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INFOSYS 2015 - A Micro Economics Analysis Report


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This is a report on the potential growth/decline of INFOSYS during the period of 2012-2015 based on an analysis considering several microeconomics parameters.

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INFOSYS 2015 - A Micro Economics Analysis Report

  1. 1. MICRO-ECONOMICS RESEARCH: INDIVIDUAL REPORT MBA-2012 | LT-1ACOMPANY INFORMATION [99 words] INFOSYS is a Bangalore-based Information Technology MNC which started the IT revolution inIndia that transformed Bangalore into the “Silicon Valley of India”. INFOSYS is a household name in Indiathat is highly respected by employees and the general public for its strong value system as acorporation. In the 5.5 years I worked at Infosys since graduation I grew from an entry-level position tothat of Technology-Lead. Promoted twice in my career, I lastly served as Technology-Lead for 6 months. INFOSYS TECHNOLOGIES LTD. Corporate Headquarters Electronics City, Hosur Road, Bangalore– 560100, INDIA Phone: +91-80-2852-0261 Email: Web: www.infosys.comNATURE OF BUSINESS [250 words] INFOSYS defines, designs and delivers technology-enabled business solutions for Global 2000companies and operates in 64 countries across the world. INFOSYS has developed a conglomerateintegration instead of vertical integration. For the first 25 years of its operations INFOSYS experiencedincreasing returns to scale where adding head-count delivered consistently increasing margins. But asthe industry matured and competition increased there was a trending towards constant returns to scale.Post 2005 INFOSYS leadership made a strategic decision to return to an increasing return to scale wherethe growth rate of revenues and margins are not limited by the growth rate of input factors like humancapital or number of client acquisitions. Technology-based automation of different aspects of ITsolutions development and maintenance has helped INFOSYS battle diminishing return to scale. Startingwith 7 founders and $250 in 1981, the current size of over 140,000+ employees and $6.6 Billionrevenues demonstrates the huge upward shift in its total output over the 30 years of its existence. Due to the persisting global economic slowdown, INFOSYS will experience a slight downwardshift in its total product output as will the entire IT-industry. Recessionary symptoms like decreasingbilling rates, reducing contract sizes and high inflation in India impact the INFOSYS financials adversely.Also, to pacify anti-offshoring sentiments in the Western Hemisphere, Infosys will be forced to hire moreprofessionals and managers from the developed countries like US, UK, Europe, etc. which pushes thetotal output curve downward proportionate to the length of the recession.ANALYZING THE PRODUCT MARKET [497 words] INFOSYS was the pioneer of the Global Delivery Model (GDM) which became a disruptive forcein the industry and gave birth to the phenomenon of offshore technological outsourcing. The GDM isbased on the principle of taking production to the location where the best talent is available, where itmakes the best economic sense. Since INFOSYS did not patent or copyright this novel concept, thispotential Monopoly Market morphed into a Monopolistic Competition. A key marketing strategy ofINFOSYS was to not enter the product development space where it would end up as a competitor to itsown clients and potential targets. This strategy served Infosys to increase its client base unhinderedacross industry segments and geographies over the initial period of 25 years. Historically, as expectablein a monopolistic market, INFOSYS has played on its superior quality of deliverables to establish itself as AUTHOR: MADHURANATH RAMACHANDRA
  2. 2. MICRO-ECONOMICS RESEARCH: INDIVIDUAL REPORT MBA-2012 | LT-1Aa premium price IT solutions player. Further, INFOSYS developed its own custom Value ArticulationFrameworks to communicate clearly the marginal value delivered to its customers that justified itspremium pricing and also as a marketable USP v/s the competition. Marketing and businessdevelopment in each country are led by resident senior Business Development Managers who establishleads to new clients and nurture existing client relationships to help in client retention. Additionally,INFOSYS has practiced inclusive growth by offering ESOPS and creating many millionaires amongst itsemployees. This values based-branding creates trust in the minds of various business stakeholders. INFOSYS is the second largest IT major in India by revenues and size. TCS, Cognizant, Wipro,Mahindra Satyam, etc. are some of the Indian competitors of INFOSYS whereas Accenture, IBM,Capgemini, etc. are the major international competitors of INFOSYS in the software services sector.Apart from these, thousands of other small and medium software companies compete with INFOSYS indifferent segments for micro chunks of the market. Businesses across industry segments are alwaysunder pressure to increase their productivity by IT enabling the various internal functions and externalsupply chains. What the industrial revolution did to businesses in the 18th and 19th century, the IT andtelecom revolution did to businesses in the end of 20th century – improved efficiencies of production.Thus, an inordinate price-inelastic demand for IT solutions was fostered across geographies whichcounter-balanced the monopolistic market condition. As a consequence of the aforementionedconditions, INFOSYS established itself as a price maker in the market and held the mantle of industryleadership in terms of strategy, size, positioning, and corporate social responsibility. Though absolutefinancial numbers place it in the second position in India, when it comes to brand recognition or awardsand recognition, it is superior to all its Indian competitors. It has been awarded repeatedly by the MAKE,TIMES, FORBES, Economic Times, and even other industrial bodies. But the most valued of all is thenumerous appreciations and preferred partner statuses offered by client companies of world reputeacross industries and locations. EXHIBIT-1 shows growth comparison of Total Profit and Total Revenues.ANALYZING THE FACTOR MARKET [496 words] INFOSYS is a “knowledge enterprise” which relies primarily on its human capital to deliver qualityservices to customers. As such, we can conclude that labour is the Factor Market most critical for itsincreased productivity and leadership. INFOSYS has always had the best employee training andleadership fostering programs in the industry. It has invested heavily in state-of-the-art training facilitieswhere 14,000 employees can be trained simultaneously. It has also established the Infosys LeadershipInstitute (ILI) which is focused on breeding the next 3-tiers of leadership. This is comparable with theefforts of world leaders like GE and IBM in leadership development. It was for these reasons that BostonConsulting Group named INFOSYS among the Top-10 Value Creators Technology Companies where itspecifically cited that INFOSYS is among the few companies which align their talent for global advantage.It also places heavy thrust on the leadership vision and talent management. INFOSYS has alreadylaunched an initiative in 2010 which is called the Talent 3.0 that is aimed at revolutionizing the waytalent is spotted, recruited and retained in the company with ample opportunities for utilizing their fullcapabilities on the job. Such initiatives and investments in infrastructure and capital spending on talentmanagement will place INFOSYS in a leadership position in the long run. In the short run of 3 years i.e.2012–2015 it will still be struggling with the industry specific problems of high talent attrition, increasedtalent acquisition costs and loss of knowledge capital due to high human capital turnover. AUTHOR: MADHURANATH RAMACHANDRA
  3. 3. MICRO-ECONOMICS RESEARCH: INDIVIDUAL REPORT MBA-2012 | LT-1A Overall INFOSYS has been very effective in anticipating the macro-economic shifts in the globalbusiness environment and in formulating strategies to manage the effects of the same. So I don’t think itwill be caught in a Prisoner’s Dilemma till 2015. During my career at INFOSYS I noted several instanceswhere INFOSYS managed to steer clear of the potential risks by strategizing in advance. A mostnoteworthy example is the early anticipation of anti-offshoring sentiment and the financial recession ofUSA. As far back as 2005, INFOSYS announced a strategic goal to change its revenues composition acrossgeographies from 75%-US | 25%-ROW to 50%-US | 50%-ROW to de-risk its operations and margins.Marketing focus was shifted to the EMEA geographies where the Euro and Oil prices were moreprobable to appreciate or at least remain stable over the subsequent years. This strategy paid offhandsomely, as, by 2008, INFOSYS revenue composition was around 57%-US & 43%-Non-US. Thisshielded INFOSYS revenues and margins from the actual Wall Street collapse which was triggered-off bythe Sub-prime Mortgage crisis. In another related strategy, INFOSYS continued to invest heavily inbuilding up its human capital pool by recruiting thousands even through the recessionary period. Thishelped the company to be better prepared than its competitors when the recessionary clouds lifted andthere was an increased IT spending by businesses across the world. Thus, I feel confident about thegrowth and sustenance of INFOSYS in the long run.[1342 words overall] EXHIBIT-1 ₹ Millions Profit v/s Income trends of INFOSYS ₹200,000 ₹180,000 ₹160,000 ₹156,480 ₹140,000 ₹131,490 ₹120,000 ₹100,000 INCOME ₹90,280 ₹80,000 PROFIT ₹68,600 ₹60,000 ₹47,610 ₹40,000 ₹36,230 ₹26,040 ₹20,000 ₹- 0 2 4 6 8 10 12 14 AUTHOR: MADHURANATH RAMACHANDRA