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Heaven Kim Shruti Yadav Eric Chin Adam Schindla Florent Heidet October 31st , ‘07

International Trade & Competition in High-Tech. Heaven Kim Shruti Yadav Eric Chin Adam Schindla Florent Heidet October 31st , ‘07. IT Service Industry : Overview. On-shore incumbents are still larger: IBM, Accenture Off-shore players growing : TCS, Wipro, Infosys Technology

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Heaven Kim Shruti Yadav Eric Chin Adam Schindla Florent Heidet October 31st , ‘07

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  1. International Trade & Competition in High-Tech Heaven Kim Shruti Yadav Eric Chin Adam Schindla Florent Heidet October 31st, ‘07

  2. IT Service Industry : Overview • On-shore incumbents are still larger: IBM, Accenture • Off-shore players growing : TCS, Wipro, Infosys Technology • 47% Annual growth (2003 vs. 2004) • Still 0.8% market share CAGR 7% Fragmented market Source: IDC

  3. IT Service Industry : Value Chain – Current Supplier Enterprise Customer Software Service/Product Vendor IT Consulting IT Department (CIO, CTO, COO) Business Users Pure Play Pure Play Large Enterprises • SAP • Oracle • Infosys • Accenture • Insurance, banking, & financial , 30% • Telecom, 20% • Manufacturing, 13% • Retail, 8% End-to-end Service Provider • IBM • EDS • CSC • Cap Gemini

  4. IT Service Industry : Value Chain – Emerging Supplier Customer Software Service/Product Vendor IT Department (CIO, CTO, COO) Business Users SaaS • Salesforce.com • SugarCRM Small/Medium Businesses Web 2.0 Internet Service Provider IT Department (CIO, CTO, COO) Business Users • Google • Microsoft Individual Users

  5. IT Service Industry : Transformation Experimen-tation Convergence Trigger Disruptive Business Models After the DotCom Crash ? Change in Technology Off-shore Biz Model (incl. GDM) 1 1 SaaS (Software as a Service) 2 Change in Customer Needs 2 Enterprise 2.0 3

  6. IT Service Industry : Transformation Change in Customer Needs Change in Offerings • Invest in new technologies on faith and without strong links to ROI measurements (Over-purchase!) • Traditional enterprise application packages • Homogeneous infrastructure • More demanding in ROI • Get more out of tech investment • Rapid adaption /modification • Specific point solutions • Off-shore IT services • SOA (Service-oriented Architecture) & Web services • Applications as services

  7. Infosys Technologies – Company Background • Started in 1981 for $225 • Built up in 1980s and 90s through customized software solutions, developed in offshore (Indian) development centers • Also develops and markets software products • Flagship product is ‘Finacle’, a modular banking solution for retail, corporate and banks • Grew mostly through new business contracts, acquisition of smaller IT service providers, and alliances with larger companies.

  8. Infosys Technologies – Business Model Global Delivery Model Definition Vehicles Customer Value • 38 global development centers • 20 in India • 18 in the US, the UK, Australia, Canada, China, Mauritius and Czech Republic. “The process of breaking projects down into their logical components and then distributing those components to locations (onsite, nearshore, or offshore) where they can be delivered at maximum value.” • Lower Cost • Faster Implementation • Lower Risk • Measurable 1 2 3 4 Innovation to Meet New Customer Needs Modular Global Sourcing Framework

  9. Infosys Technologies – Business Performance CAGR 45%/30% CAGR 43% EBITDA Margin %

  10. Infosys Technologies – Business Performance Revenue by Industry Revenue by Geographic Market

  11. Infosys Technologies – What are the Competitive Advantages? India Abundant supply of low-cost scientists and engineers Infosys Technologies Excellent training program Cost & quality advantage coming from GDM and low-cost labor Brand/reputation • Global Delivery Model • Global development centers • Right Talents Customer relationship Open/transparent & performance-driven culture Flat organizational structure Domain knowledge Right reward system (stocks, career visions)

  12. Infosys Technologies – Sustainable? : vs. Current Competitors On-shore Incumbents Other Off-shore Players • Trying to adapt GDM while maintaining their existing business model & organizational structure • Adding more off-shore workforce through M&A or expansion • However… • Can NOT completely migrate to GDM because… • It can jeopardize existing businesses • There is fundamental organizational difference (i.e. Hierarchic vs. Flat) which would make it hard to attract right talents for GDM

  13. Infosys Technologies – Sustainable? : vs. Current Competitors On-shore Incumbents Other Off-shore Players • Still behind Infosys in terms of operational excellence because… • Infosys’s core competency is ‘People’ and supporting system to attract/keep talents • Intangible assets and congruence of the whole system are hard to copy (e.g. Culture, HR, reputation) • Already offering the same services by copying the tangible part of business model • 24/7 services • Global offices • Competing for the same talents • However…

  14. Infosys Technologies – Sustainable? : vs. Current Competitors On-shore Incumbents Other Off-shore Players Performance Comparison USD (Mil)

  15. Infosys Technologies – Sustainable? : vs. Potential Competitors They are disruptive not only to incumbents but to off-shore players Infosys’s competitive advantages no longer sustainable SaaS • Significantly easier & faster implementation • Very low up-front capital investment • No need to have expensive IT service providers • Very low entry barrier • Force incumbents to change product & pricing • User-focused, not buyer-focused : self-service IT • Very cheap or free funded by Ad model Web 2.0

  16. Infosys Technologies – SWOT Analysis Strengths Weaknesses • Operational excellence to deliver GDM • Capability to attract & keep talents • Strong financial • Strong relationship with Large Corporations • Over-reliance on US economy • Limited position in value chain (i.e. No presence or relationship with consulting business) L M H M Significance of Impact L M High H Medium M • More cost/speed conscious customers • Market growth • Higher awareness on off-shore model • Wage inflation due to competition on talents (15+% / year) • Newer disruptive business models (i.e. web services, web 2.0) H H Low L M H M Opportunities Threats

  17. Infosys Consulting – Company Background • Started in April 2004 with initial investment of $20M • Chose a wholly-owned subsidiary model • Led by former leadership of Deloitte Consulting India • Focused on the Global Delivery Model (GDM) and more cost-competitive consulting rates • Integrating the business consulting and technology implementation lifecycles • Engagements sourced from parent company and existing client base of Infosys Technologies

  18. IT Consulting Market Context & Structure • Subset of overall IT services market • Projected single-digit growth of 5% • Largely fragmented market with 2 key segments: • On-shore consulting and IT services players (Accenture, IBM, Capgemini, EDS) • Off-shore IT services players (Wipro and TCS) • Largest shares held by Accenture and IBM

  19. Infosys Consulting – Business Model “1-1-3” Model Definition Vehicles Customer Value • On-shore management consulting talent • On-shore liasons • Off-shore resources “Integrate the business consulting and technology implementation lifecycle. ‘1-1-3’ model gives one client one ICI resource onsite, one Infosys Tech resource onsite, and 3 Infosys Tech resources offshore.” • Lower blended rates • Faster Implementation • Integration 1 2 3 “1-1-3”combined with GDM

  20. Infosys Consulting – What are the Competitive Advantages? Access to Infosys Technologies clients Large supply of low-cost IT/process resources Strong operational skills Cost & speed advantage coming from “1-1-3” and GDM model • “1-1-3” Model • Blend on/off shore • Cost efficient Unique, blended model Easier to integrate offshore with onshore

  21. Infosys Consulting – ICI vs. Current Competitors On-shore Incumbents Other Consulting Players • Trying to adapt GDM while maintaining their existing business model & organizational structure • Adding more off-shore workforce through M&A or expansion • However… • Can NOT completely migrate to GDM/”1-1-3” because… • It can jeopardize existing businesses • May be brand equity erosion

  22. ICI Experiencing Revenue Growth • High double-digit year on year revenue growth • Approximately 2/3rds of revenue from the United States • Key industries: Retail, Transportation, High Tech, Banking, Energy/Utilities • Reflects steady growth in number of clients: • 25 clients in FY05 • 54 clients in FY06 • 89 clients in FY07

  23. But Increasingly Dim Profitability Results • Infosys still deems Infosys Consulting to be in “investment phase.” • Potential causes: • cheaper blended rates • expensive on-shore resources • Learning curve in managing consulting business economics

  24. Infosys Consulting vs. Current CompetitorsOperational Scale & Performance On-shore Incumbents Still a marginal player vis.a.vis consulting units of both the on-shore as well as off-shore majors. Other Off-shore Players

  25. Infosys Consulting – SWOT Analysis Strengths Weaknesses • Unique blended model • Access to Infosys clients • Strong in operations H • Low brand equity • Inexperience with consulting relationships • Challenge attracting top consulting talent M M H Significance of Impact M M High H Medium M • More cost/speed conscious customers • Market growth • Open up new segment of market • Easy replicability of model • Increasing IBM/ACN presence in India • Culture clash with Infosys Technologies H M Low L M M M H Opportunities Threats

  26. Infosys Consulting: Cost or Profit Center? What is ICI’s place in the Infosys Technologies Portfolio? Key Challenges • Approaching profitability or break even • Collaborating effectively with Infosys Technologies • Impending replication of ICI business model by others • Find firm, differentiated place in industry value chain Needed Responses • Revisiting pricing and/or cost structure • Integrate client management with Infosys Technologies • Use ICI to monitor client trends & the “next big thing.” • Capitalize Infosys “flat world” aura to achieve positioning

  27. Moving forward… : Infosys’ Strategy • Infosys should leverage ICI , • To strengthen its position in current market, and • To prepare for further industry transformation ICI Infosys Technologies • More wallet share from current customers • Integration rather than expansion • Stronger relationship through involving higher-level decision making • Provide more agile and customized solutions More Value from Existing Customer Base • Antenna to sense changes in the market • Influence customers’ strategic moves • Relationship building with emerging players • Acquire them as customers or partners • Develop capabilities to offer right services/products in the long-term Strategic Alliance with Emerging Competitors

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