Infosys in China

            
 
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Case Details:

Case Code : BSTR221
Case Length : 18 Pages
Pages Period : 2001-2006
Organization : Infosys China
Pub Date : 2006
Teaching Note :Not Available
Countries : China
Industry : Information Technology and Related Services

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"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." 1

- Narayana Murthy, Chief Mentor, Infosys Technologies, in 2004.

"We're looking at China as a resource for our global operations." 2

- Nandan M. Nilekani, CEO, Infosys Technologies, in 2002.

Introduction

On April 14, 2006, Infosys Technologies Limited3 (Infosys), India's second largest software exporter,4 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 Rs6 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.

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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 KPMG7 and NASSCOM.8

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."9

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1] Indrajit Basu, "China Gaining on India's IT Lead," Asia Times, August 28, 2004.

2] Bruce Einhorn, Manjeet Kriplani, "India's China Challenge," BusinessWeek, March 11, 2002.

3] Infosys is one of India's leading software companies and provides a range of IT consulting and software services to leading global organizations. The company was involved in customized software development, internet consulting, application development and offshore software services.

4] Tata Consultancy Services (TCS) was the largest software exporter in India in 2005. TCS, part of the Tata Group, is India's largest IT services firm with revenues of US$ 2.97 billion and net profit of US$ 649 million in 2005-06.

5] Infosys crossed the US$ 1 billion milestone in 2004.

6] 1 US$ = Rs.45.8 as of June 06, 2006.

7] Headquartered in the Netherlands, KPMG is one of the largest professional services firms in the world. KPMG employs 104,000 people in a global partnership spanning 144 countries. It provides audit, tax and advisory services to its clients.

8] The National Association of Software and Services Companies, NASSCOM is a not-for-profit Indian chamber of commerce that serves as an interface to the Indian software industry. Its member companies are software developers and providers of software services and IT-enabled/BPO services. It was set up to facilitate business and trade in software and services and to encourage advancement of research in software technology.

9] Saritha Rai, "India Taps China's Reserve of Technological Talent," www.nytimes.com, November 02, 2004.

 

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