Strategic Plan:
IBM
Yiri Huijzen
Menno Kaijser
Jim Perk
Jeroen Wijdenes
College of Applied Sciences
Commerciële Economie
Semester 7 - 2010
Strategic Plan IBM:
Rusland, China en India
1
Index
Page
Management summary
3
Introduction
5
Russia
DESTEP-analysis
SWOT-analysis
Key industries
MABA-analysis
Recommendation
6
6
8
9
11
12
India
DESTEP-analysis
SWOT-analysis
Key industries
MABA-analysis
Recommendation
13
13
16
17
19
20
China
DESTEP-analysis
SWOT-analysis
Key industries
MABA-analysis
Recommendation
21
21
24
24
26
27
Comparison
28
Appendix A Figures
29
2
Management summery
In this summery we will recap every country by its Opportunities and Threats followed by a
recommendation of its most important key industries.
Russia
After the DESTEP-analysis we came to the following Opportunities and Threats:
Opportunities
Threats
Investments in IT-sector
Growth IT sector
Large population
Future investments for infrastructure
Corruption
Conflicts with separate regions
Cultural differences
Our first recommendation to IBM is to invests in their metals industry. The strategy we
recommend is expansion. This is because the steel industry is doing better than the other
industries within the metals sector. IBM should take advantage of the government
investments in the IT-sector. The expected growth is a very proper reason to invest in this
sector.
The amount IT programmer is expected to grow immensely in the next couple of years.
Russia is also cheap compared to the other countries. IBM could hire these programmers to
develop and produce software.
Because Russia wants to take advantage of its growth potential, they recognize the
importance of the renewal of their infrastructure. This sector will grow significantly in the
future. IBM should protect the position they already have in the infrastructure sector, but also
expand as much as possible.
India
The Opportunities and Threats of India are:
Opportunities
Threats
Booming IT
sector
2010 reducing emission in India
Amount of population
Acceptation level of foreign investments
Corruption
Poor infrastructure
High inflation
Low social security & quality healthcare
Infrastructure, as seen in the Key Industries chapter, is heavily subsidized by the government
and private sectors. IBM has software solutions and services to improve efficiency.
Governments and private sectors have high values on efficiency and low cost programs. The
return has to be high compared to the money invested.
Concluding from the MABA-analyses IBM should go for medium investing in this sector. By
trying to come with efficiency solutions and getting close to the government could make
IBM’s position stronger in this industry.
Of course the IT Sector is the most important sector for IBM since the business of IBM
mainly focuses on software and services. When looking at all the research we have done we
can conclude the IT sector in India is growing rapidly and there are a lot of opportunities to
take advantage off.
If we take a closer look at the MABA-Analyses, the ‘market attractiveness’ and ‘competitive
position’ we can clearly say IBM has to invest in this sector.
3
The agriculture industry is the biggest in India, but the largest part of the industry is not
automated and the techniques used for harvesting are almost prehistoric. Still the demand
for food is increasing because of the expanding population. IBM should try to implement their
agriculture analyses programs into this sector. Those software solutions should be focused
on efficiency of harvesting and cutting the cost. Green and ecologic farming is key, the
government is subsidizing and has reducing greenhouse emissions high on its agenda.
China
China has the following Opportunities and Threats:
Opportunities
Threats
China has many experts
offers low wages.
The movement from hardware to IT services.
The IT service is a growing sector.
Insurance companies
Many new foreign companies
Language and cultural differences
Illegal copying software
The Chinese companies in the ICT sector is on its way up, but China remains a country that
yearns for use of ICT and knowledge-technology from abroad. China is well on its way to
also be attractive for R & D, software and ICT services. We recommend that IBM establishes
and maintains a good
relationship with the Chinese local partners in order to keep up to date on the latest market
information and industry trends.
Different aspects of sustainable technology, green financing, energy efficiency and ecosolutions consultancy will be needed. In these areas there are many opportunities for foreign
companies to IBM. IBM can offer business processes, application software and services. The
renewable energy market is also a growing sector.
The market for financial products is very underdeveloped. The range of financial services
including credit cards is still very small In the Insurance sector, IBM can provide credit card
technology and equipment. Also security and networking can be technology can be provided.
4
Introduction
IBM has been well known through most of its recent history as the world's largest computer
company and systems integrator. With over 407,000 employees worldwide, IBM is the
largest and most profitable information technology and services employer in the world
according to the Forbes 2000 list with sales of greater than 100 billion US dollars. IBM holds
more patents than any other U.S. based technology company and has eight research
laboratories worldwide. 1
However there are still opportunities and a lot of potential in the so called (B)RIC countries.
In this project we are going to take a closer look at Russia, India and China and advice IBM
on how to adapt and approach these three countries.
To figure out our strategy and to give a proper advice to IBM, our head question will be:
“Focusing on their IT business, how can IBM strengthen their strategic position within the
(B)RIC countries?”
To answer this question we have divided this project into three chapters, one chapter for
each country. Every country (Russia, India and China) analysis consists of the following;
• Introduction
Here we will give a little information about the country and which activities IBM has in the
countries.
• DESTEP
In this chapter we will take a closer look at the environment in a country by going over the
following subjects; Demographic, Economic, Social/culture, technology, ecology and politics.
• (SW)OT,
Because we are not taking a closer look at IBM itself we will only focus on the Opportunities
and Threats, the external conditions.
• Key industries
Knowing the major industries of a country can be of help in getting IBM the position in a
country they want, there for this chapter is about those key industries.
• MABA-analyses
This analyses is designed to look at the Markets attractiveness’ and ‘Competitive position’.
Graphically it will tell you what strategy is most suited in the different industries.
• Recommendation
Using the previous chapters, we will give an advice and involve the key industries in it.
Followed by a small analysis of the similarities and differences between the three countries.
The research mainly consists of internet research, books and literature but also interviews
with professionals who have experience on business, cultural and economic level within at
least one of the countries.
Kind regards,
Yiri Huijzen
Menno Kaijser
Jim Perk
Jeroen Wijdenes
College of Applied Sciences (Hogeschool van Amsterdam)
1
http://www.ibm.com/us/en/
5
Russia
IBM is already active in Russia. Activities such as IT for Infrastructure, technology
development research and hardware sales for the business market.
In 2006 IBM opened a laboratory for technology development in Russia. In this laboratory
they mainly research mainframe technology.2 In the past 3 years, IBM invested 40 million
dollars in this Russian Systems & Technology laboratory. IBM says they have an advantage
because they have laboratories in other countries with whom they can exchange knowledge.
When it comes to the infrastructure, IBM is partner to many leading rail operators in the
world. And now they have their eyes focused on the Russian railways.
In May 2009 it was announced the IBM was working with Russian Railways, one of the
largest railway operators in the world. The two companies combined their forces to create a
powerful and dynamic IT infrastructure for the complex rail system.
DESTEP- Analysis
Demographic
With 17,098,242 square kilometers, Russia is the biggest country in the World. However it is
the ninth country when it comes to population. On January 1st 2010 the amount of people in
Russia was 141,927,297.
Russia has a population density of 8 people per km2. This makes it one the most sparsely
populated countries in the world. The country is so sparsely populated because of the
countries enormous size. The population density is the highest in the West-side of the
country, around Moscow and St. Petersburg. About 73% of the population live in urban
areas.
Just before the breakup of the Sovjet-Union, the population experienced a rapid decline. The
peak of the population after a long period of growth was in 1991, when the population was
calculated at 148,689,000 people. After this year, the high death rate and the low birth rate
resulted in a decline of the population that lasted until 2008.
Russia is one of the most cultural diverse countries in the world. The country is home to
about 160 ethnic groups. The biggest groups are the following ethnicities:
Ethnic composition (2002)
Russians 79.8% Tatars 3.8% Ukrainians 2.0% Bashkir’s 1.2% Chuvash 1.1% Chechen 0.9%
Armenians 0.8% Other/unspecified 10.4%
2 http://www.computable.nl/artikel/ict_topics/ictbranche/1584345/2379258/ibm-opent-laboratorium-in-rusland.html
6
Economy 3
The trade with Russia has increased much over the last couple of years. That is why the
economy grew strongly. But the economic crisis hit the Russian economy very hard. The
yearly growth of the GDP changed into a decline after the crisis hit. Unemployment has risen
and the industrial production had a terrible year. See appendix A Figure 1 for more
information.
The economy of Russia is expected to get better, especially in the long term. Now the
unemployment rate is expected to go down. But there is no sign of a full recovery. There is
hope for stability in 2010, but the expected recovery is still fragile.
Russia’s key sectors are: energy, cars and metals. The economic crisis had a big impact on
these sectors. Especially the car industry was hit hard. Despite government efforts to boost
sales and increase car financing, the sector continues to decline. But according to the BMI
(Business Monitor International), Russia’s growth potential cannot be ignored. There is a
positive long term outlook for the sector.
Social/cultural
The larges religions in Russia are: Russian Orthodox and Islam4. Other religions in Russia
are: Judaism, Buddhism. These religions are relatively small.
Russia has a large amount of non-believers and non-practicing believers. The cause of this
was the policy of the Soviet-Union. From 1928 to 1939, the Soviet Union was an atheist
state. Religion was largely discouraged and people who practiced religion were persecuted.
When doing business with Russians, it is very important that the differences between the
cultures are understood. Personal and informal contact is very important. Simple
communication adjustments can make a big difference. Physical contact, like handshakes
and embracement’s, can make your Russian business partner feel comfortable. The majority
of the Russian population are very people orientated and will respond more to a personal
approach.
Technological
Russia is no longer one of the leaders in the world when it comes to technology. In the last
five years, Russia was responsible for 2.6% of researches that were published worldwide.
This is less than India (2.9%) and far less than China (8.4%).
In the past Germany was the most important partner in technology for Russia, but now
Germany has been replaced by the United States.
The focus in Russian research is mostly on physics and chemistry. The researchers have
very little interest in agriculture and computer science. Also less than 1% of the Russian´s
says that science can lead to a prestigious career.5
Ecological
The mining industry and the oil industry are very important to Russia. But the environmental
issue has not been as important. The amount of oil that is lost from the pipelines and is
polluting the country is estimated at 9%.
Russia signed the Kyoto Protocol in 2004, but the country overrides the western norms by a
great amount. Russia has a long way to go to fulfill their commitments towards this protocol.
3
Businessmonitor report, russia forecast 2010. Appendix figure 1, page 29
4
https://www.cia.gov/library/publications/the-world-
factbook/fields/2122.html?countryName=&countryCode=&regionCode=%C2%A6
5
http://www.express.be/business/nl/technology/rusland-is-wetenschappelijk-nog-slechts-een-middenmoter/120575.htm
7
Politics
The Russian federation is a semi-presidential Republic. President Medvedev is the current
head of state. He is the follow up to president Putin. Putin is currently the prime minister. He
was appointed by president Medvedev.
Russia has a big corruption problems. One of these problems is the lack of transparency in
decision making and a high level degree of behind-the-scenes activity. An example of this
are the elections of 2008. According to the official results, the governing United Russian
Party, led by Prime Minister Vladimir Putin, won the election with ease. The part owns 49 of
the 52 seats, which gives them an enormous amount of power. A lot of people do not find this
believable. But even though politicians are often accused of corruption, Russian leaders
maintain an overwhelming public support. Expected is that the controversy surrounding the
election of 2008, will only have a short-term effect and will get down eventually.
Another problem is that small payments are widely accepted in Russian politics. Big
payments are more controversial, but are often used to get big orders from companies.
Extortion and fraud are also not socially accepted, but still occur quite often in the business
environment.
The corruption in Russia is a threat to IBM. They must try to avoid situations in which they
come in contact with this corruption.
The conflict with the separate regions Georgia and Moldova may have big consequences in
the future. The consequences may also have an impact on Russian foreign relations and
trading partners. This is a threat for IBM, because they may be restricted in their possibilities
in trading with Russia.
The corporate tax standard rate is 24%. In the past it was 35%. At the moment Banks and
financial corporation’s may pay up to 27%.
(SW)OT Analysis
Opportunities
Threats
Investments in IT-sector
Growth IT sector
Large population
Future investments for infrastructure
Corruption
Conflicts with separate regions
Cultural differences
8
Key Industries Russia
Automobile Industry
One of the key sectors in Russia, is the Car Industry. Until recently, Russia had the fastest
growing auto industry in Europe.6
The economic crisis has had a big impact on the car industry. Consumers only buy cars in
time of financial stability. When the stability was taken away in the crisis, this sector entered
rough times. Car parts have become more expensive and consumer spending power has
gone down. Export and local sales have declined. The market reported a huge decline of
56% in June 2009. And with the economic crisis, banks are increasingly reluctant to offer
new car loans or loans with difficult terms and high rates.
The government has taken measures to try and save the car industry. In 2009 prime minister
Putin announced that the state would reserve 1 billion US dollars to invest in the car Industry.
The government has also taken other measures to try to soften the blow of the crisis. They
launched a program that makes low-cost auto loans available.
The BMI predicts that the growth in this industry will only be 6%. Which is a great slowdown
compared to the 45% they had two years ago.7
IT-Sector
The IT sector is expected to grow from 13.1 billion US dollars in 2007 to 31 billion dollars in
2012. After the big fallback in 2008-2009 the growth for 2010 is an estimated 20%.8 This
growth is expected due to new developments in the software industry.
The Russian government has taken new actions to stimulate the growth in the software
industry. They have made a new law that makes software piracy more difficult, and the taxes
on software-licenses have been removed. The government has also reserved 2.3 billion
dollars to invest in the IT-industry.
Russia is an attractive market for outsourcing. The country is known for their cheap computer
programmers. Especially for the development and production of software. Some industry
analysts predict that Russia's population of developers will expand by 40 percent by 2008.9
The growing market is a opportunities for IBM. If they manage to position themselves
strategically in the market in time, they can obtain a powerful position in the market.10
Metals
Another big source of income for Russia is the export of metals. Iron and aluminum are the
most exported metals.
The metal industry is depending on other industries, such as the automotive industry and the
construction sector. But the amount of orders has dropped significantly in 2009. A recovery
should be well underway this year, according to BMI’s latest Russian Metals Report. This
recovery should be caused by the expected growth of the export of steel. This growth would
compensate the decline in the domestic market. Before the economic crisis, Russian
steelmakers sold 60-70% of their production to the domestic market. But these sales
6
http://www.nu.nl/auto/1945123/russische-staat-houdt-auto-industrie-overeind.html
7 Businessmontitor, Russia forecast 2010
8 http://www.evd.nl/zoeken/showbouwsteen.asp?bstnum=259717
9 http://news.cnet.com/IBM-offers-free-development-tools-in-Russia/2110-1012_3-6034808.html
10 http://www.evd.nl/zoeken/showbouwsteen.asp?bstnum=81917&location=
9
dropped by 30-50% in 2008. This forced Russian steelmakers to focus more on export
markets as the Middle East and Asia.
In the third quarter of 2009 Russian metal producers raised their production to the level it
was before the crisis. This is a very questionable choice of these producers, because the
end-markets are still weak. Predicted is that the metal industry will grow together with their
end-markets when Russia’s economic climate stabilizes completely and is ready for growth.
Energy
Russia is one of the biggest energy providers in the world. It owns the biggest gas-reserves
in the world. Another major source of energy that Russia exports is oil. More than half of the
oil and gas that is being imported into the EU comes from Russia. The oil and gas industry
makes up 20% of the industrial production. This makes this sector one of the most important
sectors for Russia.
Russia has now surpassed Saudi-Arabia as the largest oil provider in the world. In October
2009, Russia hit a record oil output of 10 million barrels per day. In the future oil output is
expected to rise even higher. This increase will be possible because of the new oil
production from the Caspian Sea and Arctic regions. With these new oil fields production is
predicted to peak in the year 2016. The oil sector will remain the most important industry for
Russia, with the services and IT-sectors benefiting from its success.
The Russian government expects a rise of the gas production of 700 bcm per year until
2020. About 30% of the output goes to the domestic market. The domestic market only pays
30% of the world gas price. The use of gas has risen to 50%, in some regions the use even
rose to 80%. The gas industry is the most centralized industry in Russia. The national owned
Gazprom owns 85% of the Russian gas production.
Infrastructure
In order to realize Russia’s own economic goals, they have to invest in their infrastructure.
Russia’s infrastructure is in need of improvement. The country has 933,000km of roads, but
only 754,984km is paved.
To solve the infrastructure problems Russia is receiving financial support from the World
bank and the European Bank for reconstruction and development. In 2009 the Russian
government has started an investment program to modernize the infrastructure. This
program is set to improve the roads, airports and havens. An estimated amount of 16 billion
US dollars has been reserved for the infrastructure, of which 9.4 billion US dollars is meant to
build and repair the road system. But due to the lack of co-investors, many big projects have
been revised. Some projects have been postponed and some have been cancelled.11
11
http://www.evd.nl/zoeken/showbouwsteen.asp?bstnum=150196
10
MABA Analysis
Source: www.ruscon.nl
The five key industries have been illustrated in the MABA-analyses. This analyses looks at
the ‘Markets attractiveness’ and ‘Competitive position’. And will tell you to invest, disinvest or
perhaps leave it unchanged in the different industries.
•
•
•
•
•
IT-Sector invest selectively
Infrastructure protect position
Energy invest
Metals Selective expansion
Automobile Selective expansion
11
Recommendation
Metals
The first recommendation is to invest in the metals industry. The strategy we recommend for
IBM is expansion. This is because the steel industry is doing better than the other industries
within the metals sector. When the economy of Russia strengthens, the steel industry will
grow faster than the aluminum industry. The aluminum industry is having problems at the
moment, the steel industry is more stable.
IT sector
Russia should take advantage of the government investments in the IT-sector. The expected
growth is a very good reason to invest in this sector.
The IT programmer population is expected to grow immensely in the next couple of years.
Russia is also cheap compared to the other countries. IBM could hire these programmers to
develop and produce software for them.
IBM must be careful to choose its clients with their IT services. There are a few companies
that get priority from the government. IBM should focus on these companies because these
are the ones that get the big orders and benefit the most from the economic growth.
Infrastructure
Because Russia wants to take advantage of its growth potential, they recognize the
importance of the renewal of their infrastructure. This sector will grow significantly in the
future. IBM should protect the position they already have in the infrastructure sector, but also
expand as much as possible. There are few railway companies in Russia. If IBM manages to
create a good relationship with the few companies that build infrastructure, a very big market
share can be obtained.
Energy sector
The energy sector is very big in Russia, and is a very profitable business. IBM should get
close to the government. The strategy that should be used is investment. But not only invest
with money, but especially in the relationship with the government and the bigger companies.
Automobile industry
In the Automobile industry IBM should carefully choose with which companies they want to
do business with. In these rough economic times the government supports this industry,
because it reacts greatly to the economic climate. At the moment the industry is not doing
good, but in the future this is likely to change. We recommend that IBM tries to work for
AvtoVAZ. This company receives the most government support because it is a very
important company for Russia. We expect that this company will get back on its feet and
grow when the crisis is fully over.
12
India
The Indian IT-sector is still experiencing strong growth. In the year 2008-09 the total
revenues in the sector (including hardware) amounted 71.7 billion US dollars. Almost 60
billion US dollar of that amount is achieved in the software and services segment. More than
47 billion US dollars came from exports.
IBM has been doing business in India since 1992 after an exit in the 1970’s. IBM is the world
largest information technology company, with 80 years of leadership in helping businesses
innovate.
Between 2003 and 2007 the amount of people working for IBM India has grown 800%, from
9.000 in 2003 to 74.000 at the end of 2007. On this moment 1 out of 5 IBM employees
works in India. 12
DESTEP- Analysis
Demographic
India has a total population of 1,147.996 million people and with that number of citizens it is
one of the biggest countries in the world. 13 The age structure is as following:
0–14 years: 30.8%,
15–64 years: 64.3%, male
65+ years: 4.9%, male
And the median age of Indians is 25.1 years.
With a growing life expectancy the population of India is still growing and is overpopulated.
Overall, India is densely populated, but the regional differences in population density are very
high. With a population of about 324 inhabitants per square kilometer, the country is one of
the most densely populated countries in the world. 14 15
India has a fast growing economy thanks to one of the biggest education systems in the
world. This all started when India became independent. For example in 1961 only 28% of the
Indians were literate, in 2006 this number grew 40 percentage points and is now 66%. 16 17
There are 21 institutes of national importance, 7 of them are the famous Indian institutes of
technology. These figures seem good but there is a large difference between high quality
universities and other kinds of education. Besides that, the private sector is offering better
jobs than the government does.
A threat for India will be that the number of professors at universities is increasing because of
the better jobs in the private sector. 18
Needless to say there are big demographic differences between South and North India.
‘In north India 20 years from now, we can expect to see a population structure that is like a
traditional Third World population pyramid, very similar to India’s today, almost like
Afghanistan’s. Southern India, however, will have a population structure more similar to that
of contemporary Western Europe’. 19
12 http://www.accessnorthga.com/detail.php?n=205230 an Associated Press article via www.accessnorthga.com
13 CIA World factbook
14 http://www.landenweb.net/india/bevolking/
15 Business monitor, india forecast 2010. See appendix figure 2.3 on page 30
16http://www.timesofindia.indiatimes.com/India/Indias_illiterate_population_equals_all_the_people_in_USA/articleshow/320173
4.cms
17 Business monitor, india forecast See appendix figure 2.4 on page 31
18 http://www.twanetwerk.nl/default.ashx?DocumentId=8884
19 http://www.aei.org/publications/pubID.25454,filter.all/pub_detail.asp
13
Economic
The last few years India’s economy has been growing more than 9% per year. That makes it
one of the fastest growing economies in the world. The major part of this growth is due to the
sectors IT & services. Next table shows the contribution from each sector.
Agriculture: 17.8%
Industry:
29.4%
Services:
54.8%
After this amazing growth, India is now suffering by the world wide economical crisis.
Expectations are a decrease in growth to 5.5-7%. Still, India will be one of the fastest
growing economies in the world.
They have a large home market, a strong financial sector and a big number of healthy
companies. India does not have to depend on export as much as other countries, this is why
the influences of the crisis are limited. And with around a 65% market share India’s “big
three” car manufacturers dominate the market. Hyundai remains the only non-Indian
manufacturer preventing low-cost, locally produced vehicles from dominating the market
even further.
In addition to indigenous manufacturers India also benefits from the presence of many global
OEM’s. Many of these continue with plans to invest further with, for example, Volkswagen
planning to open their first 110,000 a year capacity plant near Pune by the end of 2010;
Toyota set to open their second production facility in 2010; and Ford India expanding their
plant in Chennai to produce a new small car and more engines. Ford alone plans to double
investment in India to around $835 million over the next 3 years. 20
In the fiscal year 2007/2008 the inflation of the rupee was 6.4%. The expected inflation for
the fiscal year 2008/2009 lies around the 8.1%. The inflation reached some concerning
heights in August 08’ (12.9%) but in the meantime inflation recovered to a more reasonable
level. This has a lot to do with the prices of food and oil decreasing.
Figures 2.2 and 2.3 21 show India’s wholesale price inflation and the worth of the Indian
Rupee versus the U.S. dollar.
According to India’s planning Commission the percentage of unemployment were about
9.1%. This means that there around 36 million people in India who are unemployed. The true
figure is probably higher because of the fact that the figure supplied by the commission does
not include the large group of the population that does not work on a regular basis. This
group makes a living working day to day jobs that are not registered. When including this
group there are approximately 80 million people unemployed in India.
Unemployment rates differ per federal state in India. The western and the southern states
have quite a reasonable unemployment rate. The number of unemployed in these areas is
declining. The northern and eastern areas are the exact opposite. This situation is resulting
in a strong national migration.
20 Business monitor India forecast
See appendix 2.1
on page 28
21 See Appendix, figure 2.2 at page 29 and figure 2.5 at page 32
14
Social/cultural
Different states in India each have different official languages. Central government only
recognizes Hindi as the official language of India. However, when doing business in India,
English is the language of international commerce.
Of all the cultural influences that most impact Indian business culture: hierarchy plays a key
role. With its roots in Hinduism and the caste system, Indian society operates within a
framework of strict hierarchy that defines people's roles, status and social order.
Technological
Information technology (IT) industry has played a key role in putting India on the global map.
The successes of the IT industry have made India a power to reckon with. 22
India is the fastest growing IT HUB in the world, with IT services market growing 18.6%
annually. Indian universities provide 675,000 technical graduates, 400,000 engineers and
50,000 MBAs each year.23 The revenue of the IT sector has risen from 1.2% in 1997-98 to
5.8% in 2008-09 of the total gross domestic product in India. 24
But India does not want to slow the growth instead India is embracing IT as the engine of
growth for the whole country. India is focusing on developing and delivering IT services to
support country’s like England, Germany, Japan etc. which are more advanced economies.25
At the moment there are 60 million internet users in India, according to MAIT (Manufacturer’s
Association of IT). The number of active internet users rose from 7,2 million in March 2008 to
8,6 in march 2009. MAIT has a goal ‘Goal 511’ ambitious target that talks about 500 million
Internet users, 100 million broadband connections and 100 million connected devices by
2012. Also this association estimates that the total PC sale in India is likely to grow by 7% in
2009-10, with around 7,3 million units.
The Indian IT-sector gained worldwide fame over the last ten years and has become one of
the key players at global level. Especially the large amount of relatively cheap, skilled and
English speaking IT professionals has led to this success. Each year, about 80.000
graduates IT-experts enter the market. Small 500 Indian companies comply with some form
of quality certification (ISO, CM or Six Sigma). 85 of these companies are certified at the
CEI-CMM level 5, the highest number in any country in the world. More than 300 of the
Global Fortune 500 companies use Indian software.
In figure 3.1 in the appendix at page 32, the chart from ‘Nasscom, perspective 2010;
transform business, transform India’ 26. It displays a few ways that Technology can be of
great help for the different areas and industries.
Ecological
Over 70% of India’s population relies on traditional fuels (such as biomass) to cook. More
than 40% of India’s population does not have access to electricity and therefore use
kerosene for lightning. Just one-sixth of the population are using more than 100 kWh
electricity per month. Compared to the US average of 900 units per household per month. 27
22 http://www.ibef.org/industry/informationtechnology.aspx
23 http://www.ukibc.com/content.php?contentid=44§ionid=6
24 http://www.ibef.org/industry/informationtechnology.aspx
25 http://misbridge.mccombs.utexas.edu/knowledge/facpubs/articles/india_and_info_economy.pdf
26
http://nasscom.in/upload/Perspective%202020%20Press%20release%20presentation.pdf
27 http://www.indiatogether.org/2009/oct/env-lowcarb.pdf
15
Climate change one of the hot topics worldwide. Currently India is the fourth-largest emitter
of greenhouse gas in the world. But India followed two big polluters, China and U.S.A, in
announcing a goal for the year 2020. It has said it would reduce emission by 20 – 25 percent,
but this number would only point at the industry. 28
As seen at the chart about ‘potential of ICT solutions’ at technology IT can provide a solution
for all kinds of areas, as well as reducing the output of the greenhouse gasses. So IT could
also address the current status of emission in India. Energy efficiently is recognized as
important by the Indian government. This can be shown by the passing of the energy
conservation act of 2001.
Politics 29 30
India is the biggest democracy in the world
Corruption in India is a big issue. When looking at figure 3.2 at page 33 in the appendix you
can clearly see bribes are taken in every amount, by rich people but also by the less rich.
That is why it is extremely difficult to contain.
The government is ineffective in reducing the corruptions. Maybe because of the fact the
government is taking bribes as well. This can be seen in figure 3.3 at page 33.
To point out the legal system in India is corrupt the following will give you an idea. 31
•
•
•
36% of Indians paid bribes to the legal system in 2006
The estimated the amount paid by Indians as bribes to the legal system at about Rs
2,630 crore (Rs 26.30 billion).
The majority of the bribes went to lawyers (61 per cent) followed by court officials (29
per cent) and middlemen (five per cent).
(SW)OT India
Opportunities
Booming IT
sector
2010 reducing emission in India
Amount of population
Acceptation level of foreign investments
Threats
Corruption
Poor infrastructure
High inflation
Low social security & quality healthcare
28 http://www.nu.nl/klimaattop/2136394/india-belooft-minder-uitstoot.html
29
http://media.transparency.org/fbooks/reports/gcb_2009/
30 http://trak.in/tags/business/2009/06/30/india-corruption-bribery-report/
31 http://trak.in/tags/business/2007/05/28/the-corrupt-legal-system-of-india-facts-and-figures/
16
Key industries India
Shortly we will explain some of India’s key industries, these industries are important for India
and her economy but could also be relevant for IBM.
Retail 32
The retail sector will grow significantly, in large part, by the explosion in the organized retail
market. With organized retail market being the familiar Western concept of chain outlets,
departments stores, supermarkets, etc. According to ICI (Investment commission of India),
sales figures of 2006 showed US$12.1 billion sales, or 4.6% of the total retail segment.
Forecast for organized retail sales for the year 2013 will be around US$76.2bn or 10.7% of
the total.
This big growth in the retail industry can be explained by the expanding population, the
strong underlying economic growth, the increasing wealth of individuals and the rapid
construction of organized retail infrastructure.
Another reason to explain this sector is growing at an annual rate of 15% in US dollars. This
is to be explained by the credit consumers having easier access to every company.
Infrastructure 33
The “BMI’s Q409, India Infrastructure” report forecasts that 2010 will be a strong year, with
estimated growth of 9,4% for infrastructure.
The growth in this industry can be explained because of the high investments by the Indian
government. It will invest a total of US$500bn in the period 2007-2012. The 500 billion will be
spread out to utilities, which will receive the largest portion with 167bn, roads will be
allocated 92bn, railways 65bn, ports 22bn and airports 8bn (all in US dollar). However, the
government expects 30% of the total amount will come from private sector companies.
Several funds are set up with help of the government for private sectors to participate and
raise the amount of money available for the infrastructure.
IT Sector 34
In the DESTEP there has already been written quite a lot about the IT sector in India.
Therefore the information below will mainly consist of reasons the IT sector is such a
booming sector.
Needless to say the IT-sector is still growing quite rapidly. Every year 80,000 ITprofessionals graduate. In the year 2008-2009 the total income from the IT-sector reached
71.7 billion US dollar. About 60bn came from software and services. Within this industry the
sub sector services is growing at the fastest rate.
India produces a relatively small amount of hardware. Less than 20% of all IT-related
revenues come from hardware. 90% of the hardware that is needed for the software industry
is imported from other countries like the USA, China, Singapore and Taiwan.
The Technology education system in India is very good, the gradates also have knowledge
of foreign languages such as English. Relatively speaking hiring a IT-professional is cheap,
which is a huge reason for foreign businesses to get there workforce there.
IBM has a special division, IBM Global Services (IGS), which delivers services on many
needs; business transformation, hosting, infrastructure, technology design and training
services to enable customers to maximize the opportunities of an on-demand business
environment. IBM worldwide expects its revenues to be around $120 billion by 2010, of
32 Business monitor India forecast
33 Business monitor, India Forecast
34http://www.evd.nl/zoeken/showbouwsteen.asp?bstnum=80000&location=&highlight=india%20it%20sector
17
which nearly $86 billion (68%) would come from “IBM Global Services" IBM Global Services
alone, with an estimate of about 200,000 employees.35
IBM India would account for 90,000 of these.
Roughly translated, IBM's Indian employees would generate $35 billion of IBM's revenues in
2010. IBM is not in India just to tap into the skilled and low cost manpower but it is also the
biggest company in India’s domestic IT market, replacing HCL Technologies.
IBM beliefs that the only way India’s full potential can be reached by making IBM’s products
available for a large number of people. In this context IBM brought a lot of business to India
to have it close to the people and because of India being one of the hotspots concerning ITdevelopment. Some examples of the integration with India are 36: the India Research
laboratory in Delhi, Engineering & Technology Services Center, Bangalore and Global
Delivery Centers at Bangalore, Pune, Gurgaon and Kolkata. 37
Agriculture 38
Around 75% of India’s population is currently working in the agriculture sector. Which is
responsible for 25% of the GDP. Since independence in 1947, the share of agriculture in the
GDP has declined in comparison to the growth of the industrial and services sectors.
Because of that good or bad results are rapidly to recognize. However, agriculture still
provides the bulk of wage goods required by the nonagricultural sector as well as numerous
raw materials for industry.
In the early 1960s, the government thought that the dependence on agricultural import for the
growing population, as well as the security and political stability was too much. This led to the
creation of a program called: “The Green Revolution”. The Green Revolution was nothing but
price supporting farmers and a new distribution system. In the 1980s, despite three years of
meager rainfall, India managed to get along with very few food imports because of the
growth in food-grain production and the development of a large buffer stock against potential
agricultural shortfalls. By the early 1990s, India was self-sufficient in food-grain production.
Agricultural production has kept pace with the food needs of the growing population as the
result of increased yields in almost all crops, but especially in cereals. Food grains and
pulses account for two-thirds of agricultural production in the mid-1990s.
Automobile industry
The automobile industry in India is the ninth largest in the world with an annual production of
2,3 million units in 2008.39 India emerged as Asia’s fourth largest exporter of automobiles in
2009, behind Japan, South Korea and Thailand. After the economic liberalization in 1991, the
automotive industry has showed growth as a result of increased competitiveness and relaxed
restrictions. India has its own automobile manufacturers such as Mahindra and Mahindra,
Tata Motors and Maruti Suzuki
India’s growing economic led to further expansion of its domestic automobile market. This
growth significantly attracted investment by multinational automobile manufacturers, like GM,
ford and Hyundai. In February 2009 sales figures have shown sales exceeding 100,000
units.
Worldwide India has the second place in manufacturing bikes, the fourth place in business
car market and the eleventh place when it comes to passenger car market. The SIAM
(Society of Indian Automobile Manufacturers) predicts a growth of 15% a year till 2012.
35 http://en.allexperts.com/e/i/ib/ibm_india.htm
36 http://www.thehindubusinessline.com/2009/11/05/stories/2009110551580400.htm
37 http://www.computerweekly.com/Articles/2009/11/09/238473/ibm-opens-business-analytics-centre-in-india.htm
38 http://www.evd.nl/zoeken/showbouwsteen.asp?bstnum=2638&location=&highlight=india%20markt
39 http://www.nytimes.com/2007/10/12/business/worldbusiness/12iht-12cars.7864085.html?_r=1
18
MABA-Analyses
The five key industries have been given a place in the MABA-analyses. This analyses looks
at the ‘Markets attractiveness’ and ‘Competitive position’. And will tell you to invest, disinvest
or perhaps leave it unchanged in the different industries.
•
•
•
IT-Sector investment
Infrastructure, Automobile, Retail selective policy
Agriculture selective expansion
19
Recommendation
Infrastructure
Infrastructure, as seen in the Key Industries chapter, is heavily subsidized by the government
and private sectors. So clearly there is a lot of money to be earned. IBM has software
solutions and services to improve efficiency. Governments and private sectors have high
values on efficiency and low cost programs. The return has to be high compared to the
money invested.
Concluding from the MABA-analyses IBM should go for medium investing in this sector. By
trying to come with efficiency solutions and getting close to the government could make
IBM’s position stronger in this industry.
IT Sector
Of course the IT Sector is the most important sector for IBM since the business of IBM
mainly focuses on software and services. When looking at all the research we have done we
can conclude the IT sector in India is growing rapidly and there are a lot of opportunities to
take advantage off.
If we take a closer look at the MABA-Analyses, the ‘market attractiveness’ and ‘competitive
position’ we can clearly say IBM has to invest in this sector. With further investment in the IT
sector other areas such as health, financial services, education and public services solutions
can be found. The solution can be found by setting up companies and hiring a workforce in
India, the workforce in India is relatively cheap and the quality of the IT-professionals is very
high. Also the English language is no problem for nearly all of those professionals.
So highly investing in this sector should be the way to go for IBM. In the figure 3.1 in
appendix A the potential of IT solutions in the different areas can be seen.
Agriculture
The agriculture industries is the biggest industry in India, but the largest part of the industry is
not automated and the techniques used for harvesting are almost prehistoric. And still the
demand for food is increasing because of the expanding population. IBM should try to
implement their agriculture analyses programs into this sector. Those software solutions
should be focused on efficiency of harvesting and cutting the cost. Green and ecologic
farming is the key, the government is subsidizing and has reducing greenhouse emissions
high on its agenda.
Automobile
India has a great position worldwide in the automobile industry, businesses from abroad are
going to India to setup manufacturing factories. Also the sales figures for sold cars in India
are rising every year thanks to the economic growth, people are getting richer. Investing in
this sector not, only with money, but also investing in relationships with the foreign
companies that are opening new facilities should be the way to go. By doing this IBM can
strengthen their position not only in India but also globally since companies like GM, Ford
and Hyundai are global players.
Retail
As well as the infrastructure and automobile industry the retail sector in India is growing at a
fast pace because of the economic growth. So IBM should follow the same strategy as the
two other industries illustrated close by Retail in the MABA-analysis. But not trying to invest
as heavily as the investment in the IT industry. Investments should mainly be done in the
payment program within the retail sector because more and more consumers in India have
access to credit and bankcards. So the focus should be on the automation of the payment
system in the stores.
20
China
China is one of the biggest countries in the world and has established itself in the top of the
world's best-performing big economies. Major media in Europe and the US are praising
China's economic performance driven by its massive government stimulus package. China is
the only economy of the 10 biggest economies that is expanding. Because of the economic
growth and the stimulus package, China is an interesting country to establish a company.
China's exports in travel, IT and communication services were especially strong. U.S. cross
border exports to China also increased, rising by 61% from $5.6 billion in 2001 to $11 billion
in 2008. 40
The banks, telecommunications companies, manufacturers and the government are
investing in IT services. There are more than 8,000 IT services companies and the majority
of them are small businesses with less than 50 employees. The top five IT services
companies are IBM, HP, Digital China, Neusoft and CS&S, with a market share of 5.8, 5.3,
2.5, 2.2 and 1.9% respectively. The Top 10 systems integrators only have a combined share
of 29% of that market.
IBM has more than 3,200 IBM engineers and scientists employed in IBM labs in Beijing and
Shanghai. Nowadays the most western software companies produce software in China. The
foreign companies represent 65% of the total software industry.41
A current trend in the PC sector is a greater focus on Software as a Service (SaaS), which is
gaining popularity on the mainland. China's IT outsourcing work is now growing at twice the
rate of India's.
The total value of the Chinese software market has reached US$9.8bn in 2009, up from
US$8.8bnin 2008. This partially because enterprises looked for solutions that would help
them improve performance and operational efficiency. According to government figures,
which include software industry export and software-related services, revenues were up
across a variety of sub-segments including Software Products, Business Software and
Software Technology Services. The sheer scale of the enterprise market will mute the impact
of cuts in IT budgets in sectors such as construction and real estate, as demand from other
sectors such as telecoms, logistics and retail continues to grow.
DESTEP-analysis
Demographic
The Chinese republic is the second largest country in the world, after Russia. China
acknowledges 56 official ethnic groups, of which the Han is the biggest group with 92% of
the total population of 1.3 billion people. Expectations are that China will have 1.5 billion
residents in the year 2035. Within the next 40 years, the modal average citizen will reach 80
years and the seniors will posses one-third of the total Chinese population.
The next religions and philosophies have established itself in the Chinese culture:
Ancestor worship, Confucianism, Islam, Taoism, Buddhism, Christianity
The biggest migration ever is taking place in the last 10 years. More than 200 million Chinese
left their native region to a region with more jobs. The coastal cities had a huge industrial
expansion and that is a big motive for the migration. China’s ongoing urbanization will be a
40 http://www.ibm.com/ibm/governmentalprograms/mktchina.html
41 http://www.mindbranch.com/China-Information-Technology-R302-5273/
21
major driver of growth and new cities will emerge in the less-developed inland provinces. The
UN forecasts China’s urban population will rise up to 73% in 2050
China is a country where the investments in educations are high. China has a nine-year
compulsory education with more than 1876 universities and higher education. Each year
millions of higher educated people graduate on the universities. At the moment there are
approximately 200,000 educated IT-specialists active in China and every year there are
50,000 new educated specialists.
Economic
For many years provinces in China face a shortage of raw materials and energy. There is an
overcapacity in many industries such as cement, steel, cars and construction. New
investments in infrastructure or in the overheated industries are discouraged or prohibited.
Despite government measures the investments have increased. In 2007 the economic
growth was 11.9%. In 2008 the economic growth was 9% GDP. The global economic crisis
has also hit China, but the government is stimulating the domestic economy with an
investment of 458 billion Euros.
Foreign direct investments rose in 2006 to 78.1 billion U.S. dollars. In 2007 however, these
significantly increased to an amount of 138.4 billion U.S. dollars. But this increase was also
recorded in 2008. In that year had invest 147.8 billion U.S. dollars. According to the world
bank the foreign direct investments were in 2009 to 122.5 billion U.S. dollars.42
Social/cultural
China is infamously known as a country of etiquette and ceremonies. The unique character
of the Chinese is built on pride, ancient history and culture. This character also displays itself
in negotiations.
Negotiations can take years, due to the number of people involved and the complicated
government system. For example, it took Marco Polo, the Italian merchant, seventeen years
to gain the trust of the Chinese people who produced clothing. 43
Chinese business networks are sustained by Chinese cultural values and tradition. When
these values disappear, the networks will collapse. The Chinese cultural values are:
benevolence, harmony, midway, forbearance, filial piety, trust and cautious words. With
personal trust the business relationship will survive greater stress and display greater
adaptability. For most Chinese, a transaction or exchange will only take place when there is
mutual benefit based on trust. Reciprocity and trust are the base of a network relationship.
Technological
The Chinese ICT sector is expected to grow. The ICT sector is an important sector for the
Chinese government. This proved once more to the 2006 Eleventh Five Year Plan (20062011). In 2006 the ICT sector accounted for 15.9 billion Euros. This is equivalent to 7.5
percent of the total gross domestic product. In China there are 170 million Internet users, 372
million fixed lines and 508 million mobile phone users.
China is known for the illegal copying of software. More than 90 percent of all software in
China is illegal. Many Western software companies now produce software in China. Foreign
42 http://www.profnews.nl/925194/economisch-beleid-china-richt-zich-op-binnenlandse-consumptie
43 http://miketsao.myweb.uga.edu/6190/service/doc/Doing%20Business%20in%20China.pdf
22
companies account for 65 percent of the overall software industry. 44
The average speed of broadband in China is very low compared with the Western World.
The Internet speed in cities like Beijing and Shanghai are often between 30 and 100 kbps
with a 1Mbit-line. It also happens that some foreign websites are barely or sometimes not
accessible. The Chinese government filters internet, which creates a stir in many countries.
A major breakthrough has been made in China with developing the 4G technology. With the
Chinese 4G technology it is possible to reach speeds of 100 mbps. 4G refers to the fourth
generation of cellular wireless and is a successor to 3G and 2G standards. A 4G system is
an upgrade existing communication network and provides a comprehensive and secure IP
based solution where facilities such as voice, data and streamed multimedia will be provided
to users at much higher data rates compared to previous generations.
China´s computer hardware sales are projected at US$57.1bn in 2010 and are forecast to
reach around US$89.8bn in 2014. Close to 30mn computers were sold in China in 2009. The
roll-out of 3G mobile services by China´s mobile telecoms network operators stimulated
sales of net books, while government subsidy programs boosted demand from the vast,
under-penetrated rural areas of China. Forecasted is that computer hardware CAGR for the
2010-2014 period will be around 12%, with SMEs, smaller towns and rural areas driving
growth, along with replacement of desktops with notebooks.
China is already the second-biggest PC market in the world, with 32 million personal
computers sold in 2008 and sales revenue reaching $23.61 billion, a rise of 9.6 percent yearon-year. Small to medium-sized enterprises (SMEs), smaller towns and rural areas will grow
fastest, along with replacement of desktops with notebooks. Expected is that the Chinese
software market will grow at a Compound Annual Growth Rate (CAGR) of 14% over the
2009-2014 period.
Ecologic
The Republic of China is an active participant in the climate change talks and other
multilateral environmental negotiations, and claims to take environmental challenges
seriously but is pushing for the developed world to help developing countries to a greater
extent. It is a signatory to the Basel Convention governing the transport and disposal of
hazardous waste and the Montreal Protocol for the Protection of the Ozone Layer, as well as
the Convention on International Trade in Endangered Species and the Kyoto Protocol,
although China is not required to reduce its carbon emissions under the terms of the present
agreement. That China surpassed the United States as the world's largest emitter of carbon
dioxide, putting out 6,200 million tons, in comparison with America's 5,800 million. Although
the emissions of carbon dioxide is only one fourth of the United States per capita.45
Politics
Over the past 60 years the Chinese Communist Party has governed, and remains secure in
its position as the sole political party in China. The continuation of reform and modernization
is just around the corner, a new generation of leaders, the so-called fifth generation, is being
prepared to take power in 2012-2013.
China’s expanding economy is gradually giving it greater clout in international affairs and this
44http://www.evd.nl/home/landen/landenpagina/land.asp?bstnum=144509&land=chn&location=/home/landen/landenpagina/lan
d.asp?land=chn&highlight=
45 http://www.state.gov/r/pa/ei/bgn/18902.htm
23
allows it to build politically important ties, especially with the developing world. China is
actively expanding its political and economic ties with major emerging markets, such as Latin
America, Africa and the Middle East.
The close relations between provincial leaders and local businesses are fostering corruption
and
are making it harder for the central government to enforce its policies. Growing corruption,
widening inequalities, increasing rural poverty and environmental degradation have led to an
increase in social unrest in recent years. Rising joblessness as a result of the global
recession could lead to even greater unrest.
The Chinese government has also announced the 11th Five-Year Plan to undertake many
high-technology projects in the next few years and is on record as saying that such new
technology projects are expected to contribute to around 60 percent of the country’s
economic growth. These policies will in turn enhance the scale of the market potential of
China.
The Update, a regular assessment of the Chinese economy, finds that falling exports amidst
the global recession have been a major drag on growth. Nonetheless, real GDP growth rose
to 8.9 percent year-on-year in the third quarter on the back of the stimulus. Most of the
stimulus has shown up in infrastructure-oriented government-led investment.
(SW)OT analysis
Oppurtunities
China has many experts
offers low wages.
The movement from hardware to IT services.
The IT service is a growing sector.
Insurance companies
Threats
Many new foreign companies
Language and cultural differences
Illegal copying software
Key Industries
IT sector
With strong spending in sectors including banking, financial institutions and government, the
IT services market is projected to achieve an expected sector compound annual growth rate
(CAGR) of 13% between 2009 and 2013. Spending is projected to reach around US$16.4bn
in 2009 as banks, telecoms operators and manufacturers invest to meet the challenges by
growing demand for their services and the more competitive environment generated by WTO
membership. The economic situation and credit tightening have had an impact on projects in
some key verticals. However, indications were that overall IT services spending was
continuing to grow in 2009, thanks to emerging opportunities such as outsourcing from South
East Asia. In the telecoms sector, the launch of 3G services and associated network roll-outs
will generate spending, while government spending is expected to increase as a percentage
of GDP thanks to stimulus packages. Other potential growth areas include healthcare, banks
and retail.
Outsourcing is expected to account for up to 30% of the IT services opportunity by 2010, with
a potential value of more than US$6bn in that year. A recent report by India IT industry body
24
NASSCOM highlighted the increasing challenge posed by China to its dominance of the
global outsourcing market. While China still has some way to go to catch up, with its new
education drive and better infrastructure it is in a position to leverage the advantages of low
costs and scalability. Seeking the higher margins associated with IT services, an increasing
number of local companies are attempting the transition from equipment manufacturers to
professional service providers. A process of consolidation is continuing in the sector,
particularly among local companies, which are looking to grow through mergers and
acquisitions.
Shanghai will be a key location of IT services opportunity over our five-year forecast period,
as the city invests to implement its plan of becoming a world-class financial and shipping
centre. In the telecoms sector, the launch of 3G services and associated network roll-outs
will generate spending, while government spending is expected to increase as a percentage
of GDP thanks to stimulus packages. Other potential growth areas include healthcare, banks
and retail.46
Automobile
The major car manufacturers from China are centered in six regions including Guangdong
province in southern China and Hubei Province. Guangdong takes one quarter of the
national car sales accounted for and is also the largest import and export center for auto
parts. Guangdong in 2007 produced 780,000 cars produced and Hubei is 330,000. Both
Guangdong and Hubei provide opportunities for companies like IBM that can offer high
quality product and services. More stringent legislation in the field of energy efficiency will
increase the need for environmentally friendly technology. There is also more demand for
expertise and management of intensive production. The city Wuhan (capital of Hubei) is also
developing itself as the main R&D and production for electric vehicles.
Insurance
The insurance sector in China is very rosy due to favorable market conditions such as high
economic growth and China’s accession to the WTO. In China, the banking sector dominated
by the Bank of China, the Industrial and Commercial Bank of China, the China Construction
Bank and Agricultural Bank of China. The government has a lot of money in the four large
state banks. So they can lend to consumers and the private SMEs. The market for financial
products is very underdeveloped. The range of financial services including credit cards is still
very small. Well here it is increasingly growth in time. Opportunities for supply to the banks
are in the field of: credit card technology and equipment, and security and networking. By
slowly becoming less social services in China, opportunities for insurance is increasing.
Tourism
Many tourists found the tours to Southeast Asia are more worthwhile. China recorded
approximately US$185 billion in tourism income in 2009, a growth of 9% from 2008.
Expected is that over the next decade, China will become the second largest travel and
tourism industry in the world, after the United States.
China’s inbound tourist arrivals has grown steadily. From 2004 to 2009, the average annual
growth rate of arrivals was 6.8%. As the Chinese travel and tourism industry becomes
increasingly competitive, operators are searching for new directions to expand their
businesses. One strategy that is becoming increasingly popular is for travel retail operators
to integrate vertically, that is to acquire or establish the tourist attractions, hotels and airlines
which they are selling.
46 http://www.zgc.gov.cn/english/NewsandEvents/50450.htm
25
Energy
China became a dominant player of renewable energy. China has committed to invest $220
billion in renewable energy. As part of this massive green stimulus package China seeks to
raise its wind power capacity to 100 gig watts by 2020, or eight times the current level. Some
market studies estimate the size of the clean energy market there at nearly a $1 trillion per
year. For example: Tianjin, one of the four cities at county level in China, is working to build
Tianjin Eco-city. The Eco-city is in need for technology and expertise in areas such as wind
energy, sanitation and waste management. Its development reflects the growing demand for
an energy-efficient and sustainable urban environment eco city.
MABA- model
Source: www.ruscon.nl
The five key industries have been illustrated in the MABA-analyses. This analyses looks at
the ‘Markets attractiveness’ and ‘Competitive position’. And will tell you to invest, disinvest or
perhaps leave it unchanged in the different industries.
26
Recommendation
IT Sector
The Chinese companies in the ICT sector is on its way up, but China remains a country that
yearns for use of ICT and knowledge-technology from abroad. China is well on its way to
also be attractive for R & D, software and ICT services. The supply of cheap and skilled ICT
specialists is one of the reasons, but also the fact that many investments in other sectors to
China, provides a proper appeal. Foreign companies in other industries have all ICT
equipment, components and services.
ICT is a rapidly changing industry. We recommend that IBM establishes and maintains a
good relationship with the Chinese local partners in order to keep up to date on the latest
market information and industry trends. China should be considered not as one market, but
as many markets with different idiosyncrasies with differences from one province to another.
It should not be assumed that what is applicable in one province applies to another.
Renewable Energy
Different aspects of sustainable technology, green financing, energy efficiency and ecosolutions consultancy will be needed. In these areas there are many opportunities for foreign
companies to IBM. IBM can offer business processes, application software and services. The
renewable energy market is also a growing sector.
Automotive
In the Automotive industry IBM should invest selectively. They should approach the major car
manufacturers that are centered in six regions including Guangdong province in southern
China and Hubei Province. IBM should promote their expertise in software technology in this
area.
The need for more environmentally friendly technology is growing. IBM could design and
promote this type of technology for the companies present in this area. IBM can also offer
consultancy for more environmentally friendly technologies.
Tourism
Tourism is becoming increasingly competitive. IBM should take advantage of the fact that
travel retail companies are searching for new directions to expand their businesses. One of
the popular strategies that is very popular at the moment, integrating vertically, is a chance
for IBM. IBM could design new software that increases the efficiency between hotels and
airlines.
Insurances
The market for financial products is very underdeveloped. The range of financial services
including credit cards is still very small In the Insurance sector, IBM can provide credit card
technology and equipment. Also security and networking can be technology can be provided.
27
Comparison (Russia, India, China)
Similarities
The three countries are heavily investing in their infrastructure. The roads are a key to a
better economy. Also the gap between rich and poor is a similarity in all three countries, the
poor people simply do not have the same opportunities as the rich people do.
Businesses are moreover looking for opportunities and ways to earn money in the countries.
Corruption and bribe taking is one of the biggest problems for those businesses, with Russia
being the most corrupt.
Besides investing in infrastructure the countries are trying to improve the education, more
and more people graduate and have an diploma. India and China are well-known as
countries with a strong position in the IT sector with Russia following. This position is
contributed by the investments that are still taking place by the governments.
India and China both have a population above 1 billion people, Russia is less populated but
still remains in the top 10 of most populated counties in the world. Cities are getting bigger
because of the migration from the countryside and small villages.
The economic situation in the counties is rapidly improving and therefore industries are
getting bigger, which means emission of greenhouse gas have significantly increased over
the last decade. That is why all of the green countries are looking for ways to address the
current greenhouse emission rates.
Differences
India and China are highly active in the IT- industry. In China and Russia you cannot speak
of a democracy. India is the only country where there is a free democracy. This difference is
grown into the business culture of these countries. India is more willingly to do business with
the Western World. China seems to trust more on their own government and China’s
businesses. India is willing to learn more from other countries and work with foreign
companies.
Compared to India and Russia, China has the most low cost employees. China is one of the
countries that is investing heavily on renewable energy. China is constantly looking for more
and more ways of sustainability.
28
Appendix A
Figure 1; Economic activity of Russia. Including the Population in billion and the GDP.
Figure 2.1; Economic activity of India. Including the population in billion and the GDP.
Figure 2.2; India wholesale price inflation 2007/08
29
Figure 2.3; India’s population
30
Figure 2.4; India’s Literacy
31
Figure 2.5 US dollar/Rupee daily spot rates
Figure 3.1
32
Figure 3.2
Figure 3.3
33