Emerald Emerging Markets Case Studies

Infosys Limited: is it still the Indian IT bellwether?

Arun Kumar Meenakshi Nagarajan
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Arun Kumar Meenakshi Nagarajan , (2013),"Infosys Limited: is it still the Indian IT bellwether?", Emerald Emerging Markets
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 Infosys Limited: is it still the Indian IT
bellwether?
Arun Kumar and Meenakshi Nagarajan

Arun Kumar is a Professor Results of the first quarter of the fiscal year 2012-2013 revealed that Cognizant had
based at the NIILM Centre overtaken rival Infosys in terms of revenues to occupy the second position in the Indian
for Management Studies, information technology (IT) market, next to the leader TCS (Exhibit 1). Analysts predicted
Delhi-NCR Region, India. that the market share of Infosys would decline over a period of time, and the gains would
Meenakshi Nagarajan is an accrue to other players in the industry. Moreover, the revenue guidance of 8-10 percent
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Associate Professor based announced by Infosys for the fiscal year 2012-2013 was not optimistic[1]. Investors were
at the NIILM Centre for also losing confidence in the company (Thoppil, 2012; Dhanorkar, 2012).
Management Studies,
Delhi-NCR Region, India. Several problems plagued Infosys. A difficult economic environment had forced many
existing and prospective clients of Infosys to freeze their IT spend, or go slow on it.
Competition in the Indian market had also intensified. TCS was a clear market leader, and
other players such as Cognizant and HCL were doing better than Infosys (Exhibits 2-5 for
comparative performance of the top five IT firms). This put pressure on Infosys’ pricing
policies as its competitors were willing to charge lower prices, whereas Infosys was not
willing to do so. Infosys had traditionally followed the business model of charging premium
prices, which proved to be detrimental for the company under the existing market
conditions. Under these circumstances, Infosys’ track record in terms of its ability to meet its
own revenue guidance had deteriorated. In the last five out of seven quarters, Infosys had
not met its announced growth targets in dollar terms, and in the other instances, it had barely
met its growth estimates (Exhibit 6). Infosys’ employee utilization rate[2] was also lower than
that of several competitors in the industry (Exhibit 7). Infosys had pending visa investigations
against it in the USA, its largest market. Securities firm BNP Paribus Securities India Ltd
recommended that investors should reduce their exposure in Infosys (Economic Times,
2013) as the company was not able to cope up with the difficult environment of shrinking
demand with its existing high margin model[3].
In response to media questions about the disappointing results of the June 2012 quarter, the
MD of Infosys had said that the company was running a marathon, and not a sprint[4]. He
also cited the difficult economic environment as the main reason for the disappointing results
of the company. A sector wide slowdown and global economic volatility were cited as
important reasons for Infosys’ problems. However, other IT companies had done better than
Infosys in the same period, and many problems faced by Infosys were company-specific.
Infosys had to regain its market share, and also needed to revaluate its strategy to adapt to
the challenging competitive and business environment.

Disclaimer. This case is written

solely for educational purposes
and is not intended to represent The Indian IT industry
successful or unsuccessful
managerial decision making. The Indian IT industry generated more than $100 billion in revenues in the fiscal year
The author/s may have 2011-2012, and nearly two-thirds of the total revenues comprised of exports[5]. The sector
disguised names; financial and
other recognizable information
contributed to 25 percent of India’s total exports and 11 percent of total service revenues of
to protect confidentiality. the economy. The industry registered an annual growth rate of more than 9 percent in fiscal

DOI 10.1108/EEMCS-06-2013-0071 VOL. 3 NO. 7 2013, pp. 1-29, Q Emerald Group Publishing Limited, ISSN 2045-0621 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 1
 year 2011-2012, and employed more than 2.8 million knowledge workers. More than 90
percent of the employment in this industry was centered in eight cities of India – Bangalore,
Hyderabad, Chennai, Coimbatore, Pune, Delhi, Mumbai and Kolkata. The top five
companies in this industry were TCS, Infosys, Cognizant, Wipro and HCL Technologies
(Exhibits 8 and 9).
The IT industry in India comprised of three major sectors[6] – business process
outsourcing[7], IT services and consultancy services[8].
The Indian IT industry started out by providing business process outsourcing (BPO)[9]
services to its clients. The IT based BPO services comprised of knowledge process
outsourcing (KPO)[10]; legal process outsourcing (LPO)[11]; back office outsourcing for
various functions such as HR and finance; front-office outsourcing such as customer care
centres[12]; technical support services, such as technical support and problem resolution
for OEM[13] customers, software and hardware manufacturing companies; and data entry
and conversion services. BPO services were considered to be lowest in the value chain of
the IT industry.
IT services in India evolved from application development[14] and management[15] services
to infrastructure management services[16], testing services, and system integration[17]. IT
services also included analytics, Six Sigma, process reengineering, benchmarking, and
platform solutions[18]. New services offered by IT companies in India included cloud
computing[19], mobility[20], social media, and data analytics[21]. These emerging areas
offered new opportunities for growth for companies in the IT industry. IT services was the
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fastest growing segment in the domestic Indian market with a growth rate of 18 percent[22].
Consulting services were highest in the value chain of IT services. Consultancy services
involved an intimate understanding of the client’s business to develop customized IT
solutions that helped the client in implementing its strategies. For this purpose, IT companies
often hired experts who had long years of experience in the client’s industry. Each industry
that an IT company catered to was called a ‘‘vertical’’. While providing consultancy services,
the IT company developed a close working relationship with its client, and many IT service
providers positioned their employees in the offices of their clients to intimately understand
the client’s business operations. The main objective of the IT company was to help its client
achieve a sustainable competitive advantage in the fiercely competitive markets of the
client’s business. For the IT company, however, the choice of the vertical was a very
important decision. The growth rate of the vertical decided how much money the client was
willing to invest in developing an IT-led strategic initiative. For instance, if an IT company had
several clients in the banking, financial services and insurance (BFSI) vertical, and if the
vertical was not doing well, the IT company would not be earning much revenues or profits as
its clients would not want to spend much on IT-led strategic initiatives. Besides, the
performance of the vertical, the IT company’s relationship with its client was also important as
it decided the future revenue potential (the IT company could develop more products or
provide more services for its clients).

Developments in the Indian IT industry

The opportunities for Indian IT companies in the BPO space had declined in the last few
years, while opportunities in the IT services sector had increased (Exhibit 10). Nasscom had
predicted revenues between $30 billion and $50 billion by 2012 for the BPO industry in India.
By the end of 2012, however, the BPO sector generated only around $16 billion.
The main reason for this huge shortfall in revenues was the emergence of alternative sites
such as Philippines and Malaysia, which were registering high growth rates (Exhibit 11). The
BPO industry in Philippines recorded 21 percent growth rate in the fiscal year 2011-2012,
which resembled the growth rate in the Indian BPO sector during 2006-2007. During the
1990s, most of the US and European companies were actively outsourcing to India to save
up to 60 percent of their operational costs. Therefore, initially, the operating margins[23] of
Indian IT companies in the BPO sector were in the tune of 30 percent or even higher in some
instances. For instance, Infosys reported an EBIDTA[24] of 39 percent in the fiscal year

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PAGE 2 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 2000-2001 mainly due to the huge additional business generated due to the fear of the Y2K
bug. However, the scenario changed over time. Philippines emerged as the biggest
provider of voice-based BPO services generating revenues of about $5 billion, while India
was ranked second at $4.8 billion. BPO employees in Philippines were more employable
than Indians because the Philippines Government provided basic training programs for
BPO employees, the employees understood the American culture better than Indians, and
the attrition rate was about 50 percent of that in India. These factors reduced the cost of
outsourcing countries such as Philippines.
Indian IT companies earned 70 percent of their revenues from outsourcing work. As the
outsourcing sector started experiencing slow growth and commoditization, companies had
to look to IT services such as application services, IT infrastructure services, cloud services,
data warehousing, and consultancy services to fuel growth. Companies also started
expanding their consultancy portfolios by adding new verticals and clients.
The general trend in the IT industry indicated that when the volume of business in the industry
increased, the margins increased as well because companies were able to leverage general
and administrative spending, and were able to improve employee utilization rate. For IT
companies, higher sales at stable prices was the best way of increasing profit margins.
Despite the difficult business environment in the last few quarters, TCS and Cognizant had
done well whereas Infosys and Wipro had lagged behind. The economic slowdown,
particularly in the USA and Europe, had forced clients to reduce their spending on new IT
contracts, and higher spending on existing contracts were eyed with lot of caution. Thus,
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there was a slowdown in revenue growth and IT companies faced severe pricing pressure as
clients were negotiating prices even to renew existing contracts.

The impact of the global economic slowdown on the Indian IT industry

The global economic slowdown of 2008 had its roots in the USA, but affected several
countries around the world. And although the problem had started in the financial markets,
its ripples were strongly felt in many other industries as well.
The economic slowdown adversely affected the Indian IT industry due to many reasons.
The first reason was overreliance on the affected markets and verticals. When the economic
slowdown had begun, the Indian IT industry was largely dependent on the outsourcing or
off-shoring[25] businesses from its clients. These contracts were mainly for key business
processes and software development activities of the clients. Nearly, 61 percent of revenues
of Indian IT companies came from clients in the USA (Deloitte Report, 2009), and the top five
Indian IT companies – TCS, Infosys, Cognizant, Wipro and HCL got nearly 58 percent of the
total revenues from the USA. Another significant indicator was that 41 percent of the Indian IT
industry’s revenues came from the financial services sector. The worst impacts of the global
economic slowdown were on the US economy, and the financial services sector. And the
Indian IT companies were over reliant on both of them. Therefore, the economic slowdown
impacted the Indian IT sector. Companies such as Infosys and TCS earned nearly 37 and 42
percent of their revenues from the BFSI vertical, respectively. Even though Cognizant also
depended on the BFSI vertical, the nature of the client and multiple operating levels
mitigated the detrimental effect of the slowdown (Exhibit 12).
A related factor is that the margins in the BFSI vertical were lower than in other sectors such
as energy and manufacturing. Financial clients sought aggressive volume discounts as they
bought IT services in bulk. However, in the short-term, it was not possible for IT firms to
replace their BFSI clients with clients from other verticals (that brought in better margins).
This was only possible in the long run.
However, a few factors that mitigated the impact were a favourable Indian rupee-dollar
exchange rate, growth through clients who belonged to verticals other than banking and
financial services (BFSI), and expansion in emerging markets. A favourable currency
exchange rate was one of the few factors that contributed to almost half of the increase in
revenues for the IT companies in the year 2008-2009.

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 3
 Second, competition in the Indian IT industry increased as multinationals strengthened their
Indian delivery centres.
Third, clients of the IT companies froze their IT spends due to the uncertainty emanating from
the slowdown. Clients even negotiated the existing contracts when they came up for
renewal. And new contracts and clients were hard to come by. These factors led to more
aggressive competition even for smaller contracts. As the bargaining power of customers
was higher, they were in a position to negotiate billing rates even more. Clients also
increasingly sought to consolidate vendors to further reduce costs, and companies were
bound to lose some clients in this process. IT companies responded to these cost pressures
by reducing their overhead expenses and wages. Many companies froze hiring.
The most important fallout of the economic slowdown was that clients increasingly sought IT
companies that provided them complete solutions for their businesses rather than discrete
services related to hardware, software or other IT services. Therefore, there was increasing
pressure on all Indian IT companies to diversify their businesses to include a complete range
of IT services including new services such as cloud, and consulting solutions. This implied a
movement along the value chain as IT companies move towards providing higher value
solutions for their clients.

Infosys Limited
Infosys was set up in 1981 with seven employees and a capital of $250. By the year
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2012-2013, it was a global leader in consulting, technology and outsourcing with revenues of
$7.075 billion, and 151,151 employees[26]. Infosys had always stressed high standards of
governance and transparency. Employees thronged the company as it paid well, and had an
image of the Indian IT bellwether. Many of its staff members became millionaires when
Infosys offered its stock option program[27] in 1999. Instead of building offices, the usual
practice among companies, the company built huge campuses in Bangalore, Pune and
Mysore[28].
Infosys pioneered the global delivery model (GDM)[29], based on the principle of taking
work to the most efficient location with the minimum risk. GDM made it possible for clients to
perform work most efficiently, and freed up capital for more productive utilization. Infosys
had 68 offices and 70 development centers around the world in countries such as the USA,
India, China, Australia, Japan, Middle East, the UK, Germany, France, and Switzerland.
Infosys started out as a BPO company, and then moved on to provide IT services. Although
Infosys had also started providing consultancy services to its clients in the last few years, it
was relatively new in this domain and did not possess adequate number of competent
personnel to pose serious threats to other stronger competitors such as Cognizant and TCS.
Infosys’ business model of charging high margins evoked criticism due to pricing pressure
from existing clients and the company’s inability to acquire large clients. The company was
facing intense competition, and its traditional revenue earner – the outsourcing business –
had also slowed down.

The Infosys growth story

Infosys was established in 1981 by N.R. Narayana Murthy and six engineers – Nandan
Nilekani, N.S. Raghavan, S. Gopalakrishnan, S.D. Shibulal, K. Dinesh and Ashok Arora, with
an initial capital of US$250. The company was called Infosys Consultants Private Limited. Its
first client was Data Basics Corporation, New York.
The founders realized that the seed money would not last them long. All the founders
decided to lead an austere life to ensure a healthy life for the company (Mishra and
Chandran, 2013).
Six of the founders went to the USA to develop software, while Narayana Murthy struggled
hard to get a license from the Reserve Bank of India[30] (RBI) that allowed the company to
import a computer. It took nearly three years to import a computer to India at that time, and

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PAGE 4 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 therefore, some of the founders had to be in the USA to start work. When Infosys got the
computer, employees worked on it in the night, and rented it out during the day to get
additional revenues for the company. At that time, the company did not even have a phone
and it took between one and two years to get a phone connection in India. When the
company received payment from its foreign clients in dollars, the money had to be deposited
with the RBI, which then gave 50 percent of the earnings back to the company. These were
the norms at that time.
In 1983, Infosys shifted its headquarters to Bangalore to take advantage of the huge talent
pool from numerous engineering colleges there. And in 1987, the company opened its first
office in Boston, USA.
In the year 1990, Infosys was given an offer to sell the business for $1 million (Business
World, 2011). By that time, some of the founders had a house, while some did not, and none
of the founders owned a car. The founders discussed with each other for about 4 hours and
decided to reject the offer.
Although the Indian Government had formulated a computer software policy in 1986 to relax
restrictions and encourage growth, the software industry still faced several hurdles. In the
year 1991, the Government of India decided to liberalize the Indian economy in a bid to
overcome the balance-of-payment crises in the economy. This acted as a boon for
companies like Infosys as well, wherein they could easily carry out several activities such as
foreign travel, hiring from other countries, and open offices abroad. Liberalization also
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increased competition for Infosys. Several multinationals entered the Indian market. In order
to counter the threat of possibly losing its employees to competition, Infosys strived hard to
ensure that its employees got the best work conditions. The new Infosys campus had a
gymnasium, basketball courts, and tennis courts, and was comparable to the best
campuses in the world.
The second step that Infosys took to counter competition from multinational companies was
the introduction of Employee Stock Options Program (ESOP). In 1993, Infosys went public,
and got listed in the Indian stock exchange. It then introduced the ESOP scheme, that
distributed an estimated wealth of about Rs 50,000 crore (Business World, 2011). The
company also acquired the ISO 9001/TickIT certification.
At that time, General Electric (GE) was one of Infosys’ largest clients, accounting for nearly a
third of its revenues. GE also worked with several other Indian software vendors. However,
GE constantly renegotiated billing rates by pitting one vendor against the other. Narayana
Murthy wanted to discourage this practice, and Infosys refused to work with GE (Economic
Times, 2012). Although Murthy wanted all Indian software suppliers to collectively turn away
GE, the other players refused. However, Infosys no longer supplied to GE. The same year,
Infosys acquired another large client Nordstorm.
Infosys started its global expansion. In 1994, the company opened a development centre at
Fermont. In 1997, it opened an office in Toronto, Canada. In 1999, it opened offices in
Germany, Sweden, Belgium, Australia and two development centres in the USA.
By 1999, Infosys’ revenues had reached $100 million, and it became the first Indian
company to be listed on the NASDAQ. And in 2001, the company’s revenues had touched
$400 million. By then, it had opened offices in France, Hong Kong, UAE, Argentina, and
development centres in Japan, Canada and the UK. In the USA, it had opened three more
development centres.
Infosys chairman N.R. Narayana Murthy was rated among Time Magazine/CNN’s 25 most
influential businessmen in the world. And Infosys was rated as the best employer by
Business World/Hewitt.
In the year 2002, the company touched revenues of $500 million. Nandan Nilekani took over
as the CEO of Infosys from Narayana Murthy, who was then appointed as the Chairman and
Chief Mentor. The company expanded further into countries like The Netherlands, Singapore
and Switzerland. This year, the company also launched its business process outsourcing

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 5
 services unit – Progeon. The company also sponsored its secondary American depository
shares (ADS[31]) issue.
By the year 2004, Infosys’ revenues had reached US$1 billion. The company launched Infosys
Consulting, Inc. The company was selected to the Global MAKE Hall of Fame in 2005.
The company completed 25 years in 2006. Revenues crossed $2 billion. Infosys had more
than 50,000 employees. The founder CEO of Infosys Narayana Murthy turned 60 in this year
and retired from services. He continued to be associated with the company as its Chairman
and Chief Mentor.
In 2007, Kris Gopalakrishnan took over as the CEO of Infosys and Nandan Nilekani was
appointed the Chairman of the Board of Directors. By 2008, the company’s profits crossed
US$ 1 billion.
In 2009, Infosys was selected as a member of The Global Dow. The company employed over
100,000 people. In 2011, Narayana Murthy handed over the Chairmanship to Mr K.V.
Kamath.
By 2013, Infosys had listed on the New York Stock Exchange (NYSE) and Forbes ranked
it among the world’s most innovative companies. Infosys started trading on the London
and Paris markets as well. The company acquired Lodestone Holding AG, a leading
management consultancy based in Switzerland.

Revenue model of Infosys

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For a long time, Infosys had positioned itself as premium IT service provider. Earning high
margins was very important for the company. The company was legendary for walking away
from deals that called for a compromise on this issue. In 1994, the then CEO of Infosys,
Mr Narayana Murthy, broke away from a deal with General Electric due to ‘‘unfair billing
rate’’[32]. Premium pricing became a major issue for Infosys over a period of time as other
competitors started charging lower prices for similar services. Questions had always been
raised about the revenue model of Infosys, which relied heavily on high margins to drive
growth for the company.
Earlier, Infosys was able to charge premium prices due to its superior brand image. The
company’s core competence was its ability to deliver superior services in the BPO and IT
services industry. However, over a period of time, other companies too developed this ability,
thus becoming at par with Infosys. In fact, most of the other competitors moved up the value
chain in the IT industry by providing a complete range of IT services, including consultancy
services. Infosys was slow to develop competence in these areas. Therefore, Infosys’ core
businesses witnessed commoditization and price-based competition, and in the higher end
of the value chain, Infosys could not compete on equal footing with its competitors.

Decline in revenues from outsourcing business

Indian IT companies earned revenues from outsourcing contracts, and IT services (including
consulting contracts). IT services and consulting contracts were higher up in the value chain
as compared to outsourcing contracts. Infosys had traditionally relied on outsourcing
contracts for its growth. In the fiscal year 2011-2012, only 31 percent of its revenues came
from consulting work, and 6 percent from intellectual property based business.
The pricing pressure faced by Infosys was primarily due to two reasons – the pressure
exerted by clients to lower prices, and second, because Infosys had been adding more
outsourcing contracts instead of consulting contracts. The outsourcing business itself had
become commoditized[33], and Infosys’ growth in the outsourcing sector had slowed
down[33]. In outsourcing contracts, there was little scope for differentiation. As competitors
operated on lower margins than Infosys, they were at an advantage. Additionally, when large
clients exerted pricing pressure, margins dropped. Large clients of Infosys had been forcing
them to reduce prices. While other competitors were accepting lower value work from their
clients at lower prices, Infosys was not willing to compromise on premium prices. Infosys
faced the dilemma of striking the right balance between growth and profitability.

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PAGE 6 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 Adverse economic environment for Infosys’ clients
Infosys’ main markets were the USA and Europe. They collectively accounted for about 85
percent of the company’s total revenues, and the USA alone accounted for 62 percent of
Infosys’ revenues (Exhibit 13). Due to stressful economic environment in the USA and
Europe in the post 2007 period, many clients of Infosys were cautious about paying higher
fees for services. Therefore, Infosys’ traditional business model of charging premium prices
from its clients suffered. Moreover, as competitors were cutting prices, Infosys lost market
share. Despite the emergence of price-based competition, Infosys did not lower prices as it
would compromise profit margins.

Infosys’ client worries

BT (erstwhile British Telecom) was Infosys’ biggest client, generating revenues of $375
million for the company every year. But it had reduced the amount of business that it gave to
Infosys. Earlier, Adidas only assigned work to Infosys, but later assigned a part of the work to
Mindtree (a mid-sized Indian IT company). American insurance company Aetna was a
customer for Infosys and Cognizant. But it had started relying more on Cognizant than
Infosys. It was reported that Infosys lost $85 million account from a US based WellPoint.
However, Infosys refuted the reports of client loses, clearly specifying that the company
could not reveal information about clients (Das and Kalbag, 2013). In the quarter ending
June 2012, Infosys had to write off $15 million due to the cancellation of a transformational
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project in the European market. These developments also affected its revenues.

Overreliance on a few verticals

The two most important verticals for Infosys were banking, financial services and
insurance (BFSI), and manufacturing. BSFI generated 35 percent of revenues for the
company, and manufacturing generated 20 percent of its revenues (Exhibit 14). Slower
growth for Infosys was also a consequence of slowdown of projects among its financial
services clients, as the financial services sector was the worst affected in the global
economic crises. Its financial services clients were facing an uncertain economic
environment due to slowdown. They were not willing to enter into new contracts with
Infosys, and were also hesitant in ramping up existing contracts. Even if new deals were
signed with the clients, protracted negotiations were involved and it took longer than
average time to close a deal.
In order to increase revenues, Infosys wanted to make strategic changes in these two
verticals by increasing presence in some sub-verticals in BFSI and manufacturing. For
instance, it intended to enter hi-tech manufacturing industries, such as aero and auto
manufacturing, besides industrial manufacturing which had been its mainstay. Infosys
wanted to focus on core engineering to build robust product life cycles. In the BFSI vertical,
the company planned to increase attention to the insurance sector. However, investors and
analysts questioned Infosys’ excessive reliance on these verticals, and felt that the company
had to increase its presence in other verticals to diversify risk, and not diversify within the
existing verticals.
After the declaration of the results of the fiscal year 2011-2012, Infosys gave a revenue
advisory of 8-10 percent growth for the next fiscal (it did not give quarterly revenues
advisory) as compared to an expected industry growth rate of 11-14 percent[34]. The main
reason cited by Infosys for not announcing any quarterly advisories was the uncertainty over
the outcomes of major projects in the forthcoming quarter, though analysts felt that as
Infosys had consistently failed to achieve its target, the company had deliberately
announced lower advisories, which could also have been the reason for doing away with the
quarterly outlook. However, as compulsions to grow every quarter forced companies to
acquire new clients or renew old contracts at any cost by compromising on their brand
image and profit margins, not announcing quarterly growth targets could also have a
positive impact on Infosys.

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 7
 Implications on workforce
Many of Infosys’ top executives had quit the company to join rivals. For instance, its
Americas head of financial services left to join Wipro. Three senior employees in its BPO arm
also quit. Infosys’ attrition rate was 14.9 percent for the financial year (2011-2012) and the
first quarter of fiscal 2012-2013 (till June 2012), while for TCS, it was 10.9 percent. In June
2009, Infosys’ attrition rate was 11.1 percent compared to 10.7 percent for TCS. Infosys’ top
management did not deem this to be a serious problem as students across campuses still
perceived Infosys to be a preferred employer. The company also felt that a case-by-case
illustration of the individuals who left the company could not be quoted to illustrate its fall in
status as a preferred employer. Rather, it was important to look at overall numbers.
According to the management, the numbers did not indicate anything so dramatic though
the attrition rate at Infosys was higher than that of many of its competitors (Exhibit 15).
Moreover, lower utilization rates of Infosys suggested high bench strength[35], which was
useful only if the company was on a high growth path. Else, the bench strength only
indicated employees who were dead wood, which added to administrative expenses without
adding anything to the company’s revenues (refer to Exhibit 7 for ‘‘utilization rates’’). This
further dragged down its profits.

Visa woes in the USA

Visa investigations against Infosys in the USA could materially affect its business in the
country. An employee in the USA had filed a case against the company alleging harassment
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by the company due to his unwillingness to collaborate in an Infosys scheme involving

violation of US immigration laws. The suit claimed that the company brought employees to
work onsite in the USA on business visitor (B-1) visas that actually required H-1B visas that
were more expensive and difficult to obtain. Subsequently, the case against Infosys
(regarding the harassment complaint by its employee) was dismissed by the Alabama
court[36]. The dismissal of the lawsuit was a big relief for Infosys, and according to the
company, reaffirmed its core values of ‘‘integrity and transparency.’’ However, the judgment
did not address the issue related to visa fraud, which were being investigated by the
Department of Homeland Security and a federal grand jury. The visa fraud case against the
company was still pending.

The competitive landscape

Infosys faced tough competition from TCS and Cognizant. The other companies in the top
five in the Indian IT industry were Wipro and HCL.

TCS
TCS was the market leader in the Indian IT industry and provided IT services, business
solutions and outsourcing services. TCS was established in 1968 as a division of Tata Sons
Limited. TCS Ltd got incorporated as a separate entity on January 19, 1995. TCS employed
nearly 240,000 employees worldwide in more than 42 countries[37]. It reported total
revenues of $10.17 billion in the fiscal 2011-2012, an annual growth of 24.2 percent with
operating margin of 27.6 percent and net income margin of 21.8 percent.

Cognizant
Cognizant was the second largest player in the Indian IT industry. There had been a meteoric
rise in Cognizant’s revenues in the last few years. In July 2011, Cognizant had beaten Wipro
to occupy the third position in the Indian IT industry, and after the first quarter results in June
2012, it beat Infosys to occupy the second position in the Indian IT market in terms of
revenues.
Cognizant was formed as a spin off from Dun & Bradstreet in 1994. In 1998, the company
was listed at NASDAQ. Initially, most of its revenues came from its former parent, and the
company did not offer any differentiated services to attract new clients. During this time its
focus was on technology and delivering quality. At this point, Cognizant could have adopted

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PAGE 8 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 any one of the three methods of achieving competitive differentiation – innovation,
operational excellence, or customer focus. The company chose customer service as its main
differentiator. Cognizant focused on improving client servicing and increasing domain
expertise. These were the two fundamental areas where the company invested consistently
over the years. The company decided not to undercut competition by pricing lower. These
values helped Cognizant in catching up with its rivals, many of whom had a head start of
more than two decades. Increase in revenues for cognizant over the last few years was an
endorsement of the broader range of services offered by the company to its customers.
Besides, Cognizant consistently invested more in sales and marketing than any other player
in the Indian IT industry. While Cognizant invested close to 21 percent of its revenues, other
Indian companies invested about 14 percent (Mishra, 2012).
To achieve superior customer focus, the company pioneered the Two-in-the-boxTM client
engagement model[38] wherein a client manager experienced in the particular industry
worked on site with the client (Exhibit 16). And a dedicated Delivery manager located in any
one of the global centres of Cognizant, worked on the project delivery from start to the finish.

Wipro
Wipro was the fourth largest player in the Indian IT industry. Wipro was established in 1945
as a consumer products company, and diversified into IT hardware and IT software services
in the 1970s. It evolved into a serious player in the Indian IT industry in the 1990s. It
employed more than 130,000 employees and had clients across 54 countries. Its total
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revenues were $6.98 billion[39]. 78 percent of its total revenues and 93 percent of its
operating income came from IT services.

HCL Technologies
HCL was the fifth largest company in the Indian IT industry and a leading global technology
and IT enterprise with annual revenues of US$ 6.2 billion[40]. The company was founded in
1976. It employed more than 90,000 professionals across more than 31 countries.
Across the IT industry, revenue growth could be attributed to the following parameters
(Exhibit 17):
B volume (number of hours worked by an employee);
B realization/pricing (the billing rate charged to customers);
B utilization rate (the ratio of the total billable employees who actually worked on projects to
the total number of employees available to work on projects for a particular period); and
B currency (the translation gain/loss that occurred while converting the revenue from the
respective local currency to Indian rupee).
The decrease in prices had affected the entire industry, and contrary to the Infosys’ claims, it
had reduced prices the most among all the players in the first quarter of 2012-2013
(Exhibit 17). In terms of utilization, HCL and Infosys lagged behind TCS and Wipro.

Changing competitive landscape and implications for Infosys

Various changes in the competitive landscape had negatively impacted Infosys and its way
of doing business. Till about five years back, there was abundant business in the market and
all the players in the market could pick their clients. Therefore, the business model of high
margins could put off some clients, but as Infosys had options, it chose to reject those clients
who refused to pay more. But an adverse economic environment and unwillingness of clients
to invest readily in IT driven solutions forced Infosys to consider client demands for reduction
of fees. Large corporations such as Wal Mart and Bank of America had given more business to
Infosys’ rivals in the recent past. American Express was a client of both Infosys and Cognizant,
and had given a 5-7 percent premium for Cognizant’s services over Infosys. Many competitors
of Infosys now matched its quality of services. Therefore, the company could no longer charge
high prices, as its competitors charged lower prices for the same service quality.

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 9
 There was a distinct feeling among analysts that Infosys had to make a choice between
margins and revenues. All its main competitors including Cognizant, HCL and Wipro had
taken the revenue road to growth. This was one of the main reasons for the meteoric rise of
Cognizant Technologies (see Exhibit 18 for operating margins of top five IT companies).
Moreover, Infosys also drew up stringent terms and conditions in its contract. Infosys
demanded a revision of the contractual prices even with the slightest change in technical
specifications or business process of a client. Competitors such as TCS and Cognizant were
more accommodating with client requests for changes.
Though data indicated that Infosys focused on two verticals, the company claimed that it
followed a balanced portfolio approach, while simultaneously seeking high quality growth. The
main growth driver for Infosys was renewal and acquisition of large, annuity outsourcing
contracts. This strategy was not bereft of dangers. For instance, even though the BFSI vertical
was the main revenue driver for Infosys, competitors like TCS and Cognizant were generating
far higher revenues from this vertical. These competitors were also driving down prices, thus
posing additional pricing challenge for Infosys. However, Infosys still believed that there was
room for innovation and growth through the platform approach[41]. It was not very clear
whether Infosys’ existing BFSI clients were willing to buy consulting or platform-based
services from Infosys at higher prices in the prevailing economic environment, particularly as
most of the downward revisions of revenue and profit growth of Infosys in the 2012-2013
period came due to overreliance on this vertical.
In order to counter these developments, the company had announced a strategic
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realignment called Strategy 3.0[42] in April 2011. The company consolidated its businesses
into three distinct business lines – business innovation, which included consulting and
systems integration; business transformation, which included products and platforms; and
business operations. In the 3.0 strategy announced by Infosys, the company decided to
focus mainly on providing higher value solutions to clients. The consolidation aimed at
transitioning the company from a technology company to a consulting firm.
In its strategic realignment, Infosys planned to move up in the value chain by focusing on
higher value solutions (Infosys 3.0 is discussed in the next section). But it had never
positioned itself as a consulting firm unlike Accenture and Ernst & Young, and clients did not
perceive Infosys to possess considerable consulting expertise. As Infosys’ competence was
well-established in the lower end of the value chain, the company had to grow
inorganically[43] to acquire consulting expertise in order to implement Strategy 3.0, as
organic growth could delay regaining market share.

Infosys 3.0
In its annual report for the fiscal 2011-2012, Infosys announced its 3.0 strategy in order to
boost profits in the medium to long-term. The aim of the 3.0 strategy was to improve the
company’s portfolio to produce high quality, industry leading growth, better revenue
productivity and higher margins. Consulting and systems integration[44] were the main
drivers for achieving this strategy. Though Infosys was not perceived to be a consulting firm,
it offered an entire gamut of consulting solutions from strategy and process design to
implementation. In order to implement this strategy, Infosys needed to change client
perceptions regarding its consulting prowess. There were two options – it could drastically
alter its employee base and recruit experienced specialists in various verticals to grow
organically, which was a slower process; or it could acquire other IT consulting companies
and grow inorganically, which was a faster option. Infosys opted for the latter and started
making investments to implement this strategy.

Acquisition of Lodestone
On September 10, 2012, Infosys announced the acquisition of Lodestone Holding, a
Zurich-based global management company for 330 million Swiss francs. This was a pure
cash deal as Infosys had cash reserves of more than $4 billion. The transaction was to be
completed by the end of October 2012. The main aim of this acquisition was to strengthen
Infosys’ consulting capabilities globally. Of the 850 employees of Lodestone, 750 were

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PAGE 10 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 experienced SAP consultants. Lodestone had more than 200 clients in the consulting
business in manufacturing, life sciences, and automotive verticals. The acquisition fitted in
with Infosys’ ambition of adding more competences in its higher-value solutions.

Other changes
The management also decided to treat its top 50 clients in a special way. Infosys’ top 50
clients accounted for more than half of its revenues (Prasad and Joseph, 2012). The
company decided to appoint two senior executives per client – one of the senior executives,
designated a ‘‘client partner’’, was permanently based at the same location as the customer,
while the other senior executive designated a ‘‘delivery partner’’, was based in India to
ensure adherence to work commitments for the client. The senior executives were made
responsible for client satisfaction (critical for retention and renewal of contracts) and growing
the account. So far, these clients had to deal with several managers in Infosys, who also had
other clients to handle. Therefore, there was no clear focus on key accounts. For the roles of
‘‘delivery partners’’, Infosys planned to hire experienced professionals from the market. The
plan seemed to be sound, but bore an uncanny resemblance to the highly successful two-in-
the-box model of Cognizant. Moreover, Cognizant had moved ahead to a three-in-the-box
model, where a third senior executive called ‘‘consulting partner’’ was added by the
company. The key objective of the ‘‘consulting partner’’ was to provide greater value to the
client by solving its business issues, demonstrating domain and functional knowledge and
innovations, and deliver higher value strategic projects.
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Challenges for Infosys

Infosys faced several challenges such as intense competition, effects of an adverse
economic environment, loss of big clients, challenges to its traditional business model,
commoditization of outsourcing business, overreliance on a few verticals, and a change in
the industry scenario. Infosys had missed several sales targets (refer to Exhibit 7), held out
annual pay hikes to employees in order to focus on growth[45] and saw its stock prices
fall[46] consistently from January 2011 (Exhibits 19 and 20).
So far its responses including the 3.0 strategy only seemed to ape competition – focus on
consulting was Cognizant’s core competence, and systems integration (another focal area in
3.0) was a forte of TCS. Though the 3.0 plan was in sync with Infosys’ traditional positioning
plank, the changes were being made by the company at a time when its major clients
located in the USA and Europe were already witnessing slower growths, and were not willing
to sign new high value contracts. Even renewal of existing contracts invited price
negotiation, and decisions were taking longer. Outsourcing business was becoming
commoditized and price reductions were the norm. Companies such as TCS and HCL
Technologies were gaining in this market by charging lower prices. Infosys had also lost
large clients, or lost a part of their businesses to competitors. The attrition rate of Infosys in
the first quarter of 2012-2013 was 21.5 percent, which was very high, particularly given the
fact that in a harsh economic environment, employees would be keen to retain their jobs.
Could Infosys’ Strategy 3.0 solve the company’s problems? Or did the management need to
make any other strategic changes to regain lost ground? How long could it take for a reversal
in Infosys’ fortunes? And was Infosys still the Indian IT bellwether?

Notes
1. Nasscom, the Indian association for the IT-BPO sector in India, predicted a growth rate of 11-14
percent for the fiscal year 2012-2013, and Infosys’ revenue guidance was lower than this figure.
More details about revenue guidance for this quarter can be accessed from the web site: www.
infosys.com/investors/reports-filings/quarterly-results/2012-2013/Q1/Documents/transcripts/press-
conference.pdf

2. Employee utilization rate is the number of employees per client. Lower utilization rate suggests that
there are more Bench employees for Infosys as compared to other competitors. In the IT industry,
bench refers to the number of employees a company keeps ready to fill vacant positions. Bench

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 11
 employees are also needed by a company in case of sudden large client acquisitions, but a large
number indicates too many idle employees in the company as they do not contribute to the revenues
of the company.

3. Infosys charged higher prices than competitors, and did not compromise on margins by lowering
prices.

4. Interview of CEO of Infosys S.D. Shibulal published in Economic Times, July 13, 2013.

5. Source: Nasscom press release (www.nasscom.org/resource_center).

6. For a detailed description of the Indian IT industry in 2012, please refer to www.nasscom.in/sites/
default/files/researchreports/SR_2012_Executive_Summary.pdf

7. Business process outsourcing involves contracting the operations or the responsibility of a specific
process to a third party service provider.

8. Uncovering, understanding and responding to the customer’s underlying business need through
meaningful dialogue.

9. The delegation of one or more IT-intensive business processes to an external provider that, in turn,
owns, administrates and manages the selected processes based on defined and measurable
performance metrics. BPO offerings are categorized in two major categories: horizontal offerings
(those that can be leveraged across specific industries) and vertical-specific offerings (those that
demand specific industry vertical process knowledge).
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10. The outsourcing of core processes that require competitive knowledge and higher specialized skills
is known as knowledge process outsourcing or KPO. There are four categories of KPO vendors:
off-shore, near-shore, captive, and on-shore. KPO is, essentially, high-end business process
outsourcing. For more information, web site: www.iveybusinessjournal.com/topics/strategy/the-
benefits-and-risks-of-knowledge-process-outsourcing#.UZR_iqKmZc0

11. Refers to the practice of a law firm obtaining legal services from an outside company.

12. Customer care centres are responsible for retaining and extending customer relationships once a
product or service is sold. Due to the increasing complexity of customer interactions, customer
service organizations need a complex technological infrastructure that is flexible, extensible and
scalable and that integrates front-office applications with back-end processes and data (www.
gartner.com/it-glossary/css-customer-service-and-support/).

13. Original equipment manufacturers (OEMs) are companies that manufacture products or
components that are purchased by other customers.

14. Application development comprise tools that represent each phase of the software development life
cycle: application lifecycle management (ALM), design, construction, automated software quality
and other application development software (www.gartner.com/it-glossary/application-
development-ad).

15. Application management provides a wide variety of application services, processes and
methodologies for maintaining, enhancing and managing custom applications, packaged
software applications or network-delivered applications (www.gartner.com/it-glossary/application-
management).

16. Infrastructure as a service (IaaS) is a standardized, highly automated offering, where compute
resources, complemented by storage and networking capabilities are owned and hosted by a
service provider and offered to customers on-demand. Customers are able to self-provision this
infrastructure, using a web-based graphical user interface that serves as an IT operations
management console for the overall environment (www.gartner.com/it-glossary/infrastructure-as-a-
service-iaas).

17. The process of creating a complex information system that may include designing or building a
customized architecture or application, integrating it with new or existing hardware, packaged and
custom software, and communications. Most enterprises rely on an external contractor for program
management of most or all phases of system development (www.gartner.com/it-glossary/system-
integration).

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PAGE 12 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 18. Is a broad collection of application infrastructure (middleware) services (including application
platform, integration, business process management and database services) (www.gartner.com/it-
glossary/platform-as-a-service-paas).

19. Is a style of computing in which scalable and elastic IT-enabled capabilities are delivered as a
service using internet technologies (www.gartner.com/it-glossary/cloud-computing).
20. Mobility encompass the IT and process management services required by a company to acquire,
provision and support smartphones, tablets and ruggedized field force devices with integrated
cellular and/or wireless connectivity (www.gartner.com/it-glossary/mobility-managed-services-
mms).

21. Is the process of inspecting, cleaning, transforming, and modeling data with the goal of highlighting
useful information, suggesting conclusions, and supporting decision making. Includes data mining,
data integration, etc. (http://en.wikipedia.org/wiki/Data_analysis).

22. Nasscom data (www.nasscom.org/it-services).

23. Operating margin is the ratio of operating income to revenues.

24. Earnings before interest, depreciation, taxes and amortization.

25. Off-shoring refers to the relocation of a business process from one country to another.

26. At the end of the first quarter of the current fiscal year, source: Infosys web site: www.infosys.com

27. Incentive program where qualifying employees can buy the company’s shares at a discount.

28. Indian cities.

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29. Details in www.infosys.com/global-sourcing/global-delivery-model/pages/index.aspx

30. RBI is the central bank of India.

31. ADS is a vehicle for foreign corporations to list their ordinary equity in an American Stock Exchange.

32. http://businesstoday.intoday.in/story/infys-high-margin-labour-intensive-model/1/24349.html

33. Infosys Annual Report 2011-12, p. 2, message by CEO S.D. Shibulal.

34. As advised by Nasscom.

35. Utilization rate is inversely proportional to bench strength of a company.

36. www.firstpost.com/world/infosys-wins-visa-case-in-us-court-but-still-faces-criminal-probe-423959.
html

37. At the end of the first quarter of the current fiscal – company’s web site: www.tcs.com/about/corp_
facts/Pages/default.aspx

38. Details of the model – www.cognizant.com/approach/SiteDocuments/Two_in_a_Box.pdf

39. Fiscal year 2011-2012.

40. Fiscal year 2011-2012.

41. The platform approach bundles business process outsourcing with a technology layer to create
sustainable value for companies. Details in the web site: www.infosysbpo.com/offerings/functions/
business-platforms/service-offerings/pages/index.aspx

42. Highlighted in the Infosys Annual Report – www.infosys.com/investors/reports-filings/annual-report/

annual/Documents/Infosys-AR-12.pdf

Keywords: 43. By acquiring other companies.

Strategy, 44. To streamline all business processes into one optimally functioning organization that gives a client
Business model, the ability to get a consolidated view of his company.
Competitive advantage,
Competition, 45. Economic Times, April 14, 2012.
Business environment, 46. Infosys was the fourth worst performer in 2011-2012 among 71 top large and mid-cap stocks around
Indian IT industry the world.

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 13
 References
Business World (2011), ‘‘A journey that was Infosys’’, Business World, 26 August.

Das, G. and Kalbag, C. (2013), ‘‘Missing Murthy’’, Business Today, February 17.

Deloitte Report (2009), Global Economic Slowdown and its Impact on the Indian IT Industry, April.

Dhanorkar, S. (2012), ‘‘Is Infosys still a good bet for investors?’’, Economic Times, Novermber 5.

Economic Times (2012), ‘‘Between the lines: why Infosys bade General Electric goodbye’’, Economic
Times, April 1.

Economic Times (2013), ‘‘Infosys valuations trailed TCS, Wipro, HCL Technologies’’, Economic Times,
January 8.
Mishra, B.R. and Chandran, P. (2013), ‘‘History revisited: the initial years at Infosys’’, Business Standard,
August 6.

Mishra, P. (2012), ‘‘Should TCS now be afraid of Cognizant?’’, Mint, November 7.

Prasad, A. and Joseph, L. (2012), ‘‘Infosys to treat its top 50 clients in a special way’’, Economic Times,
September 21.

Thoppil, D.A. (2012), ‘‘Just what is wrong at Infosys? India Real Time’’, Wall Street Journal, April 16.

Further reading
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Business World (2012), ‘‘Shopping for growth’’, Business World, September 15.

Das, G. and Sen, S. (2012), ‘‘India’s BPO industry losing voice, finds life elsewhere’’, Business Today,
April 1.

George, V. (2012), ‘‘Infosys money, market share to flow into TCS: JPMorgan’’, Moneycontrol.com, July 12.

Infosys Newsroom (2012), ‘‘Infosys to acquire Lodestone, a leading management consultancy firm’’,
Infosys Newsroom, September 10, available at: www.infosys.com/newsroom/press-releases/Pages/
infosys-to-acquire-lodestone.aspx

Sen, S. (2011), ‘‘Cognizant has turned the outsourcing model under Francisco D’Souza’’, Business
Today, October 30.

Sengupta, D. (2012), ‘‘Infosys holds back pay hikes, for now’’, Economic Times, April 14.
Shinde, R. (2012), ‘‘How Infy can regain lead amid gloom, competition’’, Economic Times, September 27.

Web sites
Annual Report – Cognizant, http://investors.cognizant.com/index.php?s¼52

Annual Report – HCL Technologies, www.hcltech.com/analyst/analyst-reports

Annual Report – Infosys Ltd, www.infosys.com/investors/reports-filings/annual-report/annual/

Documents/Infosys-AR-12.pdf

Annual Report – TCS, www.tcs.com/investors/Documents/Annual%20Reports/TCS_Annual_Report_

2011-2012.pdf

Annual Report – Wipro Ltd, www.wipro.com/investors/annual-reports.aspx

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PAGE 14 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 Exhibit 1. Revenues in the first quarter (June 12) of the fiscal year 2012-2013

Table EI
Company Revenues in $ billion

TCS 2.78
Cognizant 1.795
Infosys 1.75
Wipro 1.515

Sources: Annual reports of all companies – www.infosys.com/investors/reports-filings/quarterly-

results/2012-2013/Q1/Documents/IFRS-USD-press-release.pdf; www.wipro.com/Documents/IFRS-
Press-Release-Q1-FY-13.pdf; www.tcs.com/investors/financial_info/quarterly/Pages/default.
aspx?y¼ 2013&q¼ Q1 and http://investors.cognizant.com/index.php?s¼ 43&item¼ 214

Exhibit 2. Comparative performance of top five Indian IT companies in terms of

revenue growth in dollars

Figure E1
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50

40

30

20

10

0
4

4
3

3
Q

Q
10

2
-1

-1
-

10
09

11
20

20

20

HCL COGNIZANT TCS

INFOSYS WIPRO
Source: Hindu Business Line, May 20, 2012

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 15
 Exhibit 3. Analysis of top five Indian IT companies in terms of financial performance,
industry vertical performance and geographic performance (for fiscal year 2011-2012)

Table EII
(1) Enterprise revenue (US$ million)
2012 revenue a Growth b (%)
TCS 10,171 24
Infosys 6,994 16
" Cognizantw 6,461 29
# Wipro Tech. 5,921 13
HCL Tech. 4,035 22
(2) Operating profit margin
2012 margin a (%) Growth b (bps)
Infosys 28.8 2 87
TCS 27.6 2 49
Wipro Tech. 20.8 2 190
Cognizant 18.4 2 46
HCL Tech. 15.3 140
(3) Enterprise revenue growthb
Growth (%) Growth (US$)
Cognizant 29 1,457
TCS 24 1,984
HCL Tech. 22 715
Infosys 16 953
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Wipro Tech. 13 700

(4) BFSI (US $ million)
2012 revenue a Growth b (%)
TCS 4,384 21
" Cognizant 2,644 25
# Infosys 2,455 13
Wipro Tech. 1,593 13
HCL Tech. 1,012 21
(5) Healthcare and life sciences (US$ million)c
2012 revenue a Growth b (%)
Cognizant 1,741 37
Wipro Tech. 592 6
TCSw 539 27
" Infosys 385 42
# HCL Tech. 335 22
(6) Energy and Utilities (US$ million)d
2012 revenue a Growth b (%)
Wipro Tech. 782 58
Infosys 413 12
TCSw 407 18
HCL Tech. 297 27
(7) NorthAmerica (US $ million)e
2012 revenue a Growth b (%)
TCS 5,421 23
" Cognizant 5,094 31
# Infosys 4,469 13
Wipro Tech. 3,097 7
HCL Tech. 2,280 19
(8) Europe (US$ million)
2012 revenue a Growth b (%)
TCS 2,573 27
Wipro Tech. 1,676 18
Infosys 1,532 18
Cognizant 1,125 20
HCL Tech.w 1,089 25

Notes: " – increase in rank versus FY 2011; # – decrease in rank versus FY 2011; w – expected change in coming quarters; afor FY 2012;
b
FY 2012 versus FY 2011; cWipro’s revenue includes services; reclassification in reporting segments by Infosys added healthcare and life
sciences as a new vertical in the current assessment; dexcludes Cognizant as the company does not report energy and utilities as a
separate vertical, HCL’s revenue includes public service; eHCL’s and Wipro’s revenues for Americas
Source: www.everestgrp.com/2012-06-which-witch-switches-in-the-indian-it-majors-rankings-line-up-sherpas-in-blue-shirts-9779.html

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PAGE 16 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 Exhibit 4. Comparison between the market leader TCS and Infosys for the last fiscal
year (2011-2012) up to the first quarter of the current fiscal year (June 2012)

Table EIII
Particulars TCS Infosys

Revenue growth (USD)

YoY (year-on-year) 13.1% 4.8%
QoQ (quarter-on-quarter) 3.0% 2 1.1%
Revenue growth (in Indian rupees)
YoY 37.7% 28.5%
QoQ 12.1% 8.6%
PAT growth (in Indian rupees)
YoY 37.4% 32.9%
QoQ 14.6% 2 1.2%
Operating margins 27.5% 28.0%
Active clients 1,032 711
Client addition in Q1FY13 29 51
Growth in key business verticals (QoQ)
BFSI 14.1% 2 1.1%
Telecom 15.3% 2 1.1%
Retail 17.5% 5.8%
Employee addition 13831 9236
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Utilisation rate 72% 67%

Attrition rate 11% 15%
Currency average rate 54.5 54.83

Source: www.moneycontrol.com/news/result-analysis/infosys-vs-tcs-hownumbers-stackhead-to-
head_729623.html

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 17
 Exhibit 5. Consolidated balance sheets of the top five Indian IT majors for the last
five FYs

Table EIV
Balance sheet of TCS (in rupees crore)
March 2013 March 2012 March 2011 March 2010 March 2009
(12 months)
Sources of funds
Total share capital 295.72 295.72 295.72 295.72 197.86
Equity share capital 195.72 195.72 195.72 195.72 97.86
Share application money 0.00 0.00 0.00 0.00 0.00
Preference share capital 100.00 100.00 100.00 100.00 100.00
Reserves 32,266.53 24,560.91 19,283.77 14,820.90 13,248.39
Revaluation reserves 0.00 0.00 0.00 0.00 0.00
Networth 32,562.25 24,856.63 19,579.49 15,116.62 13,446.25
Secured loans 161.60 93.47 35.87 29.25 32.63
Unsecured loans 1.52 2.76 5.25 6.49 7.74
Total debt 163.12 96.23 41.12 35.74 40.37
Total liabilities 32,725.37 24,952.86 19,620.61 15,152.36 13,486.62
Application of funds
Gross block 9,183.36 7,282.02 6,030.16 4,871.21 4,359.24
Less: accum. depreciation 4,079.08 3,218.40 2,607.98 2,110.69 1,690.16
Net block 5,104.28 4,063.62 3,422.18 2,760.52 2,669.08
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Capital work in progress 1,763.85 1,726.88 1,345.37 940.72 685.13

Investments 6,324.38 5,688.39 5,795.49 7,893.39 5,936.03
Inventories 6.34 4.14 5.37 6.78 16.95
Sundry debtors 11,202.32 9,107.72 4,806.67 3,332.30 3,717.73
Cash and bank balance 4,054.16 203.18 224.77 212.31 479.93
Total current assets 15,262.82 9,315.04 5,036.81 3,551.39 4,214.61
Loans and advances 14,556.81 7,877.86 5,063.51 4,101.84 3,910.85
Fixed deposits 0.00 5,587.02 5,379.75 3,183.85 1,125.33
Total CA, loans and advances 29,819.63 22,779.92 15,480.07 10,837.08 9,250.79
Deffered credit 0.00 0.00 0.00 0.00 0.00
Current liabilities 6,121.11 4,761.43 3,932.39 3,352.74 3,604.18
Provisions 4,165.66 4,544.52 2,490.11 3,926.61 1,450.23
Total CL and provisions 10,286.77 9,305.95 6,422.50 7,279.35 5,054.41
Net current assets 19,532.86 13,473.97 9,057.57 3,557.73 4,196.38
Miscellaneous expenses 0.00 0.00 0.00 0.00 0.00
Total assets 32,725.37 24,952.86 19,620.61 15,152.36 13,486.62
Contingent liabilities 10,631.92 6,537.78 3,938.76 3,292.50 2,924.33
Book value (Rs) 165.86 126.49 99.53 76.72 136.38
Balance sheet of Infosys (in rupees crore)
Sources of funds
Total share capital 287.00 287.00 287.00 287.00 286.00
Equity share capital 287.00 287.00 287.00 287.00 286.00
Share application money 0.00 0.00 0.00 0.00 0.00
Preference share capital 0.00 0.00 0.00 0.00 0.00
Reserves 35,772.00 29,470.00 24,214.00 21,749.00 17,523.00
Revaluation reserves 0.00 0.00 0.00 0.00 0.00
Networth 36,059.00 29,757.00 24,501.00 22,036.00 17,809.00
Secured loans 0.00 0.00 0.00 0.00 0.00
Unsecured loans 0.00 0.00 0.00 0.00 0.00
Total debt 0.00 0.00 0.00 0.00 0.00
Total liabilities 36,059.00 29,757.00 24,501.00 22,036.00 17,809.00
Application of funds
Gross block 4,453.00 7,173.00 6,934.00 6,357.00 5,986.00
Less: accum. depreciation 0.00 3,112.00 2,878.00 2,578.00 2,187.00
Net block 4,453.00 4,061.00 4,056.00 3,779.00 3,799.00
Capital work in progress 1,135.00 1,021.00 499.00 409.00 615.00
Investments 4,344.00 1,409.00 1,325.00 4,636.00 1,005.00
Inventories 0.00 0.00 0.00 0.00 0.00
(continued)

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PAGE 18 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 Table EIV

Sundry debtors 6,365.00 5,404.00 4,212.00 3,244.00 3,390.00

Cash and bank balance 20,401.00 17,940.00 641.00 929.00 805.00
Total current assets 26,766.00 23,344.00 4,853.00 4,173.00 4,195.00
Loans and advances 6,330.00 4,633.00 5,273.00 4,201.00 3,303.00
Fixed deposits 0.00 1,617.00 13,024.00 8,868.00 8,234.00
Total CA, loans and advances 33,096.00 29,594.00 23,150.00 17,242.00 15,732.00
Deffered credit 0.00 0.00 0.00 0.00 0.00
Current liabilities 3,181.00 2,724.00 2,056.00 1,995.00 1,544.00
Provisions 3,788.00 3,604.00 2,473.00 2,035.00 1,798.00
Total CL and provisions 6,969.00 6,328.00 4,529.00 4,030.00 3,342.00
Net current assets 26,127.00 23,266.00 18,621.00 13,212.00 12,390.00
Miscellaneous expenses 0.00 0.00 0.00 0.00 0.00
Total assets 36,059.00 29,757.00 24,501.00 22,036.00 17,809.00
Contingent liabilities 1,674.00 1,021.00 1,013.00 295.00 347.00
Book value (Rs) 627.95 518.21 426.73 384.02 310.90
Balance sheet of HCL (in rupees crore)
June 2012 June 2011 June 2010 June 2009 June 2008
(12 months)
Sources of funds
Total share capital 138.66 137.74 135.76 134.05 133.27
Equity share capital 138.66 137.74 135.76 134.05 133.27
Share application money 2.77 1.00 2.01 0.47 1.71
Preference share capital 0.00 0.00 0.00 0.00 0.00
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Reserves 6,465.15 5,720.41 4,798.09 3,353.72 3,079.85

Revaluation reserves 0.00 0.00 0.00 0.00 0.00
Networth 6,606.58 5,859.15 4,935.86 3,488.24 3,214.83
Secured loans 698.87 1,029.87 1,030.51 123.81 25.24
Unsecured loans 0.00 0.29 366.88 389.92 0.09
Total debt 698.87 1,030.16 1,397.39 513.73 25.33
Total liabilities 7,305.45 6,889.31 6,333.25 4,001.97 3,240.16
Application of funds
Gross block 3,497.26 2,880.57 2,293.37 1,957.86 1,599.61
Less: accum. depreciation 1,883.55 1,584.64 1,349.54 1,100.88 874.32
Net block 1,613.71 1,295.93 943.83 856.98 725.29
Capital work in progress 549.55 568.73 477.20 417.56 419.03
Investments 3,297.95 2,653.27 2,233.20 562.75 1,797.34
Inventories 99.99 124.97 12.04 87.01 0.00
Sundry debtors 1,992.42 1,657.26 2,084.70 1,489.26 980.02
Cash and bank balance 1,041.20 167.70 64.83 144.00 162.87
Total current assets 3,133.61 1,949.93 2,161.57 1,720.27 1,142.89
Loans and advances 2,282.21 1,706.69 1,750.46 1,817.97 1,183.99
Fixed deposits 0.00 896.02 924.60 1,221.83 524.01
Total CA, loans and advances 5,415.82 4,552.64 4,836.63 4,760.07 2,850.89
Deffered credit 0.00 0.00 0.00 0.00 0.00
Current liabilities 2,613.79 1,578.42 1,724.01 2,217.44 1,828.85
Provisions 957.79 602.84 433.60 377.95 723.54
Total CL and provisions 3,571.58 2,181.26 2,157.61 2,595.39 2,552.39
Net current assets 1,844.24 2,371.38 2,679.02 2,164.68 298.50
Miscellaneous expenses 0.00 0.00 0.00 0.00 0.00
Total assets 7,305.45 6,889.31 6,333.25 4,001.97 3,240.16
Contingent liabilities 3,620.28 2,677.49 2,505.21 3,317.46 469.36
Book value (Rs) 95.25 85.06 72.69 52.04 48.22
Balance sheet of Wipro (in rupees crore)
March 2012 March 2011 March 2010 March 2009 March 2008
(12 months)
Sources of funds
Total share capital 491.70 490.80 293.60 293.00 292.30
Equity share capital 491.70 490.80 293.60 293.00 292.30
Share application money 0.00 0.70 1.80 1.50 58.00
Preference share capital 0.00 0.00 0.00 0.00 0.00
Reserves 23,860.80 20,829.40 17,396.80 12,220.50 11,260.40
(continued)

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 19
 Table EIV

Revaluation reserves 0.00 0.00 0.00 0.00 0.00

Networth 24,352.50 21,320.90 17,692.20 12,515.00 11,610.70
Secured loans 1.00 0.00 0.00 0.00 4.00
Unsecured loans 5,242.20 4,744.10 5,530.20 5,013.90 3,818.40
Total debt 5,243.20 4,744.10 5,530.20 5,013.90 3,822.40
Total liabilities 29,595.70 26,065.00 23,222.40 17,528.90 15,433.10
Application of funds
Gross block 8,807.80 7,779.30 6,761.30 5,743.30 2,282.20
Less: accum. depreciation 4,158.00 3,542.30 3,105.00 2,563.70 0.00
Net block 4,649.80 4,237.00 3,656.30 3,179.60 2,282.20
Capital work in progress 490.10 603.10 991.10 1,311.80 1,335.00
Investments 10,335.20 10,813.40 8,966.50 6,895.30 4,500.10
Inventories 785.10 724.90 606.90 459.60 448.10
Sundry debtors 7,967.00 5,781.30 5,016.40 4,446.40 3,646.60
Cash and bank balance 3,435.70 2,334.20 1,938.30 1,902.10 3,732.10
Total current assets 12,187.80 8,840.40 7,561.60 6,808.10 7,826.80
Loans and advances 8,135.90 6,756.80 5,425.90 4,202.00 4,231.30
Fixed deposits 2,797.10 2,869.10 3,726.00 2,507.10 0.00
Total CA, loans and advances 23,120.80 18,466.30 16,713.50 13,517.20 12,058.10
Deffered credit 0.00 0.00 0.00 0.00 0.00
Current liabilities 5,984.20 5,290.00 4,874.20 5,564.30 3,361.60
Provisions 3,016.00 2,764.80 2,230.80 1,810.70 1,380.70
Total CL and provisions 9,000.20 8,054.80 7,105.00 7,375.00 4,742.30
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Net current assets 14,120.60 10,411.50 9,608.50 6,142.20 7,315.80

Miscellaneous expenses 0.00 0.00 0.00 0.00 0.00
Total assets 29,595.70 26,065.00 23,222.40 17,528.90 15,433.10
Contingent liabilities 921.90 707.30 778.00 1,045.40 749.90
Book value (Rs) 99.04 86.86 120.49 85.42 79.05
Balance sheet of Cognizant Technologies (in dollar thousands)
Period ending December 31, 2012 December 31, 2011 December 31, 2010
Assets
Current assets
Cash and cash equivalents 1,570,077 1,310,906 1,540,969
Short term investments 1,293,681 1,121,358 685,419
Net receivables 1,730,640 1,427,712 1,110,432
Inventory – – –
Other current assets 219,896 225,530 181,414
Total current assets 4,814,294 4,085,506 3,518,234
Long term investments – – –
Property plant and equipment 971,486 758,034 570,448
Goodwill 309,185 288,772 223,963
Intangible assets 87,475 97,616 85,136
Accumulated amortization – – –
Other assets 160,307 113,813 75,485
Deferred long term asset charges 178,824 164,192 109,808
Total assets 6,521,571 5,507,933 4,583,074
Liabilities
Current liabilities
Accounts payable 1,227,634 1,103,992 846,136
Short/current long term debt – – –
Other current liabilities 149,696 105,713 84,590
Total current liabilities 1,377,330 1,209,705 930,726
Long term debt – – –
Other liabilities 287,081 342,003 62,971
Deferred long term liability charges 2,777 3,339 4,946
Minority interest – – –
Negative goodwill – – –
Total liabilities 1,667,188 1,555,047 998,643
Stockholders’ equity
Misc stocks options warrants – – –
Redeemable preferred stock – – –
(continued)

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PAGE 20 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 Table EIV

Preferred stock – – –
Common stock 3,017 3,031 3,039
Retained earnings 4,633,789 3,582,526 2,698,908
Treasury stock – – –
Capital surplus 457,260 692,723 846,886
Other stockholder equity 239,683 325,394 35,598
Total stockholder equity 4,854,383 3,952,886 3,584,431
Net tangible assets 4,457,723 3,566,498 3,275,332

Exhibit 6. Announced versus actual growth in dollar terms for the last three years on
a quarterly basis

Table EV
Fiscal year Guidance Actual Midpoint Out performance (%)

FY 10a 4,350-4,520 4,804 4,435 8.3

Q1 10 1,060-1,080 1,122 1,070 4.9
Q2 10 1,110-1,130 1,154 1,120 3.0
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Q3 10 1,155-1,165 1,232 1,160 6.2

Q4 10 1,240-1,250 1,296 1,245 4.1
FY 11a 5,570-5,670 6,041 5,620 7.5
Q1 11 1,330-1,340 1,358 1,335 1.7
Q2 11 1,413-1,427 1,496 1,420 5.4
Q3 11 1,547-1,562 1,585 1,555 2.0
Q4 11 1,601-1,617 1,602 1,609 2 0.4
FY 12a 7,130-7,250 6,994 7,190 2 2.7
Q1 12 1,643-1,659 1,671 1,651 1.2
Q2 12 1,730-1,755 1,746 1,743 0.2
Q3 12 1,802-1,840 1,806 1,821 2 0.8
Q4 12 1,806-1,810 1,771 1,808 2 1.9
FY 13a
Q1 13 1,771-1,789 1,752 1,780 2 1.6%
a
Note: Guidance given at the beginning of the fiscal year
Source: Infosys web site: financial guidelines for investors – www.infosys.com/investors/financials/
Pages/guidance-vs-actuals-USD.aspx

Exhibit 7. Employee utilization rates across companies in the Indian IT industry

(2011-2012)

Table EVI
Company Q1 Q2 Q3 Q4

Infosys 69.6 70.2 69.9 67.2

TCS 76 76.4 74.1 71.3
HCL Tech. 77.7 75.4 75.3 76.9
Wipro 76.9 76.1 73.5 74.1

Source: Economic Times, 11 July 2012 – http://articles.economictimes.indiatimes.com/2012-07-11/

news/32619668_1_bench-strength-utilisation-rates-new-recruits

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 21
 Exhibit 8. Top ten IT companies in India in terms of number of employees
(2011-2012)

Table EVII
S. no. Company name

1 Tata Consultancy Services Ltd

2 Infosys Limited
3 Cognizant Technology Solutions India Pvt. Ltd
4 Wipro Ltd
5 HCL Technologies Ltd
6 Mahindra IT & Business Services
7 Genpact Ltd
8 Serco Global Services
9 Capgemini India Pvt. Ltd
10 Mphasis Ltd

Source: Nasscom press release

Exhibit 9. Top five Indian IT service providers worldwide (in millions of dollars)
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Table EVIII
Global ranking Global ranking 2011 2012 2012-2011 2011 marker 2012 market share
Company 2011 2012 revenue revenue growth (%) share (%) (%)

TCS 16 16 9,451 10,888 15.2 1.1 1.2

Cognizant 28 23 5,875 7,053 20.1 0.7 0.8
Infosys 27 26 6,279 6,691 6.6 0.7 0.7
Wipro 31 31 5,334 5,737 7.6 0.6 0.6
HCL 47 41 3,316 3,916 18.1 0.4 0.4
Technologies
Total 30,255 34,285 13.3 3.5 3.7

Source: Gartner Report, May 2013

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PAGE 22 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 Exhibit 10. Growth rates of the BPO industry and the IT services industry

Figure E2

35

31
30 BPO industry growth
30
IT services industtry growth

25 23

19
20 18
16
14
15
12

10
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6 6

0
FY'08 09 10 11 12
Source: Business Today, April 1, 2012

Exhibit 11. Comparison of strengths and weaknesses of the main rivals of the Indian
IT players and its international rivals in the BPO sector

Figure E3

Source: KPMG

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 23
 Exhibit 12. BFSI share of the top four Indian IT companies in the first half of FY 2008

Table EIX
Exposure of BFSI in USD million
Companies BFSI share (%) January-March 2008 April-June 2008 Change (%) Key BFSI clients

Cognizant 46 292.4 314.2 7.46 American Express, Citigroup, Credit Suisse, JP

Morgan, Metlife
Infosys 34 387.1 398.2 2.94 ABN Amro, Bank of America, JP Morgan,
Washington Mutuals, UBS
TCS 42 664.4 648.2 2 2.44 AIG, American Express, Bank of America,
Citigroup, Deutsch Bank, Fortis, JP Morgan,
Merill Lynch
Wipro 25 256.8 271.1 5.57 Credit Suisse, Lehman Brothers, UBS

Source: Deloitte Report (2009)

Exhibit 13. Break-up of Infosys revenues by geography

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Figure E4

70
63.7
60

50

40

30
22.6
20
11.6
10
2.1
0
North America Europe India Rest of the world
Source: Business Standard, http://business-standard.com/content/
research_pdf/info_120112.pdf

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PAGE 24 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 Exhibit 14. Break-up of Infosys revenues by verticals

Figure E5

40
35.3
35
30
25
20.4 19.3
20
15.2
15
9.8
10
5
0
BFSI Manufacturing Telecom Retail Others
Source: Business Standard, http://business-standard.com/content/
research_pdf/info_120112.pdf
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Exhibit 15. Attrition rate among main competitors in the IT industry for fiscal year
2011-2012 (in percent)

Figure E6

14.7 15
16 14
14 12.2
12 10.1
10
8
6
4
2
0
ro
s

s
S

nt
sy

ie
TC

ip
za

og
fo

W
ni
In

l
no
og

ch
C

Te
L
C
H

Source: Business Standard, http://business-standard.com/content/research

_pdf/info_120112.pdf

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 25
 Exhibit 16. Two-in-a-box client relationship model of Cognizant Technologies limited

Figure E7

Source: http://www.cognizant.com/approach/SiteDocuments/Two_in_a_Box.pdf
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Exhibit 17. Comparative performance of main competitors in the Indian IT industry in

the first quarter of the current fiscal yeara

Table EX
Q-o-Q growth of key parameters HCL Tech. (%) Infosys (%) TCS (%) Wipro (%)

Volume 4.60 2.70 5.30 0.80

Realization/pricing 2.70 2 2.90 2 1.20 20.50
Utilization 2 2.80 2 1.40 0.70 1.80
Rupee against US$ 2 10.00 2 10.00 2 10.00 2 10.00

Note: aCognizant data is not available

Source: www.moneycontrol.com

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PAGE 26 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 Exhibit 18. Operating margins of top five IT companies in India for the four quarters
of 2012

Figure E8

30

25 27.3 27.9
27.7 25.7
26.7 29.8
27.5 26.3
20
20.4 20 21
20.8 19.4 19.8
15 20 19.7 20.7
20.7 19.4

15.7
10

0
TCS Infosys Cognizant Wipro HCL tech.
Mar'12 Sep'12
Jun'12 Dec'12
Source: Hindu Business Line, Feb 11, 2013, http://www.thehindu
Downloaded by Tezpur University At 06:46 10 May 2016 (PT)

businessline.com/industry-and-economy/info-tech/cognizant-keeps
-margins-lower-to-gain-market-share-revenues-climb-on-strategy/
article4404541.ece

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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 27
 Exhibit 19. Stock prices of Infosys from January 2009 to August 2012

Table EXI
Month and year Close (Rs) Month and year Close (Rs)

August 2012 2,373.25 December 2010 3,445.00

July 2012 2,227.40 November 2010 3,049.45
June 2012 2,502.55 October 2010 2,969.60
May 2012 2,439.85 September 2010 3,041.00
April 2012 2,462.60 August 2010 2,707.10
March 2012 2,864.95 July 2010 2,788.85
February 2012 2,875.40 June 2010 2,788.55
January 2012 2,743.35 May 2010 2,657.65
December 2011 2,765.05 April 2010 2,736.15
November 2011 2,607.55 March 2010 2,615.10
October 2011 2,875.20 February 2010 2,601.60
September 2011 2,533.80 January 2010 2,476.70
August 2011 2,342.80 December 2009 2,605.25
July 2011 2,766.80 November 2009 2,383.95
June 2011 2,907.40 October 2009 2,205.40
May 2011 2,791.85 September 2009 2,308.40
April 2011 2,905.95 August 2009 2,132.30
March 2011 3,236.75 July 2009 2,063.90
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February 2011 3,003.05 June 2009 1,776.90

January 2011 3,116.30 May 2009 1,602.00
April 2009 1,507.30
March 2009 1,324.10
February 2009 1,231.30
January 2009 1,305.50

Exhibit 20. Stock prices of Infosys from January 2009 to August 2012

Figure E9

4,000.00

DEC'10
3,500.00

3,000.00

2,500.00

2,000.00

1,500.00

1,000.00

500.00

0.00

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PAGE 28 EMERALD EMERGING MARKETS CASE STUDIES VOL. 3 NO. 7 2013
 About the authors
Arun Kumar is an engineering graduate from IIT Roorkee, and a management graduate from
FMS, University of Delhi. He worked in Escorts Limited for a decade as a Production
Manager before joining NIILM CMS in 2001. He has published in Vikalpa (journal of IIM, A)
and Indian Management. He has written a textbook on marketing management.
Meenakshi Nagarajan is a PhD from FMS, University of Delhi and a postgraduate in
international business from Delhi School of Economics. She won the TCR research grant in
the year 2012. She has published in Vikalpa and is the co-author of the marketing textbook
with Prof. Arun Kumar. Meenakshi Nagarajan is the corresponding author and can be
contacted at: n.meenakshi.n@gmail.com
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VOL. 3 NO. 7 2013 EMERALD EMERGING MARKETS CASE STUDIES PAGE 29