Performance of IBM in Indian Subcontinent - Term Paper Example

Performance of IBM in Indian subcontinent IBM is one the verge of a major growth phase in Indian market despite of strong challenges from their Indian counterparts. India is a democratic country with lot of political parties and ideologies. The one party rule of either the Indian National Congress or the Bharatiya Janata Party (BJP) is over in Indian politics and the government is controlled by the congress party with the help of some small regional parties. Each party has their own ideologies and policies about the foreign policies and how much the Indian market can be opened up for foreign investments. These ideological differences once drove many foreign multinational companies including IBM out of the country. But at present because of globalization, India has realized the importance of foreign investments for their economic growth and welcoming as much as Foreign Direct Investments (FDI) possible. Moreover India is led by the renowned economist Dr. Man Mohan Singh who knows the importance of IBM like companies in India. “Growing modestly until the turn of the millennium, IBM India has been growing by leaps and bounds since then. Its workforce now totals 38,000, up from 23,000 two years ago and second only in number to IBMs U.S. workforce among countries in which IBM operates” (Gibson, 2006). This paper briefly analyses the IBM performances in Indian market currently. Current financial and market situation for IBM in India Line of IBM businesses in India IBM Global Services works on outsourcing IT services in India on behalf of the many multinationals interested to accessing the local Indian engineering talent and the competitive labor costs available there. “Outsourcing refers to a company that contracts with another company to provide services that might otherwise be performed by in-house employees” (Thompson, 2009). Labor cost is increasing everyday and moreover shortage of skilled and experienced professionals forced multinational companies like IBM to look beyond their boundaries in America to explore the cheap labor markets of other countries like India which is blessed with immense manpower especially IT professionals. In India like countries IT professionals are searching for better placements whereas IBM like American companies searching for IT professionals. Globalization has opened up the Indian market and the present Indian government led by the Congress party has escaped from the controls of the left parties which actually strongly opposed the entry of foreign companies in India. Thus the setting is well and good for IBM like IT companies to explore the Indian markets. IBM recorded total revenue of US$ 606 million in FY 04 and is profitable in India. It has a workforce of 23,300 including those at its BPO centre, and 34 per cent of the total revenues come from exports. According to internal sources, IBM has invested approximately US$ 10 million in India so far, mostly in year 2000 for labs. IBM India recorded 31.3 per cent market share in the notebooks segment (revenues) to gain the leadership position in FY 04. IBM is a market leader in the servers segment with a 32 per cent market share. In the lower-end server segment, IBM emerged the leader with a market share of 38.2 per cent” (IBM India Limited, n.d) IBM is trying all possible business strategies to strengthen their Indian operations. Mergers and Acquisition are the order of the current business world because of the global economic recession. ‘Rumors surfaced in India earlier that IBM was in talks to buy a stake in Satyam Computer Services, Indias fourth-largest IT outsourcing firm. However, Ramalinga Raju, Satyam chairman, denied there had been discussions’ (Thompson, 2009). “In addition to remote data center management, the work includes security services, such as vulnerability scanning and patch management.IBM aims to keep building its already large presence” (Thompson, 2009). IBM is trying to double their manpower by 2010 because of the huge business prospects in India. They have realized that India is one of the rapidly progressing economies in the world and even the current economic recess has not affected India much. Moreover, many people believe that India will become a superpower within 20 years of time. So IBM is putting strong bases for capitalizing Indian market. Geographical areas concentrated by IBM in India “IBM in India has expanded its operations considerably with regional headquarters in Bangalore and offices in 14 cities including regional offices in New Delhi, Mumbai, Kolkata and Chennai” (About IBM, n.d.) Bangalore is still the major IT hub in India even though Hyderabad, Cochin and Madras like cities are rapidly progressing as far as IT businesses are concerned. IBM has established its head office at Bangalore and they are controlling all their operations in India from their head office. Possible organizational policies for IBM in India International business or offshoring of business needs lot of planning and preparations. Indian conditions may not be the same for IBM as in America. Even though both the countries are democratic countries, even the functioning of democracy is different in India and America. Multi party coalition government is controlling the Indian government whereas in America the single party, the democrats are controlling the government. Indian government need to consider the opinions of all the ruling parties before taking decisions about policy matters. IBM should understand these differences in politics between America and India while formulating their strategies for Indian conditions. For example, Bangalore is a city in Karnataka state which is ruled by BJP whereas Cochin is a city in Kerala state ruled by the left government. The leftists are not much interested in allowing foreign companies in their soil whereas the right parties like the BJP and Congress are in favor of FDI. IBM needs to address these political differences in each state in India while formulating their strategies. Another difference between India and America is in culture of the people. America is dominated by Christians whereas India is dominated by Hindus and Muslims. Religious beliefs, traits, customs etc are different in India and America. Moreover, India is a country which is having lot of regional or local languages even though Hindi is accepted as the national language. Cities like Bangalore, Hyderabad and Cochin, the local languages are more prevalent. So while formulating organizational strategies, IBM need to address the local preferences more compared to the national preferences. The infrastructure facilities and the business environments are also different in different Indian states. For example, states like Gujarat, Tamil Nadu has lot of excess land, power, and transportation facilities whereas they may have lack of talents. But the states like Kerala which is having 100% literacy, IT talents are a lot in number; but the infrastructure facilities are less. IBM needs to address these environmental differences while deciding about establishing new offices in India. External forces of competition for IBM India is a country with the second largest population in the world and hence manpower potential of India is unimaginable. Indian workers are working everywhere in the world and they have already shown their abilities to the external world. IT is one of the growing industries in India. In fact numerous IT units are operating in almost all the major cities, urban areas and even in rural areas. Indian IT market is highly heterogeneous and fragmented. Because of the geographical characteristics, some areas of India may have lot of IT potentials whereas some other areas may lag behind. The infrastructure facilities available for IT business in India are unmatchable compared to other countries. Because of this positive signs for IT businesses, there is lot of IT domestic and foreign companies are working in India at present. Wipro, Infosys, Satyam, TCS etc are some of the largest domestic IT companies in India whereas Google, Yahoo and Microsoft like international business tycoons also established their offices across India in order to exploit the IT potentials of India. IBM is facing stiff challenges from their Indian counterparts as far as software industry is concerned. In fact, Wipro, Infosys and Satyam like Indian companies are capable of giving stiff challenges to any international companies because of their huge potentials as far as wealth, manpower, technical expertise, innovative management strategies etc are concerned. “With reference to the market share of the top Indian IT players- TCS leads the industry with a market share of 7.8percent. Infosys and Wipro closely follow with market shares of 5.5percent and 5.4percent respectively” (IT Industry in India – Competition and Beyond, 2009). IBM may definitely face stiff competition from the above companies. Most of the above mentioned companies are also engaged in same sort of businesses like IBM. Moreover the domestic companies have the advantage of local adaptation since they know each and every corner of India well than IBM. Because of the influences, local companies can exerts on the political administration, it is easy for the local companies to achieve their business interests easily whereas IBM need to develop mastery in influencing the Indian political machine. “IBM has no bargaining power over their suppliers since the company has its contracts and business to business agreement over their suppliers and switching suppliers would be costly for the company. Buyers on the other hand have strong bargaining power since IT business has grown rapidly in the recent time. There have been many small IT businesses which are competing with IBM” (4 posts categorized "IBM", 2009). The major competitors for IBM are Motorola (Microprocessor used to make apple computers) and AMD as far as microprocessor chip manufacturing is concerned whereas Hewlett Packard, Microsoft, Intel etc are the international competitors for IBM’s other software and hardware businesses. IBM has an agreement with Intel to make desktops and laptops for India. Intel processors are used by IBM for making personal computers for Indian market. Because of the strong brand values of both IBM and Intel, the tie up between them is mutually beneficial. IBM’s current strategy for the Indian subcontinent “A quick review of the essential figures reveals that with the year ending 2004-05, the Indian IT industry recorded a growth of 33 percent, reaching an annual turnover of Rs. 124,039 Crores. Although the top 5 Indian players, on an average, have been growing at a healthy 42 percent, their combined contribution is less than 25 percent of the entire industry” (IT Industry in India – Competition and Beyond, 2009). From the above statistics it is clear that foreign companies have enough scope in the Indian IT market even though local company presence is prominent. It is not possible for the Indian IT companies to develop or increase their business without the help of the foreign IT companies. For example, America is a country which is developed immensely so that its IT requirements are unmet by the local resources alone. So they were forced to outsource their IT works to India like countries. IBM can utilize these opportunities judiciously to maximize their profit. They can act as the bridge between the Indian and American companies to execute the IT jobs more effectively. “The IBM was one of the few companies who pioneered in making diversity a moral imperative and have incorporated diversity as the cornerstone of IBM business strategy” (4 posts categorized "IBM", 2009). Diversity is an essential requirement at the workplace because of the globalization and the changes in business strategies. IBM has taken care while posting employees at the key positions in the Indian subcontinent. They have realized the fact that only the people of Indian origin are capable of formulating strategies suitable for the Indian conditions. An American, whoever it may be, may not excel in Indian market because of his lack of knowledge about Indian conditions. Locally available business expertise is exploited judiciously by IBM as a business strategy for Indian subcontinent. Total quality management (TQM) and operations management are other key areas focused by IBM in Indian conditions. “TQM is a set of management practices throughout the organization, geared to ensure the organization consistently meets or exceeds customer requirements” (4 posts categorized "IBM", 2009). The traditional business concepts like quality control and quality assurances have given way for TQM at present. TQM involves various services before and after the sales of the product. Current customers are more focused on after sales services and IBM has ensured that its customers are satisfied as far as services before and after the sales are concerned. “Operations management is all about transforming raw inputs in the form of labor, material, and capital into useful goods and services” (4 posts categorized "IBM", 2009). The American customers are more focused about the quality of the services they receive from their outsourcing projects. Some kind of fine tuning is often required for the Indian made IT products in order to make them compatible for the American market. IBM has realized the need of customization of products made from India in order to make them acceptable in the foreign markets so that their Indian operations will never face any serious challenges from overseas markets. Possible organizational values for IBM to maximize growth and profitability IBM is an international company operating in more than hundred countries in the world. It is not possible for IBM to adopt same business strategies everywhere even though their products and services are same everywhere. Global markets are different economically, socially, culturally, communally, politically and legally. So, same strategies may not work everywhere. For example, India is a democratic country whereas China is a communist country. Moreover, religions have more importance in India compared to China. Economically also Indi and China may have lot of differences even though both of them are rapidly developing. So it is not possible for IBM to adopt same business strategies for India and China. Jackie Chan might be a good brand ambassador for IBM in China whereas he may not be the same in India. In India either Sachin Tendulakar or Shah Ruk Khan might be a better choice for IBM. Thus IBM must address these local preferences while formulating and implementing their organizational values for Indian subcontinent. “IBM is a company managed by values with its dedication to client success, innovation and trust and responsibility in all relationships.  With their ethics that took shape and revitalize through the direction of the executives by the implementation of IBM’s values as the core business strategy.  Since 1960’s, IBM had lay down code of business conduct as to guide IBMers to know what is expected of them” (4 posts categorized "IBM", 2009).  “As part of the new methods of interactions between humans and computers, more individuals have been dependent on the electronic creation, storage and transmittal of personal, financial and other confidential information which demands highest security” (4 posts categorized "IBM", 2009). IBM is a company which is engaged in the making of both hardware and software. Computers have conquered the world and no segment of social life is free from the influence of computers at present. A computer needs both hardware and software for the effective functioning and IBM is responsible for making both. So their social commitments are more compared to other companies. For example, Microsoft is making only software products and nobody would complain about Microsoft if their hardware fails. Conclusions The business prospects for IBM in India are bright because of the liberal approaches of the current political regime in India. IBM should formulate their business strategies for India based on local levels rather than national levels because of the huge diversity in Indian states with respect to language, culture, environment etc. India is visualized as one of the rapidly growing economies and establishing strong bases in India may help IBM to strengthen their overseas endeavors. India can be used as the capital of IBM’s Asian operations. IBM is engaged in the making of both software and hardware which actually doubles their social commitments. Diversification, total quality management and operations management are some of the business strategies adopted by IBM for Indian conditions. References 1. About IBM, (n.d.), Retrieved on 2 November 2009 from http://www.ibm.com/ibm/in/en/ 2. Gibson Stan, (2006), IBM Flourishes in India, Retrieved on 2 November 2009 from http://www.eweek.com/c/a/IT-Management/IBM-Flourishes-in-India/ 3. IBM India Limited, (n.d), Retrieved on 3 November 2009, ibef.org/attachdisplay.aspx?art_id=6815 4. IT Industry in India – Competition and Beyond, (2009), Retrieved on 3 November 2009 from http://www.chillibreeze.com/articles_various/IT-Industry.asp 5. Thompson T,( 2009), What is Outsourcing?, Retrieved on 2 November 2009 from http://www.wisegeek.com/what-is-outsourcing.htm 6. 4 posts categorized "IBM", (2009), Retrieved on 3 November 2009 from http://ivythesis.typepad.com/term_paper_topics/ibm/ Read More