of India would help the IT/ITes industry to prevail over the recent economic downturn. The Government’s decision to remove the Fringe benefit tax would also help the IT industry cut its tax expenditures. India may also see an increase in interest rate in the near future because of increased borrowing by the government. This might adversely affect borrowing to private players in India. Socio Cultural Factors: In India great emphasis is placed on engineering education, which helps the country churn about 350000 engineers per year. These engineering graduates are potential employees for the IT / ITes industry. Bangalore, Hyderabad, Pune, Delhi and Mumbai are the major sources of engineering graduates. The cosmopolitan nature of these cities helps in attracting talent across India and the world. Technological Factors:
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Changes in Information technology is growing at a rapid pace. The increase in free wares and open source technologies are a constant source of threat to the IT industry in India. Environmental Factors: India has been a target of terrorism in the recent past. The government has provided protection of Central Industrial Security Force to a major IT player like Infosys. Similar protection is expected to be provided to other IT players as they face increasing threats from terrorists. The increasing threat of communicable (contagious) diseases like swine flu might adversely affect the IT industry as the global nature of the IT industry calls for constant travelling between countries. Legal Factors: There are no major legal issues hampering the IT industry in India. Major players in the IT industry comply with the general regulations and law laid down by the judiciary and regulators in India.
Porter’s Analysis Threat of new Entrants: Low 1. Supply side economies of scale: This driver is weak in the given industry as the entry to the industry has low capital requirements. The supply is lower than the demand and there is enough scope in the industry. 2. Demand-side benefits of scale (network effects/externalities): This is a strong driver when we consider the power of referrals. A large software provider can use them effectively to attract prospective big clients. On the flip side, the industry has a large value chain resulting in space for small enterprises. 3. Buyer Switching Costs: This is a strong driver due to higher switching costs involved but most of the maintenance projects can be diverted to small and new vendors having expertise in the particular domain. The switching costs associated with such projects are low and offers the clients more cost benefits. In the context of Indian software industry, most of the firms handle the maintenance projects therefore this driver is weak. 4. Incumbency Advantages independent of scale:
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This driver is strong as the brand identities established are very helpful to the large and established It services vendors to gain competitive advantage. 5. Availability of financing options: This is a weak driver in the context of Indian software industry. There are available ample financing options like venture capitalists etc. given the exciting business offered by the new entrant. 6. Capital requirements: This is a weak driver as the entry requires low capital. 7. Government policy: This is a weak driver as the government policies are very supportive of the Indian IT industry. The government offers various benefits to the industry in the budget to encourage the growth. Threat of Rivalry among Firms: High 1. Growth rate in the industry: The growth rate in the industry is high but due to the current economic recession, there is an effort on the companies to cut costs and reduce their IT budgets. This has resulted in low growth rate and thus high rivalry. 2. Incumbent number and power distribution: This is a strong driver. There are numerous software vendors but fewer large companies. Rivalry: Price Based 3. Homogeneity among products: The products offered are commoditized and positioning is low cost and little differentiation. Although the competition is low when it comes to domain expertise but most of the software vendors often provide similar products and services. 4. Buyer switching costs: The buyer switching costs are low in the case of Indian software industry. Threat of substitutes: Low The threat of substitutes refers to the availability of substitute products from a different Industry. At present there is no substitute for I.T. systems used in companies. Hence this threat is relatively low. Threat of suppliers: Medium 1. The supplier for the IT industry is the pool of talented human resource. Off late this bargaining power has gone down due to the global economic slowdown, job cuts and the bleak IT outlook.
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2. The switching cost of suppliers is low as they switch from one company to another with more expertise in their domain. Supplier group's dependence on Foreign Investment for revenues is high as employee salary and his/her expertise depends on quality of project/ commission. Incumbents' switching costs in changing suppliers is High (ie. The companies have to offer high and attractive packages if they want to poach from their competitor’s company) as employees have good knowledge of existing customers’ requirements. 3. However in the present global economic slowdown, the bargaining power of the suppliers (ie. Employees) has reduced as I.T. companies are looking to cut costs. Threat of buyers: High 1. Low degree of concentration of I.T. companies: This means that large numbers of I.T. companies compete for the same contract. Moreover each company provides similar product offering to the customers. Hence price becomes the single distinguishing factor in such cases. 2. Buyer group's degree of price-sensitivity has increased with decline in IT expenditure: Indian IT sector is dependent on the United States of America and the BFSI sector in particular for majority of its revenues, and with the recent financial crisis new spending from the BFSI sector and the USA on I.T. outsourcing has reduced tremendously. Due to all these consequences buyers' likelihood of backward integration increased to decrease cost (ie. Many companies are establishing their own I.T. support departments to cut costs). The bargaining power of customers has increased tremendously. Thus, after analyzing the internal and external environments for Tech Mahindra, we can draw up a SWOT Analysis for it.
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SWOT Analysis Strengths: Strong clients in the Telecom Industry like British Telecom, Motorola, AT&T and Alcatel from whom tech Mahindra can learn more about the Telecom Industry requirements. 1. Superior knowledge about servicing the Telecom Industry as compared to its competitors due to its experience with British Telecom since Inception 2. Tech Mahindra is Ranked 1 in Telecom Software category by Voice & Data, 2009 and 5th among all I.T. service providers by NASSCOM in 2009.
Weaknesses: 1. High dependence of Tech Mahindra on Telecom Industry. 2. High degree of customer concentration which gives a higher bargaining power to customers. 3. The present Tax benefits that the company is enjoying as a result of its ‘Software technology parks’ (STPs) will lapse by 31st march 2010. This will result in further reduction in income for Tech Mahindra. However this factor would be common for other I.T. companies as well. Opportunities: 1. Tech Mahindra can geographically expand its operations in countries where Telecom Industry is looking for good quality I.T. outsourcing services. 2. With the Acquisition of Satyam Computers Tech Mahindra can foray into other business verticals where Satyam has established a strong foothold. 3. With the increased competition in the Telecommunications Industry new players are coming up and they are positioning themselves on the basis of the product differentiation. Hence Tech Mahindra can leverage upon its expertise in the telecom domain and provide versatile I.T. services to these companies. Threats: 1. Different I.T. companies in India like Infosys technologies ltd. , Tata consultancy services, Wipro and HCL who also provide services to the Telecommunications Industry pose high degree of competition to Tech Mahindra especially when low expertise is required of the service required by
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the customer is not highly differentiated. In such cases Price becomes the only discriminating factor to secure a contract. 2. With most of the revenues coming from export services there is a threat of varying currency exchange rates which can affect the revenues of Tech Mahindra.
Further, we analyze the various resources that the company has and whether they can provide the company competitive advantage. For this we draw a VRIO framework for Tech Mahindra:
Table 2 – VRIO Framework Resource Valuable Rare yes Inimitable Exploitation by Organization no Tech Mahindra could offer better services in the telecommunications domain as compared to its competitors. Helped the organization project itself as a quality service provider in the European IT services market Tech Mahindra could expand its TEM expertise
In depth yes Knowledge of the telecom Industry
ISO 9001 BVQI
by
yes
yes
No
Acquisition of Yes Axes technologies Inc. CanvasM (joint Yes venture with Motorola)
yes
yes
yes
yes
Tech Mahindra could expand operations beyond Asia with the help of Motorola’s large sales force. Moreover tech Mahindra got access to Motorola’s R&D activities in the wireless domain and hence could develop technical credibility in WIMAX
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Ipolicy yes networks private limited (Acquisition) Satyam Computers yes
yes
yes
Tech Mahindra could enhance the security services offered to its customers with the help of ipolicy networks Tech Mahindra made a worthy investment in Satyam computers, which is showing a good payoff considering the last two quarters’ performance of Satyam computers. Tech Mahindra’s management vision has been to focus only on telecommunication industry. Moreover the timely acquisitions show the Management’s aspiration to develop the firm.
Yes
yes
Tech Mahindra’s Management
Yes
Yes
Yes
Porter’s generic strategies The different strategies implemented by Tech Mahindra like acquiring iPolicy, Satyam and forming a tie-up with WIN shows that they follow the product/service differentiation strategy. Product differentiation is a process of distinguishing the differences of a product or service offering from other products, to make it more attractive to a particular target market. Product differentiation at Tech Mahindra iPolicy’ capabilities enhanced Tech Mahindra's security service offerings and enabled it to offer end to end security services to its customers. It also gives Tech Mahindra the opportunity to rationalize shared functions such as accounting, human resources and other support functions. This will lead to better services provided to the end customers. The acquisition of Satyam will help Mahindra to increase its foreign presence in North America and other Asian markets. The tie-up with WIN focuses on
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building a new platform to provide increased functionality and faster transactions across a broad range of media services particularly targeting the Asian markets.
Strategic Alliances Mahindra – BT Joint Venture (1986 – 2006) A joint venture between Mahindra & Mahindra Limited (M&M) and British Telecommunications plc (BT), UK in which M&M (Mahindra and Mahindra) held 44% and BT held 39% of the equity.[6] Since the Mahindra group was venturing into the software sector for the first time, it made a lot of sense to tie up with BT as a strategic partner so that they could learn domain knowledge of the telecommunication sector which was BT’s core competence. For BT, they had gained a vendor who would help them transform their IT infrastructure so that it will lead to a better customer experience for subscribers. [7] JV with Motorola Inc. Tech Mahindra formed a JV with Motorola Inc. under the name CanvasM in 2006. Tech Mahindra held 80% stake in the joint venture. Motorola contributes its applications portfolio, applications and service delivery platform, and mobile technology expertise which are Motorola’s core competencies.[8] Further, Motorola gained access to more than 11,000 professional service experts and could leverage their expertise. CanvasM has become a key player in the mobile VAS space, focused on developing and deploying solutions and applications for media, operators and enterprises across the globe. Acquiring iPolicy Networks Private Limited On 18th January, 2007 Tech Mahindra entered into a definitive agreement to acquire Noida based iPolicy Networks Private Limited (“iPolicy”). This acquisition was complementary to Tech Mahindra’s strong security services capabilities. iPolicy’s capabilities have enhanced Tech Mahindra’s security service offerings, enabling it to offer end to end security services to its customers; encompassing security consulting services, network security products and managed security services from its security operations centre.[9] Satyam Acquisition
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On 13th April, 2009, Tech Mahindra acquired a 31 percent stake in the 'fraud hit' Satyam Computers after a long process of bidding. With a subsequent open offer, the company planned to raise its stake to 51%. Assets Tech Mahindra will gain from acquiring Satyam include:
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A large client base including Fortune 500 organizations, many of whom have been very satisfied with the quality of services provided Land assets and premises, with large campuses in Tier 1 cities About 43,000 employees globally.
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Tech Mahindra needs to appreciate that in expanding from its domain expertise in the telecoms service provider and equipment manufacturer sectors, it is moving into very different markets and service areas and with a far larger client base: here it is reliant on the expertise and relationships of more senior executives still at Satyam [10] Tie-up with WIN in July 2009 WIN, a Europe-based interactive mobile information and entertainment service provider, has entered into a strategic alliance with India-based IT services firm, Tech Mahindra. Both the firms will jointly develop market strategies in the key regions, leveraging Tech Mahindra's strong presence in Asia. Tech Mahindra seeks to capitalize on the investments made by WIN in the last two years in web- and WAP-based services and portals, video streaming, audio, entertainment content and online storefront management tools. WIN will also have an access to Tech Mahindra's applications and outsourcing services including development of resources for large-scale projects. [11]
5. Current State of Affairs With the acquisition of Satyam computers Tech Mahindra is entering into other business verticals where it does not have much competence. Tech Mahindra can leverage upon Satyam Computers’ expertise in these verticals and learn from it. Presently Tech Mahindra along with Satyam Computers is developing an I.T. project for providing World Cup football matches content on mobile phones. Thus we see that Tech Mahindra is also entering the sports industry. In future although the British telecom is expected to grow, Tech Mahindra’s revenues from British telecom is expected to proportionately fall. This proportion of revenues is expected to come from businesses in other verticals.
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The uncertainties facing Tech Mahindra include:
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Satyam's financial situation: Its accounts are in the process of being restated. The extent of legal liabilities arising from class action lawsuits by U.S. investors. The extent to which Satyam's clients will remain loyal to the new entity.
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In addition to these, Tech Mahindra faces a number of major challenges. It has acquired a company (Satyam):
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With much larger operations globally (comparing employee numbers only, Tech Mahindra's headcount at end 2008 was 25,429) Whose capabilities are far broader than TM's own background of providing telecoms sector-specific IT services Where some major clients have transferred work to competitors.
?
?
And all of this is in a recessionary environment where even the more stable highly successful Tier 1 Indian vendors are being very cautious in their outlook. This does at least mean that in the short term Tech Mahindra does not have to demonstrate to investors the topline growth they might otherwise have expected. While the hope must be for a successful outcome - the many employees at Satyam who have remained loyal in the most challenging of conditions deserve no less - the nature of the challenge that Tech Mahindra has chosen to take on is immense. One immediate critical priority will be retaining relationships with Satyam's key remaining clients: this depends on retaining the key operational middle managers working on these accounts. The company can benefit from the acquisition of Satyam as two different organization merger helps in each of the verticals adapting to management practices of the other company. Tech Mahindra focuses on differentiated offering whereas Satyam focused on newer technological innovations and newer markets. When this merger happens then there is more possibility of Mahindra Satyam developing in a phased manner with each company benefiting from the management practices. Their mission of supporting innovation & well reasoned risk explains us the product offering which might be expected from the merger. With the acquisition of Satyam computers Tech Mahindra is entering into other business verticals where it does not have much competence. Tech Mahindra can leverage upon Satyam Computers’ expertise in these verticals and learn from it. Presently Tech Mahindra along with Satyam Computers is developing an I.T. project for providing world cup football matches content on mobile phones. Thus we see
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that Tech Mahindra is also entering the sports industry. In future although the British telecom is expected to grow ,Tech Mahindra’s revenues from British telecom is expected to propotionately fall. This proportion of revenues is expected to come from businesses in other verticals. Tech Mahindra's competitive strength lies in the domain knowledge coming from its exclusive focus on the telecom industry: to fully benefit from this acquisition, it has to be extremely sensitive in its approach to the integration and the way it handles key Satyam personnel at both operational and senior executive level. [10]
6. References 1. Somesh K Mathur, Indian Information Technology Industry: Past, Present and Future & A Tool For National Development, 2006 2. Somesh K Mathur, Indian Information Technology Industry: Past, Present and Future & A Tool For National Development, 2006 3.http://mahindra.com/mediaroom/group_overview.html 4.http://en.wikipedia.org/wiki/Mahindra_Group 5.http://www.iloveindia.com/economy-of-india/top-50companies/mahindra-group.html 6.http://en.wikipedia.org/wiki/Tech_Mahindra 7.http://www.india-server.com/news/tech-mahindra-bags-700-million2426.html 8.http://www.techmahindra.com/home/PressReleases1.aspx?Id=21 9.http://www.mahindra.com/Admin/tmpupload/TechMahindraQ3netup12 2percent.pdf 10.http://www.techmahindra.com/analyst/newsnupdates/Satyam To%2 0Be%20Acqured%20by%20Tech%20Mahindra%20%20Nelson%20Hall.docx 11. EBSCOhost: WIN Forms Strategic Alliance With Tech Mahindra, Emerging Markets NOW, 6/30/2009
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doc_790727719.doc
Strategic assessment Tech mahindra
STRATEGIC ASSESMENT of
Table of contents
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Tech Mahindra
1. Introduction The Mahindra Group The Mahindra group is one of the largest industrial conglomerates of India with diverse business interests such as automotive, farm equipment, trade and logistics, hospitality, information technology, infrastructure and financial services. The US $6.7 billion group has a global presence with operations in every continent (except Antarctica) and it is ranked amongst Forbes Top 200 list of the World's Most Reputable Companies and in the Top 10 list of Most Reputable Indian companies. The origins of Mahindra Group can be traced back to 1945 when Mahindra brothers had a desire to set up a franchise to produce the celebrated Willy’s Jeep (USA). They joined hands with Ghulam Mohammad and the company was incorporated as Mahindra & Mohammed on October 2nd 1945. After India’s independence, Ghulam Mohammad migrated to Pakistan, and the name of the company was renamed to Mahindra & Mahindra. Over the next 60 years, the company diversified its operations, engaging in numerous joint ventures and building expertise across various sectors.
2. History of the Firm’s Industry IT Services industry in India The seeds of Indian IT industry were laid way back in 1960, when India thought of being self sufficient in handling national security concerns. The Indian government first tried to have an agreement with IBM to share the new technologies. This agreement did not proceed in the right direction and forced the Indian government to set up a new commission called Department of Electronics (DOE). It was responsible for importing of computers and initial development of IT sector.[1] The first software by India was exported in the mid 1970s by Tata Consulting Services (TCS). By early 1980 the export had reached USD 12 million in spite of the regulations on import of hardware and software. The mid 1980s saw emergence of new companies like Infosys, Satyam, Mastek, etc. Most of the growth in the initial years was through “body-shopping” i.e. a transfer of programmer from India to a foreign company. The liberalization of laws in 1991 gave the right impetus to the IT industry. This allowed the companies to import hardware/software at the same time laying of
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optical fiber for fast communication. It shifted the focus from “body-shopping” to working from offshore. Along with it the strict US immigration laws slowed down the “body-shopping”. The Indian IT companies came up with a new business model wherein 1-2 programmers will be at client location and the rest of the team will work from India. The geographic location of India allowed US companies to continue work on the projects throughout the whole day. The 1990s was dominated by the high technology jobs that required a sophisticated enough skill-set to write software and maintain computer systems. As the decade came to an end the ‘Y2K’ problem along with internet telecom boom created a lot of demand for outsourcing. Most of the software which had prospects of ‘Y2K’ problem was written in COBOL language. The COBOL language was not taught in US universities anymore but was still prevalent in Indian colleges. Thus, the companies found the right resources in India who were also fluent in English. Along with the growth was also augmented by steps taken by Indian government like forming Software Technology Park, etc. In STP scheme the companies were assured continuous power, high speed satellite communication, allowed import duty free, reduction of tax, etc. The government also allowed foreign companies to have 100% ownership in Indian firms. In March of 2000 the US companies saw their market capital erode significantly due to dot com bubble burst. This made the US companies more conscious of their spending. The US companies looked for more and more avenues to off shore their work to Indian companies. The annual revenues of Indian IT companies touched US $ 8 billion by 2002. From 2001 onwards India had become the leader of “outsourcing” revolution and captured 70% of the total spending on outsourcing. According to an IDC (International Data Corporation) study, India had emerged as the fastest growing and the fourth largest IT market in Asia-Pacific. A few large firms controlled much of the exports of the Indian software industry. About 32% of total software exports were controlled by the top five firms. During the late 1990s, the Indian software industry showed a CAGR of 50% which was reduced to 32% after 2000. Initially the Indian software industry was mainly confined to producing and exporting low-end software services. They gradually moved into high-end software services catering business in BFSI, telecom, retailing and automotive segments. Over the years, sectors like BFSI, telecom emerged as the key growth sectors. Along with software services the business like Business Process Outsourcing, Key Process Outsourcing, Infrastructure Management Services, etc have increased the share of Indian export market in the current decade.
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As per the study by Motilal Oswal in July 2006, the software and IT services spending by Telecom Service Providers (TSP) was expected to grow at 5.8% CAGR and touch US $ 38 billion by 2009. Another study by Data Monitor showed that the global wireless telecom services industry is expected to grow at 11.8% CAGR and reach US $ 969 billion by 2009. A similar study about the global fixed line telecom services showed a growth at a CAGR at 4.6% and reach US $ 696 billion by 2009. The global recession of 2008 had an adverse affect on Indian IT export. The US market on which the Indian IT industries relied heavily, around 58%, went into a deep recession. Moreover, the financial sector generated 41% of the revenues, which was most severely affected. The companies in US started slashing their IT spending by a large margin. This resulted in the CAGR of just 20% for Indian IT companies. The Indian IT industry could maintain the growth because of factors like higher dollar-rupee exchange rate, where in the dollar reached close to Rs 50 from earlier rate of Rs 40. The advantages the industry had still prevailed like cost advantage, breadth of services offered, new product development, quality maturity of process and ease of scalability. To maintain the growth levels the Indian IT players are looking to file patents, new model for generating revenue, focusing on process benchmarking and enhanced utilization of infrastructure and talent.
3. Temporal Evolution of Firm and Its Strategy Tech Mahindra’s History[2] Mahindra-British Telecom (1986 – 2006) In 1986, Mahindra group entered into IT sector when it formed a joint venture with British Telecommunications plc. The company was named Mahindra-British Telecom (MBT) and started operations in 1987. Expanding Operations Since the early 1990s, MBT began to expand its geographic presence. The company incorporated its first overseas subsidiary, MBT International Inc in 1993. In 1994, the company was awarded the ISO 9001 certification by BVQI (Bureau Veritas Quality International, a France based multinational organization offering third-party certification services of quality management systems). MBT established its first UK branch office in 1995 and six years later in 2001, it incorporated MBT GmbH, Germany incorporated.
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In the year 2001, Mahindra-British Telecom and the US-based Rockwell Electronic Commerce entered into a 5-year strategic alliance and set-up an offshore software development centre involving total capital cost of $4.5 million. In 2002, the company incorporated MBT Software Technologies Pte. Limited, Singapore. During the same year, MBT was assessed at Level 5 of SEI CMM by KPMG and the following year it re-certified to ISO 9001:2000 by RWTUV now known as TUV Nord. In 2005, MBT continued its global expansion and acquired Axes Technologies (India) Private Limited, including its US and Singapore subsidiaries. MBT was certified to BS 7799-2:2002 (Information Security Management Framework) by RWTUV and assessed at Level 5 of SEI CMMI by KPMG. Tech Mahindra- Post 2006 In 2006, the name of the company was changed from Mahindra-British Telecom to Tech Mahindra Limited in order to reflect the diversification and growth of the client base and the increased breadth of the service offerings. . The company continued to diversify its operations and engage into various joint ventures. In 2007, Tech Mahindra Ltd announced their participation in Microsoft's Connected Services Sandbox a new program that brings together systems integrators (SIs) independent software vendors (ISVs) developers’ network equipment providers and telecommunications service providers in a collaborative environment to develop and test new communications services. JV with Motorola Inc. Tech Mahindra formed a JV with Motorola Inc. under the name CanvasM in 2006. Tech Mahindra held 80% in the joint venture. Tech Mahindra had deep expertise across a range of telecom technologies and through the joint venture Motorola gained access to more than 11,000 professional service experts and could leverage their expertise. For Tech Mahindra, Motorola’s large sales force and presence in North America provided an important channel for expanding operations beyond Asia. Access to Motorola’s R&D activities around emerging wireless broadband technologies enabled Tech Mahindra to establish competency and ultimately develop technical credibility around areas such as WiMAX. CanvasM became a key player in the mobile VAS space, focused on developing and deploying solutions and applications for media, operators and enterprises across the globe. It was awarded the title of Best Start-Up Company at the Mobile Content Awards ’08 held in London. As recently as August 2009, CanvasM bagged a multi-million dollar deal from Bahrain's Aytaf Telecom to provide value added services.
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Acquiring iPolicy Networks Private Limited On 18th January, 2007 Tech Mahindra entered into an agreement to acquire Noida based iPolicy Networks Private Limited ("iPolicy"). This acquisition was complementary to Tech Mahindra’s strong security services capabilities. iPolicy provided next-generation, carrier-grade integrated network security solutions for enterprise and service provider customers. iPolicy’ capabilities enhanced Tech Mahindra's security service offerings and enabled it to offer end to end security services to its customers.[3] Satyam Acquisition On 13th April, 2009, Tech Mahindra acquired a 31 percent stake in the 'fraud hit' Satyam Computers after a long process of bidding. With a subsequent open offer, the company planned to raise its stake to 51%. Tech Mahindra bid for Satyam at Rs 58 per share, while Larsen & Toubro, the other player in the fray, bid at Rs 45.90 per share. “This is a landmark development for Tech Mahindra and I am delighted that we are the highest bidder for Satyam,” said Anand Mahindra, Chairman, Tech Mahindra. However, Tech Mahindra’s acquisition of Satyam is not without challenges. It remains to be seen how well Tech Mahindra executes the integration process and there lies the source of Satyam’s vulnerability and sustenance. On 21 June, 2006, Satyam Computers was renamed and the new brand, “Mahindra Satyam” was launched. Tie-up with WIN in July 2009 Tech Mahindra announced a new strategic tie-up with leading provider of interactive mobile information and entertainment services, WIN whereby Tech Mahindra would develop a next generation mobile platform for WIN. The tie-up focuses on building a new platform to provide increased functionality and faster transactions across a broad range of media services particularly targeting the Asian markets. Welcoming the alliance, Jagdish Mitra, CEO CanvasM (Tech Mahindra’s VAS subsidiary) commented: “WIN has been a leader in providing VAS services in Europe and their expertise in delivering information and entertainment to mobile phone users in Europe has great replication potential and can be integrated into broader outsourced service offerings and other efficiency tools for large enterprises.” Opportunities & Challenges[4]
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Leaders don't look behind, they don't look to the side; they look ahead. So as far as I am concerned we are looking to be the best telecommunication service provider in the world. We have been recognized by major agencies in the world as being amongst the top and we are ranked with the best in the world. So we benchmark not just with our peers here, but we benchmark with the best in the world. Anand Mahindra, Chairman, Tech Mahindra Ltd. (in Aug,2006)
Tech Mahindra always had a very clear focus on the telecommunication industry, which according to Anand Mahindra, had been done for two reasons. “There is a very clear objective and a strategic alignment that comes when you say that you are going to focus on one segment of the industry, and our goal becomes extremely clear when we say we want to become the number one telecommunication solutions provider in the world,” said Mahindra. Since mid 2000s, there had been growing concerns in terms of a slowdown in global spending. The one risk that people associated Mahindra Tech with was the large proportion of revenues, which came from British Telecom and the very large proportion, which came from telecom verticals. In an interview with CNBC-TV18 in August 2006, Vineet Nayyar, CEO, Tech Mahindra explained, “As far as proportion of business from BT is concerned, it is coming down, but we have always argued that BT really is not one company. These are four separate companies with separate objectives and separate targets. We have been working with three companies, and we now want to work with the fourth. I do believe that in absolute terms, our business with BT will grow. I do believe that the proportion will come down because businesses from other areas will grow at a faster pace.” He added: To the other point as to whether telecom kind of places a restriction or a ceiling on us, all I would say is to please look at the business numbers of the telecom industry, both in the equipment manufacturers space and also in the service provider space. The market is close to $60 billion as against which the telecom industry in India is getting only about $1.7 billion. So we have huge headroom. Second, please recognize that the concept of telecom has changed; the definition of telecom has changed. It now includes media, it includes content, and it includes a host of other things which are coming in. So I think there is enough headroom for us to play and grow still. Tech Mahindra continues to be endorsed as a thought leader in telecom industry. Frost & Sullivan awards, which recognize outstanding global industry achievements, awarded Tech Mahindra the ‘Vertical Market Penetration Leadership Award in
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Telecom Vertical for 2006' and the 'Market Leadership Award for Offshore Security Consulting for Next Generation Network and Applications for 2006'.[5] In August 2009, Tech Mahindra bagged a Rs. 1500 crores IT outsourcing contract from Etisalat, a UAE based Telecom Company. This win for Tech Mahindra may shift its focus in the domestic market. Tech Mahindra is already an established player in the global OSS/BSS space. But with the global market reeling under recession, focus on domestic market appears to be the most logical strategy. Tech Mahindra is also committed to corporate social responsibility. In 2007, the company launched the Tech Mahindra Foundation to address the needs of the underprivileged in society, especially children. The company has key focus on the areas of Education, Women empowerment & Computer donations.
4. Critical Assessment of the Past Strategies Internal Environment Initial Strategy Adopted Mahindra British Telecom was formed as a result of a Joint Venture between Mahindra and Mahindra and British telecom. The company primarily operated as a software development centre for British telecom. With this Joint venture British Telecom could avail in house software support and developments for its Telecom services, while Mahindra and Mahindra could develop the expertise of providing I.T. services to a telecom Industry. Ever since its incorporation Tech Mahindra’s singular focus has been the telecom domain. Tech Mahindra’s core competence has been executing critical telecom transformational projects. Tech Mahindra’s focus on the telecommunications industry has enabled the company to develop domain knowledge that spans the breadth of solutions that telecommunication companies require. This has in turn allowed Tech Mahindra to steadily advance its offerings from the provision of conventional IT services to high end, higher value added services such as managed platforms and managed services and consulting, resulting in a deeper involvement in the clients’ businesses. The long term focus on telecom industry has allowed Tech Mahindra to develop many unique insights about the telecom sector and thus provide differentiated services and flexible partnering models. Thus, these features provide the source of competitive advantage for Tech Mahindra over its competitors.
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Tech Mahindra’s strategy decisions and reasons Table 1 - Tech Mahindra’s strategy decisions and reasons
YEAR
DECISIONS
REASONING
Mahindra – Mahindra Strategic preemption – to enter into the IT/ITES business by British group forming JV with British Telecom which had a foothold in the Telecom entered into industry. (1986 – IT sector 2006) when it Though Mahindra wanted to enter into the business directly formed a it found the resource & expertise brought by British telecom joint venture to contribute towards growth in Indian Software Industry. with British Telecommun ications Pvt. Ltd 2006 JV with Motorola Inc. under the brand name CanvasM Tech Mahindra found forming JV with a telephone manufacturer as an important decision. This was mainly because that particular field of telephone software was booming & providing expertise in that domain would decrease the institutional voids. As recently as August 2009, CanvasM successfully bid a multi-million dollar deal from Bahrain's Aytaf Telecom to provide value added services. Post 2006 MBT began Incorporation of MBT GMBH (Germany) Re-certified to ISO to expand its 9001:1994 by BVQI. geographic In 2007, Tech Mahindra Ltd announced their participation in presence Microsoft's Connected Services Sandbox a new program that brings together systems integrators (SIs) independent software vendors (ISVs) developers’ network equipment providers and telecommunications service providers in a collaborative environment to develop and test new communications services. Acquiring iPolicy Networks Private This acquisition was complementary to Tech Mahindra’s strong security services capabilities. iPolicy’ capabilities enhanced Tech Mahindra's security service offerings and enabled it to offer end to end security services to its
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2007
Limited
customers. It got a core competency different from its existent core competencies. This helped it to gain momentum in the long run, which in turn stabilized the growth rate of the Company. This strategic move paves the way for the emergence of a robust brand, which draws from the core values of the Mahindra Group and the inherent strength of the Satyam brand. The Satyam acquisition will help Tech Mahindra diversify its software services business, and compete aggressively with bigger rivals such as Tata Consultancy Services, IBM, Infosys and Wipro. Satyam, which serves customers such as General Electric, General Motors and Ford, will also help Tech Mahindra acquire a better portfolio of customers. The deal allows Tech Mahindra Ltd to reduce the dependence on telecom clients. Tech Mahindra has the opportunity to rationalize shared functions such as accounting, human resources and other support functions. The acquisition of Satyam will help Mahindra to increase its foreign presence in North America and other Asian markets.
2009
Satyam Acquisition
2009
Tie-up with The tie-up focuses on building a new platform to provide WIN increased functionality and faster transactions across a broad range of media services particularly targeting the Asian markets. The initial project with Tech Mahindra will extend WIN’s market leadership by providing improved service set-up and monitoring capabilities, enhanced transaction reporting and analysis with significant improvements in capacity and throughput to support even more media and feature rich services. The new platform will also provide increased functionality and new payments solutions. To begin with, the tie-up will formulate a go-tomarket strategy in key territories particularly targeting the Asian markets.
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External Environment PESTEL Analyses: Political Factors: India has a majority government at the centre which is source of stability for the political system. Information technology Industry in India is highly dependent on outsourcing from US, Europe and other countries. Similarly, Tech Mahindra is also an export oriented company . 61.2% of the revenues are from Europe and 29% are from the United States. This makes the company vulnerable for changes in political factors in these regions. The recent drive against outsourcing in the US, supported by the ruling party may cause a threat to IT industry in India. The government of India on the other hand has been a constant source of support to the IT industry. The IT industry continues to enjoy tax exemptions and is recognized as “sunrise industry” by the government of India. Economic Factors: Exchange rates have a strong bearing on the earnings of Tech Mahindra and other companies in the IT industry. Hence exchange rate fluctuations, dollar inflows and outflows in to India would affect the performance of the company. Extension of the STP tax relaxations by the Government of India would help the IT/ITes industry to prevail over the recent economic downturn. The Government’s decision to remove the Fringe benefit tax would also help the IT industry cut its tax expenditures. India may also see an increase in interest rate in the near future because of increased borrowing by the government. This might adversely affect borrowing to private players in India. Socio Cultural Factors: In India great emphasis is placed on engineering education, which helps the country churn about 350000 engineers per year. These engineering graduates are potential employees for the IT / ITes industry. Bangalore, Hyderabad, Pune, Delhi and Mumbai are the major sources of engineering graduates. The cosmopolitan nature of these cities helps in attracting talent across India and the world. Technological Factors:
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Changes in Information technology is growing at a rapid pace. The increase in free wares and open source technologies are a constant source of threat to the IT industry in India. Environmental Factors: India has been a target of terrorism in the recent past. The government has provided protection of Central Industrial Security Force to a major IT player like Infosys. Similar protection is expected to be provided to other IT players as they face increasing threats from terrorists. The increasing threat of communicable (contagious) diseases like swine flu might adversely affect the IT industry as the global nature of the IT industry calls for constant travelling between countries. Legal Factors: There are no major legal issues hampering the IT industry in India. Major players in the IT industry comply with the general regulations and law laid down by the judiciary and regulators in India.
Porter’s Analysis Threat of new Entrants: Low 1. Supply side economies of scale: This driver is weak in the given industry as the entry to the industry has low capital requirements. The supply is lower than the demand and there is enough scope in the industry. 2. Demand-side benefits of scale (network effects/externalities): This is a strong driver when we consider the power of referrals. A large software provider can use them effectively to attract prospective big clients. On the flip side, the industry has a large value chain resulting in space for small enterprises. 3. Buyer Switching Costs: This is a strong driver due to higher switching costs involved but most of the maintenance projects can be diverted to small and new vendors having expertise in the particular domain. The switching costs associated with such projects are low and offers the clients more cost benefits. In the context of Indian software industry, most of the firms handle the maintenance projects therefore this driver is weak. 4. Incumbency Advantages independent of scale:
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This driver is strong as the brand identities established are very helpful to the large and established It services vendors to gain competitive advantage. 5. Availability of financing options: This is a weak driver in the context of Indian software industry. There are available ample financing options like venture capitalists etc. given the exciting business offered by the new entrant. 6. Capital requirements: This is a weak driver as the entry requires low capital. 7. Government policy: This is a weak driver as the government policies are very supportive of the Indian IT industry. The government offers various benefits to the industry in the budget to encourage the growth. Threat of Rivalry among Firms: High 1. Growth rate in the industry: The growth rate in the industry is high but due to the current economic recession, there is an effort on the companies to cut costs and reduce their IT budgets. This has resulted in low growth rate and thus high rivalry. 2. Incumbent number and power distribution: This is a strong driver. There are numerous software vendors but fewer large companies. Rivalry: Price Based 3. Homogeneity among products: The products offered are commoditized and positioning is low cost and little differentiation. Although the competition is low when it comes to domain expertise but most of the software vendors often provide similar products and services. 4. Buyer switching costs: The buyer switching costs are low in the case of Indian software industry. Threat of substitutes: Low The threat of substitutes refers to the availability of substitute products from a different Industry. At present there is no substitute for I.T. systems used in companies. Hence this threat is relatively low. Threat of suppliers: Medium 1. The supplier for the IT industry is the pool of talented human resource. Off late this bargaining power has gone down due to the global economic slowdown, job cuts and the bleak IT outlook.
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2. The switching cost of suppliers is low as they switch from one company to another with more expertise in their domain. Supplier group's dependence on Foreign Investment for revenues is high as employee salary and his/her expertise depends on quality of project/ commission. Incumbents' switching costs in changing suppliers is High (ie. The companies have to offer high and attractive packages if they want to poach from their competitor’s company) as employees have good knowledge of existing customers’ requirements. 3. However in the present global economic slowdown, the bargaining power of the suppliers (ie. Employees) has reduced as I.T. companies are looking to cut costs. Threat of buyers: High 1. Low degree of concentration of I.T. companies: This means that large numbers of I.T. companies compete for the same contract. Moreover each company provides similar product offering to the customers. Hence price becomes the single distinguishing factor in such cases. 2. Buyer group's degree of price-sensitivity has increased with decline in IT expenditure: Indian IT sector is dependent on the United States of America and the BFSI sector in particular for majority of its revenues, and with the recent financial crisis new spending from the BFSI sector and the USA on I.T. outsourcing has reduced tremendously. Due to all these consequences buyers' likelihood of backward integration increased to decrease cost (ie. Many companies are establishing their own I.T. support departments to cut costs). The bargaining power of customers has increased tremendously. Thus, after analyzing the internal and external environments for Tech Mahindra, we can draw up a SWOT Analysis for it.
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SWOT Analysis Strengths: Strong clients in the Telecom Industry like British Telecom, Motorola, AT&T and Alcatel from whom tech Mahindra can learn more about the Telecom Industry requirements. 1. Superior knowledge about servicing the Telecom Industry as compared to its competitors due to its experience with British Telecom since Inception 2. Tech Mahindra is Ranked 1 in Telecom Software category by Voice & Data, 2009 and 5th among all I.T. service providers by NASSCOM in 2009.
Weaknesses: 1. High dependence of Tech Mahindra on Telecom Industry. 2. High degree of customer concentration which gives a higher bargaining power to customers. 3. The present Tax benefits that the company is enjoying as a result of its ‘Software technology parks’ (STPs) will lapse by 31st march 2010. This will result in further reduction in income for Tech Mahindra. However this factor would be common for other I.T. companies as well. Opportunities: 1. Tech Mahindra can geographically expand its operations in countries where Telecom Industry is looking for good quality I.T. outsourcing services. 2. With the Acquisition of Satyam Computers Tech Mahindra can foray into other business verticals where Satyam has established a strong foothold. 3. With the increased competition in the Telecommunications Industry new players are coming up and they are positioning themselves on the basis of the product differentiation. Hence Tech Mahindra can leverage upon its expertise in the telecom domain and provide versatile I.T. services to these companies. Threats: 1. Different I.T. companies in India like Infosys technologies ltd. , Tata consultancy services, Wipro and HCL who also provide services to the Telecommunications Industry pose high degree of competition to Tech Mahindra especially when low expertise is required of the service required by
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the customer is not highly differentiated. In such cases Price becomes the only discriminating factor to secure a contract. 2. With most of the revenues coming from export services there is a threat of varying currency exchange rates which can affect the revenues of Tech Mahindra.
Further, we analyze the various resources that the company has and whether they can provide the company competitive advantage. For this we draw a VRIO framework for Tech Mahindra:
Table 2 – VRIO Framework Resource Valuable Rare yes Inimitable Exploitation by Organization no Tech Mahindra could offer better services in the telecommunications domain as compared to its competitors. Helped the organization project itself as a quality service provider in the European IT services market Tech Mahindra could expand its TEM expertise
In depth yes Knowledge of the telecom Industry
ISO 9001 BVQI
by
yes
yes
No
Acquisition of Yes Axes technologies Inc. CanvasM (joint Yes venture with Motorola)
yes
yes
yes
yes
Tech Mahindra could expand operations beyond Asia with the help of Motorola’s large sales force. Moreover tech Mahindra got access to Motorola’s R&D activities in the wireless domain and hence could develop technical credibility in WIMAX
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Ipolicy yes networks private limited (Acquisition) Satyam Computers yes
yes
yes
Tech Mahindra could enhance the security services offered to its customers with the help of ipolicy networks Tech Mahindra made a worthy investment in Satyam computers, which is showing a good payoff considering the last two quarters’ performance of Satyam computers. Tech Mahindra’s management vision has been to focus only on telecommunication industry. Moreover the timely acquisitions show the Management’s aspiration to develop the firm.
Yes
yes
Tech Mahindra’s Management
Yes
Yes
Yes
Porter’s generic strategies The different strategies implemented by Tech Mahindra like acquiring iPolicy, Satyam and forming a tie-up with WIN shows that they follow the product/service differentiation strategy. Product differentiation is a process of distinguishing the differences of a product or service offering from other products, to make it more attractive to a particular target market. Product differentiation at Tech Mahindra iPolicy’ capabilities enhanced Tech Mahindra's security service offerings and enabled it to offer end to end security services to its customers. It also gives Tech Mahindra the opportunity to rationalize shared functions such as accounting, human resources and other support functions. This will lead to better services provided to the end customers. The acquisition of Satyam will help Mahindra to increase its foreign presence in North America and other Asian markets. The tie-up with WIN focuses on
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building a new platform to provide increased functionality and faster transactions across a broad range of media services particularly targeting the Asian markets.
Strategic Alliances Mahindra – BT Joint Venture (1986 – 2006) A joint venture between Mahindra & Mahindra Limited (M&M) and British Telecommunications plc (BT), UK in which M&M (Mahindra and Mahindra) held 44% and BT held 39% of the equity.[6] Since the Mahindra group was venturing into the software sector for the first time, it made a lot of sense to tie up with BT as a strategic partner so that they could learn domain knowledge of the telecommunication sector which was BT’s core competence. For BT, they had gained a vendor who would help them transform their IT infrastructure so that it will lead to a better customer experience for subscribers. [7] JV with Motorola Inc. Tech Mahindra formed a JV with Motorola Inc. under the name CanvasM in 2006. Tech Mahindra held 80% stake in the joint venture. Motorola contributes its applications portfolio, applications and service delivery platform, and mobile technology expertise which are Motorola’s core competencies.[8] Further, Motorola gained access to more than 11,000 professional service experts and could leverage their expertise. CanvasM has become a key player in the mobile VAS space, focused on developing and deploying solutions and applications for media, operators and enterprises across the globe. Acquiring iPolicy Networks Private Limited On 18th January, 2007 Tech Mahindra entered into a definitive agreement to acquire Noida based iPolicy Networks Private Limited (“iPolicy”). This acquisition was complementary to Tech Mahindra’s strong security services capabilities. iPolicy’s capabilities have enhanced Tech Mahindra’s security service offerings, enabling it to offer end to end security services to its customers; encompassing security consulting services, network security products and managed security services from its security operations centre.[9] Satyam Acquisition
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On 13th April, 2009, Tech Mahindra acquired a 31 percent stake in the 'fraud hit' Satyam Computers after a long process of bidding. With a subsequent open offer, the company planned to raise its stake to 51%. Assets Tech Mahindra will gain from acquiring Satyam include:
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A large client base including Fortune 500 organizations, many of whom have been very satisfied with the quality of services provided Land assets and premises, with large campuses in Tier 1 cities About 43,000 employees globally.
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Tech Mahindra needs to appreciate that in expanding from its domain expertise in the telecoms service provider and equipment manufacturer sectors, it is moving into very different markets and service areas and with a far larger client base: here it is reliant on the expertise and relationships of more senior executives still at Satyam [10] Tie-up with WIN in July 2009 WIN, a Europe-based interactive mobile information and entertainment service provider, has entered into a strategic alliance with India-based IT services firm, Tech Mahindra. Both the firms will jointly develop market strategies in the key regions, leveraging Tech Mahindra's strong presence in Asia. Tech Mahindra seeks to capitalize on the investments made by WIN in the last two years in web- and WAP-based services and portals, video streaming, audio, entertainment content and online storefront management tools. WIN will also have an access to Tech Mahindra's applications and outsourcing services including development of resources for large-scale projects. [11]
5. Current State of Affairs With the acquisition of Satyam computers Tech Mahindra is entering into other business verticals where it does not have much competence. Tech Mahindra can leverage upon Satyam Computers’ expertise in these verticals and learn from it. Presently Tech Mahindra along with Satyam Computers is developing an I.T. project for providing World Cup football matches content on mobile phones. Thus we see that Tech Mahindra is also entering the sports industry. In future although the British telecom is expected to grow, Tech Mahindra’s revenues from British telecom is expected to proportionately fall. This proportion of revenues is expected to come from businesses in other verticals.
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The uncertainties facing Tech Mahindra include:
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Satyam's financial situation: Its accounts are in the process of being restated. The extent of legal liabilities arising from class action lawsuits by U.S. investors. The extent to which Satyam's clients will remain loyal to the new entity.
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In addition to these, Tech Mahindra faces a number of major challenges. It has acquired a company (Satyam):
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With much larger operations globally (comparing employee numbers only, Tech Mahindra's headcount at end 2008 was 25,429) Whose capabilities are far broader than TM's own background of providing telecoms sector-specific IT services Where some major clients have transferred work to competitors.
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And all of this is in a recessionary environment where even the more stable highly successful Tier 1 Indian vendors are being very cautious in their outlook. This does at least mean that in the short term Tech Mahindra does not have to demonstrate to investors the topline growth they might otherwise have expected. While the hope must be for a successful outcome - the many employees at Satyam who have remained loyal in the most challenging of conditions deserve no less - the nature of the challenge that Tech Mahindra has chosen to take on is immense. One immediate critical priority will be retaining relationships with Satyam's key remaining clients: this depends on retaining the key operational middle managers working on these accounts. The company can benefit from the acquisition of Satyam as two different organization merger helps in each of the verticals adapting to management practices of the other company. Tech Mahindra focuses on differentiated offering whereas Satyam focused on newer technological innovations and newer markets. When this merger happens then there is more possibility of Mahindra Satyam developing in a phased manner with each company benefiting from the management practices. Their mission of supporting innovation & well reasoned risk explains us the product offering which might be expected from the merger. With the acquisition of Satyam computers Tech Mahindra is entering into other business verticals where it does not have much competence. Tech Mahindra can leverage upon Satyam Computers’ expertise in these verticals and learn from it. Presently Tech Mahindra along with Satyam Computers is developing an I.T. project for providing world cup football matches content on mobile phones. Thus we see
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that Tech Mahindra is also entering the sports industry. In future although the British telecom is expected to grow ,Tech Mahindra’s revenues from British telecom is expected to propotionately fall. This proportion of revenues is expected to come from businesses in other verticals. Tech Mahindra's competitive strength lies in the domain knowledge coming from its exclusive focus on the telecom industry: to fully benefit from this acquisition, it has to be extremely sensitive in its approach to the integration and the way it handles key Satyam personnel at both operational and senior executive level. [10]
6. References 1. Somesh K Mathur, Indian Information Technology Industry: Past, Present and Future & A Tool For National Development, 2006 2. Somesh K Mathur, Indian Information Technology Industry: Past, Present and Future & A Tool For National Development, 2006 3.http://mahindra.com/mediaroom/group_overview.html 4.http://en.wikipedia.org/wiki/Mahindra_Group 5.http://www.iloveindia.com/economy-of-india/top-50companies/mahindra-group.html 6.http://en.wikipedia.org/wiki/Tech_Mahindra 7.http://www.india-server.com/news/tech-mahindra-bags-700-million2426.html 8.http://www.techmahindra.com/home/PressReleases1.aspx?Id=21 9.http://www.mahindra.com/Admin/tmpupload/TechMahindraQ3netup12 2percent.pdf 10.http://www.techmahindra.com/analyst/newsnupdates/Satyam To%2 0Be%20Acqured%20by%20Tech%20Mahindra%20%20Nelson%20Hall.docx 11. EBSCOhost: WIN Forms Strategic Alliance With Tech Mahindra, Emerging Markets NOW, 6/30/2009
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