"Both from the market point of view becausethere are so many MNCs operating in China, anddue to its huge domestic IT market, corporationslike Infosys must have China on their radarscreen. Furthermore, I think China is also amarket for talent because as a talent sourceChina is pretty good except the English part, butthey are improving very rapidly.” - Narayana Murthy, Chief Mentor, Infosys Technologies, in 2004.
Journey of Infosys AIndian Giant 1981 Infosys Incorporation 1987 First International office in the US 1993 Completed IPO(Rs.85/share) 1995 Set up development centers across India 1996 Set up first office in Milton, Keynes, UK 1997 Set up office in Toronto 1999 Annual revenue of US$ 100 million
Cont. …. Listed in NASDAQ offered 2.07 million ADR’s at US$ 34 each Opened office in Germany, Sweden, Belgium, Australia Set up two development centers in the US 2000 Annual revenue of US$ 200 million New office in Hong Kong Global development centers in Canada and UK Three development centers in US 2001 Annual revenue of over US$ 400 million
Cont. …. Office in UAE and Argentina Development center in Japan 2002 Revenue touched US$ 0.5 billion Office in the Netherlands, Singapore and Switzerland 2004 Revenue crossed US$ 1billion 2006 Revenue crossed US$ 2billion
Reasons For Entering intoChina Salaries of Professionals Witness a Shortage of 250000 workers in IT industry by 2009 Comparable and competitive manpower with those in India Help to enter into neighboring countries like Japan, Hong Kong, Taiwan, Australia and ASEA countries Rapid growth in Chines economy Foreign companies entering China looked at established players in the software industry Chines IT service will grow to US$ 27 billion by 2007 of which Indian IT companies wre- expected to account for 40% of this market
Cont. … Recognized that other Asian markets like Korea, Taiwan and Japan which were under served and America and Europe were excessively focused China became member of WTO Chinese company spending increased in IT technology by 30% annually Rongji also said ‘ You are number one in terms of software, we are number one in terms of hardware…. Together we make the world’s number one.’ Salaries in China in this sector grew at 4%and in India 25% Manpower cost in Shanghai was 40% lower than in Banglore
Cont. … Chinese Are well versed in other Asian languages like Korean, Japanese, Thai
Background One of first client was US based Reebok company Products introduced in 1980s like proprietary banking software Acquired domain knowledge in retail, finance, distribution and telecommunication In 1987 40:60 joint venture with Kurt Salmon Association in which stake was increased to 50% by 1993 and in 1995 agreement was terminated and solely operated. Problem mainly was Indian government on foreign trade Worldwide sales headquarter was in Fremont, Califonia
Cont. ….. Sales office in Canada, UK, Belgium, Sweden, Germany, Austra lia, Japan, India. In 2000, 78% revenue from North America, 14.8% from Europe, 1.4% India Global Delivery Model (GDM)
Entering China Established a branch office in China but was not able to obtain the required permission from Chinese government and faced several bureaucratic hurdles. In China transparency was not very high It was easy for straightforward company In 2003 established wholly owned subsidiary in China Seamless Global Delivery Model Positioned it as premium end-to-end service provider Services provided aid implementation of enterprise solution packages in area of supply chain management, CRM enterprise application integration and enterprise resource planning.
Cont. …. 20000 sq.ft office space and 100 professionals Initially invested US$ 1 million and planned to pump US$ 4 million 2005 signed letter with Shanghai Zhangjiang (Group) Company and in its IT park
Problems Faced in China Got permission only in JV with the government First year net loss of Rs. 80 million MOU between Infosys and Chinese Government for training students from China in Madras and in China programs like Instep with Tsinghua University Different regions and provinces, mayors and communist party leaders can provide the IT firms with incentives superseding MII Incentive based on size of the investment and whether it is seen to be of strategic value Laws and regulation and their interpretation change from time to time
Cont. … No sophistication in the financial market and financial regulation and supervision No proper Chinese strategy with an institutional mechanism to support Indian enterprise in the country High financial risk High piracy rate of 91% Does not have a very good track record as far as intellectual property rights Copyright policy was amended in 2001 Important to maintain relationship with government official
Cont. …. Tax structure is not uniform across the country Too much too much red tape involved in the repatriation of profits Changes in foreign exchange policy and change in political scenario Duty calculation on exports where not clear and imports where some times retested and changed from province to province
Future Plan By 2010 planned to invest US$ 65 million accommodating 6000 employees 25000 sq. m. Shanghai Center with US$10 million and Hangzhou center in an area of 100000 sq. m. In 2007-08 revenue projected was US$ 50 milion Contribution in revenue from China would account 10% of its total revenues by 2015