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
Excerpts
Need for Entering China
Meanwhile, many of Infosys' US-based clients were setting up operations in China and Infosys wanted to replicate its software development model in China to cater to those clients. Unlike in some of the American and European countries where Infosys operated without a local presence, Infosys realized that catering to clients in China demanded a local presence. Knowledge of Chinese and an in-depth understanding of the complicated rules and regulations in China were a prerequisite to address the needs of these clients. Chinese programmers were better equipped to understand and analyze material written in Chinese and to customize programs for the Chinese market. Analysts believed that Indian IT companies like Infosys were simply following their multinational clients to China. If the Indian IT companies did not establish a presence in China, they would surely lose their clients to local players...
Entering China
Infosys had planned to establish a branch office but was not able to obtain the required permission from the Chinese government and faced several bureaucratic hurdles. Infosys was given permission to set up a joint venture with the government, but the company was against the idea. It felt that both the parties would have conflicting agendas, with the government looking at reducing costs, while Infosys would be aiming at maximizing profits. According to a spokesperson of Infosys, "We are working with them to create a basic framework, but its execution requires a lot more time than anticipated." Infosys then established a representative office and started working towards obtaining permission to establish a development center. The issues that delayed Infosys' Chinese venture concerned the ownership structure, repatriation of profits and the shareholding pattern. At a time when several foreign multinationals were praising China for minimum bureaucratic hurdles, Infosys had to face several problems...
Plans for the Future
In a span of five years, till 2010, Infosys planned to invest US$ 65 million in new centers at Shanghai and Hangzhou. These centers were to accommodate 6,000 employees eventually. The 25,000 sq. m. Shanghai Center required an initial investment of US$ 10 million. The Hangzhou center was to be constructed in an area of 100,000 sq. m. Infosys has chosen these locations as they have the required infrastructure and availability of talented people. The new centers were to undertake projects related to software development, IT-enabled services and IT services. Infosys planned to include training and research centers in these facilities apart from recreational facilities for employees. The investment of Infosys was one of the largest foreign direct investments from India into China. The revenues of ITSCo for financial year 2007-08 were projected at US$ 50 million. Infosys hoped its Chinese operations would contribute 10% of its total revenues by 2015...
Looking Ahead
Industry analysts point out various benefits and drawbacks of operating in the IT industry in China as compared to India. The software development skills in China were good enough and the entry level salaries were competitive. While in 2004 the salaries for IT professionals in India were up by 15-25% on the previous year owing to the 30% growth in the demand for IT services, in China, the salaries in this sector grew only by 4% in the same year. According to an analyst, "India's advantage has always been the large pool of inexpensive, English-speaking talent. But now salaries in India are jumping at 25 percent or more annually. So India's cost advantage may not endure. We don't see that in China yet. BearingPoint Inc. opened its office in Shanghai, as it found that manpower costs in Shanghai were 40% lower than in Bangalore...
Exhibits
Exhibit I: Infosys - Five Year Financial Highlights (US Gaap)
Exhibit II: Infosys - Milestones
Exhibit III: Global Delivery Model of Infosys
Exhibit IV: A Note on the Chinese IT Industry
Exhibit V: Problems Foreign Companies Could Face in China
Exhibit VI: Infosys China - Vision and Mission
Exhibit VII: India vs. China - Economic Parameters
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