Infosys in China
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Case Code: BSTR221 Case Length: 18 Pages Period: 2001-2006 Pub Date: 2006 Teaching Note: Not Available |
Price: Rs.400 Organization: Infosys Industry: Information Technology, and Related Services Countries: China Themes: International Business, Globalization Business |
Abstract Case Intro 1 Case Intro 2 Excerpts
"Both from the market point of view because there are so many MNCs operating in China, and due to its huge domestic IT market, corporations like Infosys must have China on their radar screen. Furthermore, I think China is also a market for talent because as a talent source China is pretty good except the English part, but they are improving very rapidly."
- Narayana Murthy, Chief Mentor, Infosys Technologies, in 2004.
"We're looking at China as a resource for our global operations."
- Nandan M. Nilekani, CEO, Infosys Technologies, in 2002.
Introduction
On April 14, 2006, Infosys Technologies Limited (Infosys), India's second largest software exporter, announced that it had crossed the milestone of US$ 2 billion5 in total revenues in the 25th year since its inception. Infosys'revenues increased by 33.5% from Rs 71.3 billion in the financial year 2004-05 to Rs 95.2 billion in the financial year 2005-06. At the same time, Infosys announced that its Chinese subsidiary had incurred loss of Rs 166 million on revenue of Rs 260 million. The reason for this loss, Infosys said, was that though it was able to secure some local clients, it was unable to attract foreign companies operating in China to procure its services. In 2004-05, the Chinese venture incurred a loss of Rs 83.9 million. Infosys had 500 employees in China as of March 2006, against a projected 800 to 1,000 persons. Though Infosys had planned to enter China in 2002, its plans materialized only in 2004.
Infosys entered China as a part of its global expansion strategy. The most important reason for entering China was the soaring salaries of software professionals in India - a result of growing global demand for them. The gap between the demand and availability of skilled manpower in India was likely to increase further, and India was estimated to witness a shortage of 250,000 workers in the IT industry by 2009, according to a study conducted by KPMG and NASSCOM. China was the only place where the salaries and quality of infotech manpower were comparable and competitive with those in India. With a presence in China, Infosys planned to move to other neighboring countries like Japan. According to Nandan Nilekani (Nilekani), "We need a deep reservoir of talent as well as an alternative low-cost center like India as we continue to grow. And only China can match up."
Another reason that encouraged Infosys to move into China was the rapid growth in the Chinese economy, which had drawn in several multinationals. The foreign companies entering China were looking at established players in the software industry, who could understand systems, procedures and standards in China, and Infosys did not want to miss this high potential business opportunity. The market for software and IT services in China was expected to grow exponentially. According to Gartner, the Chinese IT services market, including call centers and back office operations, was expected to grow to US$ 27 billion by 2007. Indian IT companies were expected to account for 40% of this market....
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