Managing Service Supply Relationships

Executive Summary

Infosys had plans to venture the Chinese market in the course of 2002. However, its plans never materialized until the year, 2004. The key reason behind the entry into the Chinese Market was the escalating Indian software professionals’ salaries. The salaries were escalating due to the increasing demand for the professionals globally (Gupta, 2008). Besides, there was a high likelihood that the gap within the availability of Indian skilled work force, along with demand, was set to increase even further. In accordance to a research undertaken by KPMG along with NASSCOM, it was estimated that by the year 2009, the Indian IT industry would be experiencing a workers’ shortage of high magnitudes, that is, around 250,000. On the other hand, China happened to be the single place within which the InfoTech work force quality, as well as, salaries was both competitive and analogous to that prevailing within India.

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Upon establishing itself within China, Infosys had plans to spread to the other adjacent countries such as Japan. The Chinese economy was also experiencing a rapid growth in economy thereby necessitating the need for Infosys to shift to the country. Moreover, other multinational countries were already entering the Chinese market in order to take advantage of the favorable economic conditions and Infosys could not afford to be left behind (Popkin & Iyengar, 2006).

The foreign firms venturing into the Chinese market were searching for established players within the software sector, who were in a position of comprehending systems, Chinese procedures along with standards. This was a lucrative business opportunity, which Infosys never expected to miss. All these reasons combined with the anticipation of the exponential growth of the Chinese software along with It services market made Infosys to consider shifting into the country. In addition, Indian companies have difficulties brought by policies, which are not friendly to the locals, and this hinders doing business with other companies. This trend should be changed to improve commerce in Asia.

Background

There are several factors, which actually influenced the Infosys decision to establish its second biggest software development firm within China. In the first place, it is of great essence to note that majority of the Infosys’ clients based within the US were setting up branches within China (Gupta & Wang, 2009). It was therefore necessary for Infosys to develop software, which could satisfactorily cater for the needs of those clients. Unlike within the other countries such as European along with American nations within which Infosys served its clients without local centers, Infosys had discovered that in order to resolve the demands of the clients based within China, it had to open up a local center. Moreover, to address the clients’ needs, it was essential to acquire Chinese Knowledge, as well as, a thorough comprehension of the complex Chinese rules along with regulations. In addition, it was only the Chinese programmers who were better placed to comprehend and analyze information featured in Chinese language, as well as, to formulate programs relevant to the country’s market environment. Besides, in accordance to the analysts’ views, Infosys shifted to China because it was scared of losing its clients to the local firms (Ekins, 2009).

In addition, Infosys had opted to venture into the Chinese market because it was facing considerable competition within the Indian market. Several multinational firms had already started strengthening themselves within the Indian market because of the favorable market environment (Gupta, 2008). Besides, the competitors had resorted to poaching of the Indian IT professionals employed within the local firms, as well as, practicing predatory pricing. In order to counter the challenge, Infosys made the decision to expand over to China where they would benefit from the readily available Chinese talent. By entering China, Infosys would also be at a better position to bring its costs under control. It is also considered that Infosys entered the Chinese market because it was the favorite base from where they could satisfactorily meet their international delivery requirements. It was also the aim of the firm to establish offshore capabilities within China to cater for the local clients’ requirements. Moreover, Infosys had made the discovery that several Asian markets such as Taiwan, Korea, and Japan were receiving inadequate services (Popkin & Iyengar, 2006). This had mostly been brought about by the firm’s excessive focus on other markets like the European along with American markets. It was also vital for the firm to strengthen its position within the Asian market because the American, as well as, European companies were trimming their budgets on Information Technology (Mulford, 2004).

The exponential growth of the Chinese economy meant that the country was in dire need of IT infrastructure within most of its major cities. Infosys was targeting to succeed in securing contracts with the Chinese government to undertake the implementation of the IT infrastructure. The fact that China had become a World Trade Organization (WTO) member meant that not only the multinationals but also the local Chinese companies were expanded their financial budgets on information technology (Gupta & Wang, 2009). In accordance to the IDC estimates, the Chinese technology services expenditure was expected to increase from 3.74 billion U.S dollars in 2002 to 9.4 billion U.S dollars by 2006. It is therefore most likely that Infosys was anticipating making a kill of this scenario. Moreover, given that Infosys was well renowned in software development, it would benefit much from the Chinese professionals who are excellent in developing hardware (Jovanovich, 2011).

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Issue Statement

Infosys was planning to establish an office branch within China but was unable to secure the required Chinese government permission. On top of this, the firm was also facing various bureaucratic hurdles. The Chinese government could only permit the firm to establish a partnership with the governing authority. However, Infosys was not comfortable with the idea. The firm held the views that the involved parties in such kind of a partnership would possess conflicting agendas. For instance, the government would end up advocating for the minimization of costs while on the other hand, Infosys would mainly focus on maximizing profits. In accordance to the Infosys spokesperson, the firm resolved to formulate a fundamental framework whose implementation would take extra time than it had been anticipated (Gupta & Wang, 2009). Nevertheless, Infosys ended up establishing a representative office. At the same time, the firm still went on with its endeavor to secure permission to launch a development center. Some of the issues, which had put on hold the establishment of the Infosys’ Chinese venture, were related to ownership structure, profits repatriation along with the most appropriate shareholding pattern (Chance & Brooks, 2010).

Even though during that period various multinational firms had acknowledged that there were few bureaucratic hurdles within China, Infosys experienced various problems. This was in part because transparency within China was questionable and the straightforward companies would not have a smooth sailing within the Chinese market (Gupta, 2008). Lastly, once Infosys managed to secure the permission, its plans faced another setback because of the SARS (Severe Acute Respiratory Syndrome) outbreak within China. This outbreak meant that the firm’s plans had to be delayed further. In fact, while undertaking filing with the United States’ Security Exchange Commission, Infosys clearly stated that its multinational expansion strategy to the Chinese market was at the risk of facing additional difficulties because of the SARS outbreak. Despite the fact that Infosys boasted of international clientele within US, as well as, Europe, within the Chinese market it was being viewed as an Indian IT company rather than an intercontinental IT firm.

Analysis of the Problem

China as country is split into twenty-three provinces, five self-governing regions, four municipalities along with two unique administrative regions, that is, Hong Kong along with Macau. Even though the judicial system within the country is common, diverse provinces along with municipalities have their individual ways of interpreting the law. In that perspective, any firm planning to establish branches in dissimilar provinces is required to secure the relevant permission form every province separately. The requirements within the different provinces are diverse thereby firms term the procedure as time consuming as well as, cumbersome (Popkin & Iyengar, 2006). For instance, Shanghai municipality is directly administered by the Top Government and possesses the power to formulate local laws. The business rules along with regulations, which govern foreign businesses along with investments, are different within the various areas, which are under the Shanghai Municipality jurisdiction. The areas covered by the Shanghai Municipality include the technological development center, Waigaoqiao Bonded Zone, Hongqiao Economic, Zhangjiang High-Tech Park and Pudong New Area.

Moreover, within China, the transfer of government officials is done frequently and thus law interpretation experiences notable alterations as time changes. It is therefore necessary that the foreign firms establish good relations with the government officials (Gupta & Wang, 2009). In areas such as Shanghai, land management is considered complicated. Land utilization along with construction plans within this region has to undergo strict processes in order to become registered with the relevant authorities. On top of all these controversies, the tax structure within the country is not identical. For instance, a single type of goods is subjected to variable value added tax rates within different locations. In addition, companies based within China feel that profits repatriation is governed by unfair, restrictive regulations. Moreover, calculation of duty on exports is carried out in an unclear manner (Thakur, 1997). Goods imported from other countries are sometimes retested despite being of the internationally accepted quality standards once they arrive in China. To make the matters worse, the Chinese standards differ in respect to the specific province.

Action and Implementation Plan

Infosys had planned to invest around 65 million USD in developing the novel centers within Shanghai, as well as, Hangzhou. These centers were to host six thousand employees. These locations were chosen due to the availability of the desired infrastructure along with talented individuals (Gupta, 2008). The centers were designed in such a way that they would facilitate software development. The centers would also contain research centers along with training facilities on top of employees’ recreational facilities.

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Infosys also made use of the GDM (Global Delivery Model). The GDM Involves making integration of the high skill talent at lower costs within emerging economies, such as India. Within the model, firms send project teams to diverse geographical locations and coordination is undertaken through predefined guidelines and ideal communication procedures. All GDM models consist of two components: the onsite along with offshore components. Onsite activities comprise of the activities in need of user interaction, market closeness along with testing infrastructure (Gupta & Wang, 2009). These activities require to be undertaken at the client’s proximity. Offshore activities can be undertaken without client interaction even from a distant location.

Through GDM, Infosys send various teams to diverse locations within China. The firm has established process guidelines along with a communication infrastructure, which is sophisticated to facilitate the delivery of services to clients (Gupta & Wang, 2009). It professionals from the firm make physical visits to clients’ offices so as to establish the requirements of their project. By combining onsite along with offshore capabilities, the firm has managed to meet its clients’ demands satisfactorily Moschandreas, 2000).

Recommendations

In order, to overcome the aforementioned challenges, Infosys has to formulate vibrant strategies. The company has to implement packages, which offer enterprise solution within the supply chain management field. It should also undertake vibrant management of customer relations. In addition, it is vital that the firm makes good use of enterprise resource planning (ERP) along with enterprise application integration. Even though, the firm is focused more on securing deals with international companies operating within China, in future it should into consideration working with the local Chinese firms (Popkin & Iyengar, 2006). Infosys should also implement measures, which will assist it in dealing with software piracy, which is rampant within China. Moreover, analysts have forecasted that software companies originating from India have to work extra hard in order to establish themselves within the Chinese Market. This is due to the fact that the Indian firms face difficulties in securing deals with the local companies. These difficulties are attributes to the huge cultural differences between these two countries. Nevertheless, Infosys seems to have a bright future within the Chinese market.

Reference List

  1. Chance, D. M., & Brooks, R. E. (2010). An introduction to derivatives and risk management. Mason, Ohio: South-Western Cengage Learning.
  2. Ekins, P. (2009). Trade, globalization and sustainability impact assessment: A critical look at methods and outcomes. London, UK: Earth scan.
  3. Gupta, A. (2008). Outsourcing and offshoring of professional services: Business optimization in a global economy. Hershey, PA: Information Science Reference.
  4. Gupta, A. K., & Wang, H. (2009). Getting China and India right: Strategies for leveraging the world’s fastest-growing economies for global advantage. San Francisco: Jossey Bass.
  5. Jovanovich, M. (2011). International handbook on the economics of integration: Volume 1. Cheltenham: Edward Elgar.
  6. Moschandreas, M. (2000). Business economics. London, UK: Business Press.
  7. Mulford, W. (2004). Educational leadership for organisational learning and improved student outcomes. Dordrecht. Canberra: Kluwer Publishers.
  8. Popkin, J. M., & Iyengar, P. (2006). IT and the East: How China and India are altering the future of technology and innovation. Boston, Mass: Harvard Business School Press.
  9. Thakur, M. (1997). International management: Concepts and cases. New Delhi: Tata McGraw-Hill Publishers.
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