Market Structure of Indian IT Industry ± INFOSYS
Guided By
Submitted By
Dr. Utpal Chattopadhay
Abhimanyu Arya(01) Alekh Tibrewala(07) Jaymala Lanjwekar(28) Devesh Sharma(21) Narendra Meena(41) Nitin Chidar(45) Praveen Soni(50) Raj Patidar(60)
PREFACE
This report illustrates the financial strength of Infosys Technologies Ltd, presenting an idea of the company background in terms of its market profile, history, vision and mission. Niche of the company, the global talent recruitment is also explained. Operations of Infosys including a generic transformational model followed by Operational strategy, objectives and the Global Delivery Model bring out a comprehensive picture of day to day operations of the company. Analysis is done in terms of financial data provided by Annual reports given in the company website. The focus is on key parameters like revenue, operating income and CAGR amongst others. A SWOT model is also included for better illustration. The competition levels prevalent in the market are shown. As part of its sustainable growth strategy, corporate social responsibility is presented in the latter section of the report. Recent deals of the companies from the newspaper dailies are included.
INTRODUCTION Information technology, and the hardware and software associated with the IT industry, are an integral part of nearly every major global industry. In an increasingly globalised world, significant complexity and uncertainty is getting attached to the economic crisis. The Indian economy has also been impacted by the recessionary trends, with a slowdown in GDP growth to seven percent last fiscal year. The focus and the exponential growth in the domestic market had partially offset this fall and insulated the country, resulting in net overall momentum. During these tough times, Indian IT industry has displayed resilience and tenacity in countering the unpredictable conditions and reiterating the viability of India¶s fundamental value proposition. India is a preferred destination for companies looking to offshore their IT and back-office functions. It also retains its low-cost advantage and is a financially attractive location when viewed in combination with the business environment it offers and the availability of skilled people. After the global economic slowdown of the past two years, India's IT Industry has reported better-than-expected earnings for the last quarter, putting it back on the upward trajectory. Business is back to normal with economic recovery in U.S. and European markets, which account for about 80 per cent of Indian software exports. With a positive business outlook, the IT sector is now on an expansion spree and has started hiring again. According to projections primarily made by NASSCOM, the growth in the ongoing fiscal year is expected to be around 13 to 15 per cent in the export business primarily because the world economy has seen a turn around and recession is no longer there in many countries especially the US. The domestic business from India is also witnessing further growth. So, at least 15 per cent net growth is to last in the IT business in this year 2010-11, on the back of growing investor confidence and favourable initiatives taken by the government. The data centre services market in the country is forecast to grow at a compound annual growth rate (CAGR) of 22.7 per cent between 2009 and
2011, to touch close to US$ 2.2 billion by the end of 2011, according to research firm IDC India's report published in March 2010. The IDC India report stated that the overall India data centre services market in 2009 was estimated at US$ 1.39 billion. As a proportion of national GDP, the sector revenues have grown from 1.2 percent in FY1998 to an estimated 5.8 percent in FY 2009. While the industry has significant headroom for growth, competition is increasing, with a number of countries creating enabling business environments aimed at replicating India¶s success in the IT-BPO industry. Hence, concentrated efforts are required by all stakeholders to address the current challenges, to ensure that India realizes its full potential, and maintains its leadership position.
IT PRODUCT PORTFOLIO
IT services Application Services Architecture Services Independent Validation and Testing Services Information Management Services Infrastructure Services Knowledge Services Packaged Application Services SOA Services Systems Integration Service
ITES-BPO Customer Service Outsourcing Finance and Accounting Human Resources Outsourcing Knowledge Services Legal Services Sales and Fulfilment Sourcing and Procurement OutsourcingEngineering
Outsourcing Engineering services, R&D and Software products Lifecycle Management Manufacturing Process and Plant Solutions Product Engineering
MARKET STRUCTURE-MONOPOLISTIC
CHARACTERISTICS
Number of producers
Type of product
Power of firm over price
Barriers to entry
Non-price competition
Many- 732169 registered IT companies
Differentiated since the service provided is customized to the user specifications
Some
Few
Advertising , quality of service, reputation (customer portfolio)
INVESTMENT
Investments (Rs.) 4500
4000
3500
3000
2500 Investments (Rs.) 2000
1500
1000
500
0 Mar '07
Mar '08
Mar '09
Mar '10
Mar '11
NETWORTH
Net
Worth (Rs.)
25000
20000
15000
Net Worth
10000
5000
0 Mar '07
Mar '08
Mar '09
Mar '10
Mar '11
COMPETITION
200000 180000 160000 140000 120000 Market Capital(Rs) 100000
Sales Turnover(Rs) Net
80000 60000 40000 20000 0 Infosys
TCS
Wipro
Profit(Rs)
NET CURRENT ASSET
Net
Current Assets (Rs.)
Mar '11
Mar '10
Mar '09 Net Current Assets (Rs.)
Mar '08
Mar '07
0
5000
10000
15000
20000
IT INDUSTRY REVENUE BREAK ±UP
Indian IT Industry Revenue Break-up by company
Manufacturing 15
Media 3.3
Healthcare 2.5
Transportation 3.4
REVENUE BY GEOGRAPHY
ROW, 1.2 APAC, 7
Europe, 25
USA,
67
RESEARCH & DEVELOPMENT AS A % OF TOTAL REVENUES
Research & Development as a % of Total Revenues 14
12
10
8
6
4
2
0 Infosys
Microsoft
Oracle
IBM
SAP
Analyze the market based on the following factors to assess the nature and extent of competition in market
No of producers/ sellers: There are many producers and many consumers in the market along with there are many firms in each product group and many firms on the side lines prepared to enter the market. A product group is a "collection of similar products". The fact that there are "many firms" gives each firm the freedom to set prices without engaging in strategic decision making regarding the prices of other firms and each firm's actions have a negligible impact on the market. Total number of Seller in IT sector :7,32,169
Type of product (homogeneous or differentiated): DIFFERENTIATED Infosys sell products that have real or perceived non-price differences. However, the differences are not so great as to eliminate other goods as substitutes. Technically, the cross price elasticity of demand between goods in such a market is positive. In fact, the XED would be high. Infosys services are best described as close but imperfect substitutes. The Product/services perform the same basic functions but have differences in qualities such as type, style, quality, reputation, appearance, and location that tend to distinguish them from each other. For example, the basic function of banking software is basically the same ± to maintain transaction and data base. Yet there are many different types of softwares available in the market made by different firms such as TCS, Wipro, Accenture, Tech-mahindra and many variations even within these categories.
Power of firm over price: Producers have a degree of control over price Infosys have some degree of market power. Market power means that the firm has control over the terms and conditions of exchange. An Infosys can raise it prices without losing all its customers. The Infosys can also lower prices without triggering a potentially ruinous price war with competitors. The source of an Infosys market power is not barriers to entry since they are low. Rather, an Infosys has market power because it has relatively few competitors, those competitors do not engage in strategic decision making and the Infosys sells differentiated product. Market power also means that an Infosys faces a downward sloping demand curve. The demand curve is highly elastic although not "flat.
Barriers to entry (and exit): There are few barriers to entry and exit. In the long run there is free entry and exit. There are numerous firms waiting to enter the market each with its own "unique" product or in pursuit of positive profits and any firm unable to cover its costs can leave the market without incurring liquidation costs. This assumption implies that there are low start up costs, no sunk costs and no exit costs.
Non-price competition: Significant and very important Demand for their product should get more inelastic (steep) Each firm independently sets the terms of exchange for its product. The firm gives no consideration to what effect its decision may have on competitors. The theory is that any action will have such a negligible effect on the overall market demand that an MC firm can act without fear of prompting heightened competition. In other words each firm feels free to set prices as if it were a monopoly rather than an oligopoly
Sector-Wise Customer
Major ClientsDomestic
Major Clients-Global (Export Market)
Govt. And Public Sector Units
Railways, LIC, MMRDA, BMC, BPCL, ONGC
British Govt., Australian Govt., Kuwait & Saudi Govt.
BFSI
HDFC, ICICI Bank, Citi Financial India, ABN AMRO India, NSE, BSE, Max New York Life, India Bulls Financials
AIG, Bank of America, UBS, J P Morgan, Barclays, Goldman Sachs, Morgan Stanley
Telecom
Airtel, Vodafone, Reliance Communications
British Telecom, AT&T, SingTel, Telstra, Vodafone
Manufacturing
Tata Motors, L&T, Tata Steel, RIL
Ford Motors, GM, Exon Mobile
Otherwise
Pantaloon India Ltd., Tata Sky, DLF, Apollo Hospitals
Pfizer, Walmart, British Airways
Sector
Recent Anouncement of large IT Projects
Region / Company
Most Likely IT Players / Short -Listed Companies
Australia ± Telstra, Qantas, National Australian Bank
Infosys, Satyam, IBM, EDS
Japan ± NISSAN Motor Corp
Tcs, Wipro, Infosys, Patni
India ± LIC
Tcs, Wipro, Infosys, L&T Infotech
UK ± Dept. Of work and pensions, HM Revenue and Customs, Ministry of Justice (Worth US $ 2-3 Billion)
Tcs, Wipro, Infosys, Accenture, Atos Origin
Concentration Ratios and Herfiendahl Index Herfiendahl Index = Sum of squares of market shares of all the firms within the industry Herfiendahl Index = 2594 (Monopilistic market structure)
Market share ( Percentage) Tech Mahindra MahindraMphasis Others Satyam 2% 2% 1% 2% Oracle Finance 4%
HCL 5% TCS 35%
Wipro 18%
Infosys 31%
CR4 Index = sum of market share of top 4 firms within the industry CR4 Index = 89(highly competitive market such as in a monopolistic market structure)
PERFORMANCE/PROFITABLITY RATIO Infosys Tech.
TCS
WIPRO
HCL Tech.
Oracle Finance
PAT(Rs. Cr.)
6443
7569.99
4843.70
1056.58
967.98
Total Income(Rs. Cr.)
26532
29760.98
26935.40
5710.80
2498.27
(1/2)
0.243
0.254
0.180
0.185
0.387
REFRENCES
1. CMIE database-PROWESS 2. www.infosys.com 3. www.finance.yahoo.com 4. www.moneycontrol.com 5. www.nasscom.com 6. www.econonictimes.com 7. www.ft.com
