Strategic market analysis
Amsterdam, April 2010
Hogeschool van Amsterdam
Team 9:
Aryan Shor
Ömer Aydemir
Cihan Kalayci
Management summary
The purpose of this report is to show the opportunities for IBM in Russia, India and China. Bellow the opportunities of this three BRIC countries for IBM.
Strategic opportunities of China
China has several regions with IT centers where almost 2000 foreign companies are located. It is known that China has a growing software market, with nearly 50% growth in 2009. Because of this growth, many companies need services and software that support them. IBM can offer these companies their services and software support.
Financial software and business software such as CRM, ERP, EAM and SCM aren’t used very much in China. This is as an opportunity for IBM not only to develop them for Chinese companies but also for education and training purposes.
Strategic opportunities of India
The IT industry of India is growing rapidly in the last years. The demand for hardware and IT services is growing because more and more international companies set up their offices in India. Each of these companies need servers and hardware to do business in India. IBM could offer these companies their services.
An important second language in India, English is widely used in business and industry. India has many high educated, quality English speaking employees. This makes it easy for IBM to set up business in India or to find the right employees or to cooperate with other companies.
In India are many software companies established High quality programmers can be hired for 25%-50% of the cost of the same software programmers in the West. India is an attractive destination for IBM to outsource their services because of the low costs. This is also important to follow developments in the IT industry of India.
Strategic opportunities of Russia
The Government has launched a number of promising IT major projects. One of them is: the Russian Venture Company will invest over 1.2bln dollar into hi-tech industry until 2011. Other major project is: to open seven technology parks (technoparks) in 2008.
IBM can take advantage of these governmental projects.
The government has US $350bn in reserve to apply IT to improving areas such as education, healthcare, defense and the power sector. Beside this in Russia it’s not a bad thing to have good connections with the government.
Russia's educational system has produced nearly 100% literacy.About 7 million students attended Russia's 1,090 institutions of higher education in 2006. Great emphasis is placed among others on science and technology in education. Russia has more academic graduates than any other country in Europe. IBM doesn’t need to search for the right employees if they want to start business in Russia.
Accelerating growth in computer sales and internet usage in recent years is also a big opportunity for IBM. IBM can take advantage of these developments.
Introduction
The assignment was to make a strategic analyses for China, India and Russia for the benefit of IBM.
Our main question is ‘’Which of these countries offers the best opportunities in IT for IBM ? ‘’
To answer this question we will do an intensive field –and desk-research. For the field research we will interview 5 persons who have experience with doing business in the RIC countries.
We will also analyse the countries with the DESTEP method and the IT industry to describe the best strategic opportunities for IBM in China, Russia and India.
INDEX
1.REPUBLIC OF CHINAblz. 5
1.1Demographic factors blz. 5
1.2Economic factors blz. 5
1.3 Technological factors blz. 6
1.4 Political factors blz. 7
1.5Opportunities of Chinablz. 8
2.REPUBLIC OF INDIAblz. 9
2.1 Demographic factors blz. 9
2.2 Economic factors blz. 9
2.3 Technological factors blz. 10
2.3 Opportunities of Indiablz. 12
3.RUSSIAN FEDERATIONblz. 14
3.1Introduction blz. 14
3.2 Demographic factors blz. 14
3.4 Economic factors blz. 15
3.5Technological factors blz. 16
3.6Political factors blz. 17
3.7Opportunities of Russiablz. 18
4.STRATEGIC OPPORTUNITIESblz. 19
4.1 Opportunities of Chinablz. 19
4.2 Opportunities of Indiablz. 19
4.3Opportunities of Russia blz. 19
MABA-MATRIX blz. 21
ATTACHMENT: sources blz. 22 ATTACHMENT: interviews blz. 23
1.REPUBLIC OF CHINA1.1Demographic factors
Population July 2009 (est.)1,338,612,968
Age structure 2009 (est.)
0-14 years: 19.8% (male 140,877,745/female 124,290,090)
15-64 years: 72.1% (male 495,724,889/female 469,182,087)
65 years and over: 8.1% (male 51,774,115/female 56,764,042)
Population growth rate 2009 (est.)
0.655%
Education of expenditures 1999
1.9% of GDP
Education in the People's Republic of China is a state-run system of public education run by the Ministry of Education. All citizens must attend school for at least nine years. The government provides primary education for six years, starting at age six or seven, followed by six years of secondary education for ages 12 to 18. The percentage of China's college-age population in higher education has increased from 1.4% in 1978 to roughly 20% in 2005. Every year 450,000 engineering students graduate from college, 50,000 graduate with masters degrees, and 8,000 graduate with Ph.Ds. In 2002, the literacy rate in China was 90.8%; 95.1% of males and 86.5% of females
Chinese Education statistics in 2002
Average years of schooling of adults / 6.4 / [45thof100]Duration of compulsory education / 9 years / [78thof171]
Duration of education > Primary level / 6 / [59thof181]
Duration of education > Secondary level / 6 / [93rdof181]
Education enrolment by level > Tertiary level / 15,186,217 / [2ndof150]
Education, primary completion rate / 103 / [6thof148]
Literacy > Male / 92.9% / [81stof156]
Literacy > Total population / 86% / [92ndof160]
Public spending on education, total > % of government expenditure / 12.97 % / [47thof103]
Universities > Top 100 / 4 / [7thof22]
Universities > Top 500 / 8 / [12thof38]
1. 2Economic factors
China's economy during the past 30 years has changed from a centrally planned system that was largely closed to international trade to a more market-oriented economy that has a rapidly growing private sector and is a major player in the global economy.China is the third largest economy in the world. Only the US and Japan are doing at the moment better. A substantial
GDP and an increasing growth rate have made China's private sector economy a major factor in the world market. With a nominal GDP of US$4.4 trillion in 2008 it is the second largest in the world after that of the United States with a GDP of $7.8 trillion. Despite the enormous economical growth, China is still a developing country. This means that a land as China is struggling with a lot of problems.
Some facts from the Chinese Economy (2008-2009).
2008 (est.) / 2009 (est.)GDP (purchasing power parity) / $8.088 trillion / $8.791 trillion
GDP real growth rate / 9% / 8.7%
GDP per capita / $6,100 / $6,500
Unemployment rate / 4.2% / 4.3%
Inflation rate (consumer prices) / 5.9% / -0.8%
Exports / $1.429 trillion / $1.194 trillion
Imports / $1.131 trillion / $921.5 billion
Export partners 2008
US 17.7%, Hong Kong 13.3%, Japan 8.1%, South Korea 5.2%, Germany 4.1%
Import partners 2008
Japan 13.3%, South Korea 9.9%, Taiwan 9.2%, US 7.2%, Germany 4.9%
GDP - composition by sector 2009 (est.)
agriculture: 10.9%, industry: 48.6%, services: 40.5%.
1.3Technological factors
IT sector in China China has a rapidly growing market of software and has more internet users than any other nation. Since 1997 till 2005, annual revenue in software and IT services has risen by 42 percent a year, on average, reaching almost $7 billion in 2004.
Different regions in China are becoming major centers for IT outsourcing, including the Jiangsu province and the city of Dalian (in Liaoning province). Especially the specialized business parks make these regions attractive by offering favorable tax benefits and other establishment benefits for companies. Both regions have many local universities therefore the population is relatively highly educated and speaks good English. JiangsuProvince is a popular destination for foreign investment and has a good infrastructure.
Market size
In the Jiangsu Province are the cities of Nanjing, Wuxi, Suzhou and Changzhou one cluster in the area of ICT where more than 1,900 domestic and foreign companies are located. The total sales of software and information services in 2007 were 8 billion U.S. dollars. In Dalian, companies are located in the High-Tech Industrial Development Zone (HTIDZ) with over 680 companies in the software and information services.
Market development
Especially in Jiangsu remains the IT sector to grow despite the economic crisis. The first five months of 2009, there was nearly 50 percent growth in the sector. Dalian is hoped to achieve in 2009 a growth of 35 percent(the output in 2007 was 2.5 billion U.S. dollars).
Investments
In the HTDIZ in Dalian, 40 percent of the companies are created through foreign investment. In Jiangsu nearly the half of the companies are completely financed by foreign investment or have a joint venture with a Chinese partner. Both regions would like to see more investors coming from countries other than Japan or South Korea. This because of to be independent of these countries. Although the economic crisis will affect the industry, international companies are doing different investments.
Government Support
Both in JiangsuProvince and DalianCity, the IT sector is highly supported by local government. This is done by offering tax and import duty benefits. In Jiangsu, companies can also use the grants for further education and training purposes
1.4Political factors
Below are the most problematic factors identified for doing business in China. The list of problems are from a total list of 15 factors. Respondents were asked to select the five most problematic factors for doing business in their country/economy and to rank them between 1 (most problematic) and 5. The table below shows the top 10 problems that the responses weighted according to their rankings of China.
Problems % of Responses
1. Access to financing / 16.82. Inefficient government bureaucracy / 11.1
3. Tax regulations / 9.6
4. Policy instability / 9.3
5. Inadequate supply of infrastructure / 8.5
6. Corruption / 7.4
7. Inadequately educated workforce / 7.3
8. Tax rates / 7.1
9. Inflation / 5.8
10. Restrictive labor regulations / 5.4
As you can see that access to financing, inefficient government bureacracy, tax regulations and policy instability are the most problematic factors for doing business in China.
1.5Opportunities of China
Growing IT and software sector
China has several regions with IT centers where almost 2000 foreign companies are located. It is known that China has a growing software market, with nearly 50% growth in 2009. Because of this growth, many companies need services and software that support them. IBM can offer these companies their services and software support.
Foreign investments
There are over 680 companies in the software and information services located in the High-Tech Industrial Development Zone. Many companies have a joint venture with Chinese partners and many foreign companies invest in these regions. These IT centers are also supported by the government by tax and import duty benefit. This is a positive development for IBM because there are many attractive companies to work with.
Usage of software
Financial software and business software such as CRM, ERP, EAM and SCM aren’t used very much in china. This is as an opportunity for IBM not only to develop them for Chinese companies but also for education and training purposes.
Economic growth
China is one of the fastest growing economies of the world. It has a good education system which give the Chinese people the opportunity to do a good study and develop themselves. For IBM is this an opportunity because they can use these high skilled employees with a low cost.
2.REPUBLIC OF INDIA
2.1Demographic factors
Population: 1,166,079,217 ( 2009 est.)
Growth rate: 1.548% ( 2009 est)
Life expectancy : 69.89 years
- Male 67.46 years
- Female 72.61 year
( 2009 est )
Age structure:
0-14 years: 31.1% (male 190,075,426/female 172,799,553)
15-64 years: 63.6% (male 381,446,079/female 359,802,209)
65 years and over: 5.3% (male 29,364,920/female 32,591,030) (2009 est.)
Urbanization:
urban population: 29% of total population (2008)
rate of urbanization: 2.4% annual rate of change (2005-10 est.)[1]
2.2Economic factors
The economy of India is the twelfth largest economy in the world by nominal value and the fourth largest by purchasing power parity(PPP). In 2009 , the growth rate of the Indian GDP was
6.2 %.
Since 1991, the government liberalized the economy of India and opened the markets for international investment and competition. The economy began to grow rapidly and became an emerging economic power with vast human resources and a huge knowledge base. India is expected to be one of the leading economies of the world in 2020.
The economic reforms accelerated the economic growth rate of India to more than 7% per year.
Because of the financial crisis, the economic growth of India slowed down to 6.1% in 2009, but it’s still the second highest growth in the major economies of the world.
India has a large service industry which accounts for almost 65% of the country’s GDP. The industrial sector accounts for 20% and the agricultural sector 18%. Agriculture is the main occupation of India and represents 52% of the employment. Forestry, fishing and logging accounts for 25% of the GDP. Due to improvement in irrigation, technology and agricultural practices, the average yield increased. The service sector is the fastest growing sector of India represents 35% and the industrial sector around 15%.
Since the economic reforms, India’s trade has grown rapidly. It accounted for 1.5% of the world trade in 2007. In 2006, the total merchandise export and import was around $300 billion and the services trade valued $143 billion. India's trade has reached a still relatively moderate share of 24% GDP in 2006, up from 6% in 1985.
GDP (purchasing power parity) / $3.344 trillion / $3.561 trillion
GDP real growth rate / 7.4% / 6.5%
GDP per capita / $2,900 / $3,100
Exports / $200.9 billion / $165 billion
Imports / $322.3 billion / $253.9 billion
GDP - composition by sector:
agriculture: 15.8%
industry: 25.8%
services: 58.4% (2009)
Exports - partners:
UAE 12.3%, US 11.7%, China 5.4%, Singapore 4.5% (2008)
Imports - partners:
China 10.8%, Saudi Arabia 6.9%, US 6.7%, UAE 6.7%, Iran 4.2% (2008)
2.3Technological factors
The Indian IT industry has grown tremendously in the last 10-15 years due to the initiatives of the government, companies and the Indian graduates who developed themselves to technological skilled good English speaking employees.
According to NASSCOM, the revenue of the information technology sector in India has grown from 1.2 per cent of the gross domestic product (GDP) in FY 1997-98 to an estimated 5.8 per cent in FY 2008-09. India's IT growth in the world is primarily dominated by IT software and services such as Custom Application Development and Maintenance (CADM), System Integration, IT Consulting, Application Management, Software testing, and Web services.
Each year India produces for about 500.000 engineers that are good quality English speaking professionals. These graduates from the Indian Institutes of technology are well known for their technical skills. The successful IT business in India not only improved the economy of the country but also resulted in close relations with other world economies like the US and the EU.
As per NASSCOM's latest findings:
- Indian IT-BPO sector grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in aggregate revenue (including hardware). Of this, the software and services segment accounted for US$ 59.6 billion.
- IT-BPO exports (including hardware exports) grew by 16 per cent from US$ 40.9 billion in FY 2007-08 to US$ 47.3 billion in FY 2008-09.
Nowadays, the IT industry in India accounts for 40% of the GDP and export earnings. It provides also employment for a large number of the tertiary sector workforce. More than 2 million people work in the sector, making it one of the biggest job creators and a stimulator of the Indian Economy. India developed a number of outsourcing companies specializing in customer support
by internet or telephone connections in the last few years.
In 2009, the revenues from outsourcing were almost 60 billion dollars and it is expected to be 225 billion dollars in 2020.
Government support
- The government set up the National Taskforce on Information Technology and Software Development with the objective of framing a long term National IT Policy for the country.
- Enactment of the Information Technology Act, which provides a legal framework to facilitate electronic commerce and electronic transactions.
India's IT industry (USD bn) (Source:NASSCOM)
IT Services / 17.8 / 23.7
- Exports / 13.13 / 18.1
- Domestic / 4.5 / 5.6
ITES-BPO / 7.2 / 9.5
- Exports / 6.3 / 8.3
- Domestic / 0.9 / 1.2
Engineering services, R&D and Software products / 5.3 / 6.5
- Exports / 4.0 / 4.9
- Domestic / 1.3 / 1.6
Hardware / 7.00 / 8.2
Total IT industry / 37.4 / 47.8
- Exports / 24.1 / 31.9
- Domestic / 13.22 / 15.9
Leading IT cities in India
Today, Bangalore is known as the IT capital of India, it contributes 33% of the Indian IT exports. Other important IT destinations are below.
Top 7 IT destinations in India
Ranking / City / Region / Description1 / Bangalore / Popularly known as the capital of the Silicon valley of India is currently leading in Information Technology Industries in India.
2 / Chennai / It is also called as India's second silicon valley. The TIDEL park situated here is one of the largest in Asia.
3 / Hyderabad / Hyderabad which has good infrastructure and good government support is also a good technology base in India
4 / NCR / The National Capital Region of India comprising Delhi, Gurgaon, Faridabad, Noida, Greater Noida and Ghaziabad are having ambitious projects and are trying to do every possible thing for this purpose.
5 / Kolkata / Kolkata which is slowly becoming a major IT hub in near future. Some of the well known technological corporations are situated.
6 / Pune / The booming city is the home to a good number of Software companies.
7 / Mumbai / This is one city that has seen tremendous growth in IT and BPO industry. TCS,Patni, WNS and other companies are headquartered here
According to NASSCOM, software and services exports (including exports of IT services, business process outsourcing (BPO), engineering services and research and development (R&D) and software products) reached US$ 47 billion in FY 2008-09, contributing nearly 78 per cent to the total software and services revenue of US$ 59.6 billion.
India is expected to continue its position as the most preferred destination for companies to offshore their back office and IT functions. It also keeps its low-costs advantage and the availability of educated and skilled people.
2.4 Opportunities of India
There are some opportunities for IBM in India. The most imported opportunity are listed below.
Growing IT industry in India
The IT industry of India is growing rapidly in the last years. The demand for hardware and IT services is growing because more and more international companies set up their offices in India. Each of these companies need servers and hardware to do business in India. IBM could offer these companies their services.
Electronic Hardware Technology Parks
The Indian government set up electronic hardware technology parks in leading IT cities like Bangalore and Chennai. The reason to set up these parks is to encourage the investment in the IT sector. There are companies that offer customer support by internet. It is well known that India has many high educated, quality English speaking employees who are working in those companies. These employees need a server where they can connect to. IBM can set up those kind of servers and can offer other services that companies need.