MICRO-ECONOMICS RESEARCH: INDIVIDUAL REPORT

MBA-2012 | LT-1A

COMPANY INFORMATION [99 words]

INFOSYS is a Bangalore-based Information Technology MNC which started the IT revolution in India that transformed Bangalore into the Silicon Valley of India. INFOSYS is a household name in India that is highly respected by employees and the general public for its strong value system as a corporation. In the 5.5 years I worked at Infosys since graduation I grew from an entry-level position to that 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: askus@infosys.com Web: www.infosys.com

NATURE OF BUSINESS [250 words]

INFOSYS defines, designs and delivers technology-enabled business solutions for Global 2000 companies and operates in 64 countries across the world. INFOSYS has developed a conglomerate integration instead of vertical integration. For the first 25 years of its operations INFOSYS experienced increasing returns to scale where adding head-count delivered consistently increasing margins. But as the 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 where the growth rate of revenues and margins are not limited by the growth rate of input factors like human capital or number of client acquisitions. Technology-based automation of different aspects of IT solutions development and maintenance has helped INFOSYS battle diminishing return to scale. Starting with 7 founders and $250 in 1981, the current size of over 140,000+ employees and $6.6 Billion revenues 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 downward shift in its total product output as will the entire IT-industry. Recessionary symptoms like decreasing billing 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 more professionals and managers from the developed countries like US, UK, Europe, etc. which pushes the total 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 force in the industry and gave birth to the phenomenon of offshore technological outsourcing. The GDM is based on the principle of taking production to the location where the best talent is available, where it makes the best economic sense. Since INFOSYS did not patent or copyright this novel concept, this potential Monopoly Market morphed into a Monopolistic Competition. A key marketing strategy of INFOSYS was to not enter the product development space where it would end up as a competitor to its own clients and potential targets. This strategy served Infosys to increase its client base unhindered across industry segments and geographies over the initial period of 25 years. Historically, as expectable in a monopolistic market, INFOSYS has played on its superior quality of deliverables to establish itself as

AUTHOR: MADHURANATH RAMACHANDRA

MICRO-ECONOMICS RESEARCH: INDIVIDUAL REPORT

MBA-2012 | LT-1A

a premium price IT solutions player. Further, INFOSYS developed its own custom Value Articulation Frameworks to communicate clearly the marginal value delivered to its customers that justified its premium pricing and also as a marketable USP v/s the competition. Marketing and business development in each country are led by resident senior Business Development Managers who establish leads 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 its employees. 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 in different segments for micro chunks of the market. Businesses across industry segments are always under pressure to increase their productivity by IT enabling the various internal functions and external supply chains. What the industrial revolution did to businesses in the 18th and 19th century, the IT and telecom 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 which counter-balanced the monopolistic market condition. As a consequence of the aforementioned conditions, INFOSYS established itself as a price maker in the market and held the mantle of industry leadership in terms of strategy, size, positioning, and corporate social responsibility. Though absolute financial numbers place it in the second position in India, when it comes to brand recognition or awards and 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 the numerous appreciations and preferred partner statuses offered by client companies of world repute across 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 quality services to customers. As such, we can conclude that labour is the Factor Market most critical for its increased productivity and leadership. INFOSYS has always had the best employee training and leadership fostering programs in the industry. It has invested heavily in state-of-the-art training facilities where 14,000 employees can be trained simultaneously. It has also established the Infosys Leadership Institute (ILI) which is focused on breeding the next 3-tiers of leadership. This is comparable with the efforts of world leaders like GE and IBM in leadership development. It was for these reasons that Boston Consulting Group named INFOSYS among the Top-10 Value Creators Technology Companies where it specifically 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 already launched an initiative in 2010 which is called the Talent 3.0 that is aimed at revolutionizing the way talent is spotted, recruited and retained in the company with ample opportunities for utilizing their full capabilities on the job. Such initiatives and investments in infrastructure and capital spending on talent management will place INFOSYS in a leadership position in the long run. In the short run of 3 years i.e. 20122015 it will still be struggling with the industry specific problems of high talent attrition, increased talent acquisition costs and loss of knowledge capital due to high human capital turnover.

AUTHOR: MADHURANATH RAMACHANDRA

MICRO-ECONOMICS RESEARCH: INDIVIDUAL REPORT

MBA-2012 | LT-1A

Overall INFOSYS has been very effective in anticipating the macro-economic shifts in the global business environment and in formulating strategies to manage the effects of the same. So I dont think it will be caught in a Prisoners Dilemma till 2015. During my career at INFOSYS I noted several instances where INFOSYS managed to steer clear of the potential risks by strategizing in advance. A most noteworthy example is the early anticipation of anti-offshoring sentiment and the financial recession of USA. As far back as 2005, INFOSYS announced a strategic goal to change its revenues composition across geographies 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 more probable to appreciate or at least remain stable over the subsequent years. This strategy paid off handsomely, as, by 2008, INFOSYS revenue composition was around 57%-US & 43%-Non-US. This shielded INFOSYS revenues and margins from the actual Wall Street collapse which was triggered-off by the Sub-prime Mortgage crisis. In another related strategy, INFOSYS continued to invest heavily in building up its human capital pool by recruiting thousands even through the recessionary period. This helped the company to be better prepared than its competitors when the recessionary clouds lifted and there was an increased IT spending by businesses across the world. Thus, I feel confident about the growth and sustenance of INFOSYS in the long run.
[1342 words overall]

EXHIBIT-1
Millions
200,000

Profit v/s Income trends of INFOSYS

180,000
160,000
156,480

140,000
131,490

120,000

100,000
90,280

INCOME

80,000
68,600

PROFIT

60,000 40,000 20,000 0 2 4 6 8 10 12 14

47,610 36,230 26,040

AUTHOR: MADHURANATH RAMACHANDRA