Winning Customers In An International Market
Overall Strategy
IBM’s strategy changed in the beginning of the current decade. The company realized the importance of competing in the global marketplace and completely reorganized their operations from building computers in a server/client environment to providing business solutions to integrate customized technology into different industries across the globe. In doing so, IBM saved itself as a company and became a leader in global technologies. Samuel J. Palmisano, IBM’s Chairman, President and CEO stated the change as follows:
As the decade began, we observed the accelerating integration of global economies, and with it the emergence of two important — I would say historic — opportunities. We had a chance to take rapid growth in dozens of countries as they invested heavily in information technology to modernize their societies. And we could also tap into enormous populations of skills all over the world. We set out to bewitch both opportunities. We’ve made major investments in emerging markets, building up our teams in nations all over the world. At the same time, we have been globally integrating IBM’s operations hastily, locating our work and functions wherever it makes the most sense, based on the right cost, the right skills and the right business environment. Today we have a truly global supply chain; we compose software globally; our network of research laboratories is worldwide; and we deliver services on an unmatched global scale. We are continuing to transform our processes and functions to move IBM to this profoundly new model of the corporation, which we call the Globally Integrated Enterprise.
IBM was able to convert its business from a PC manufacturer to a company that helps other companies across the globe integrate technology and exhaust it as effectively and efficiently as possible.
IBM currently operates out of 170 countries including both established and emerging markets. They currently develop and earn computer systems, software, storage systems and microelectronics and work with companies to implement these technologies through three areas defined as professional solutions, professional services, and consulting.
One of IBM’s largest international operations is in India, where it has approximately 90,000 employees, second only to its employees in the United States. IBM originally pulled out of India in 1977, and decided to return gradually in the early 1990’s when the Indian government began to deregulate and slowly enter the world economy. When they first entered the Indian marketplace, IBM was looking for cheap labor, but they soon realized that they would have to abandon that as their main goal if they were to succeed in India. They adapted their presence and invested a large amount of money into their Indian operations and performed Public Relations events in Bangalore including its investor’s day celebration which was traditionally held in New York. IBM’s strategy in India is focused on writing automation software for native companies to replace their currently outsourced activities. It also uses Indian software engineers to address its health care and insurance areas which create assets for the company once the processes are automated through license fees. In addition, IBM also recruits skilled native employees.
Market Analysis
Size of the Market
The Indian IT services market is expected to grow at a compound annual growth rate of 23.2 per cent from 2006 through 2011, making it one of the world’s fastest growing markets. According to NASSCOM, the Indian software and services exports will touch USD 60 billion and USD 73-75 billion in overall software and services revenues, by the financial year 2010.
Size of the Addressable Market
A detailed analysis indicates that the addressable market for global offshoring exceeds US$ 300 billion. We believe that India can sustain its global leadership position, grow its offshore IT and Business Processes industries at an annual rate greater than 25 per cent, and generate export revenues of about US$ 60 billion by 2010. Additionally, export growth can be further accelerated through deep and enduring innovation by industry participants. Such extensive innovation could generate an additional US$ 15-20 billion in export revenue over the next five to ten years. The addressable global market for offshore IT is around US$ 150-180 billion. Going forward, the more outmoded IT outsourcing service lines such as hardware and software maintenance, network administration and help desk services will account for 45 per cent of the total addressable market for offshoring and are likely to drive the next wave of growth. Service lines that have driven recent growth, i.e., application development and maintenance (ADM) and R&D services are already 30-35 per cent penetrated and are not as likely to grow dramatically. The addressable market for the global BPO industry is equally sizeable and could expand by more than 10 times from its current size of approximately US$ 11.5 billion to at least US$ 120-150 billion. BPO growth will be driven largely by used industries (e.g., retail banking) and cross-industry functions such as Human Resources and Finance & Accounting. We believe that approximately 35-40 per cent of the total addressable market will be captured in the next five years.
SWOT Analysis
Strengths
• Abundant availability of skilled manpower
• Reduced telecommunication and internet costs
• Reduced import duties on software and hardware products
• Cost advantages
• Encouraging government policies
Weaknesses
Underdeveloped Infrastructure
Rising Inflation
Brand-name recognition compared to Indian Companies
Opportunities
Growing number of Indian middle class
Growing number of educated population
Technology is easily adapted to different businesses
Threats
Growing number of native competitors
Global recession
Instability of Indian political environment
III. Sales and Marketing Analysis
IBM’s sales and marketing strategy is based on research and relationships. For research, IBM works with 120 of the world’s top VC firms to derive insights into emerging technologies, nurture small businesses and potential startup partners and drive open computing principles in the marketplace. In India IBM is heavily financially invested. In 2006, the CEO announced that the “company would be investing $6 billion in India over the next three years, on everything from research to innovative delivery models and education. That’s the largest single investment by any multinational tech company in India ]In addition, IBM invests in the people and employs a large number of Indians in its company. One example of a recent investment is the center IBM set up in Pune India called the “IBM Service Management Center of Excellence, will be used by IBM’s sales and marketing teams for customers both in India and in the Asia-Pacific site. Some of the services it will provide to IBM sales teams and to partners include facilities for proofs-of-concept, demos, and workshops
IV. Results and Lessons Learned
IBM took lessons from the failures of companies like Apple, who only entered India with intent to capitalize on the rude labor costs. Instead of entering India solely to save money, they entered to increase the globalization of their industry. By investing both capital and infrastructure in India they were able to retract advantage of the growing educated labor force, and create new technologies, such as call center software that helped facilitate the learning of English, to empower emerging markets all over the globe. IBM found a way to create and rob technologies and adapt them to businesses all across the globe. In addition, they were also able to create one global supply chain which was a huge cost savings to them.
The result of this is IBM is now rated the number one IT provider in India. In addition, the company rebounded from almost dismantling itself in the early 1990’s, it had high earnings per share and cash in 2007, allowing the company to reinvest in research and development and give a positive return on investment to its stockholders.
IBM made a good decision to change their company and return to India to do business. It is impressive how they went from almost breaking up to changing everything from their philosophy to their main source of revenue and becoming a profitable global IT leader. Not only have they benefitted their shareholders in the process, but they have also benefitted companies across the globe including India and other emerging markets. Their changes and success show incredible vision and strength. It seems as though they have a good mindset for the global economy because they are not going into emerging markets to exploit the cheaper labor, they are entering them to expand their business and incorporate those markets into their company. This reputation can only help them to recede forward into new markets. No one likes to be exploited, and countries do not need a temporary boost to their economies only to be left back in poverty once a company finds cheaper labor elsewhere. Emerging markets need companies to truly invest in them with both capital and infrastructure and boost their economies for the long run. IBM seems to have succeeded in doing this and actually offers jobs to its laid off US workers in emerging markets such as India. Time will tell if IBM can maintain its success, as the recession reaches global proportions, but judging from their global attitude, they have a good chance.
IBM 2007 Annual Report. Pgs. 2-3.
“Hungry Tiger, Dancing Elephant” Economist. April 7, 2007.
“Hungry Tiger, Dancing Elephant” Economist. April 7, 2007.
“Growing Indian IT Market” Shine.com
“IT & BPO industry: India can sustain its global leadership position” Offshoring Times
“IBM’s India Pep Rally” Manjeet Kripalani. Business week
“IBM Sets Up Tivoli Center in India” John Ribeiro, PC World
“Annual Report 2007″ IBM pg. 7
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Filed under Help Desk Software by on Feb 2nd, 2012. 