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INTERNATIONAL BUSINESS

I. CASE STUDY: THE NEW FACE OF GLOBAL COMPETITION - WIPRO

1. SYNOPSIS :

Fifteen years ago, Wipro Ltd. Of India was a jumbled conglomerate company selling everything. But now, it is today the world’s largest independent R&D (research and development) services provider and a fast-growing information technology company. In 2005, Wipro generated $1870 million in sales, versus $75 million in 1995, and by more than 25% a year since 1997.

From selling everything, Wipro moved into technology in 1989, by being a joint venture with General Electric ( GE ). Witnessing some advantages in Indian labor source, GE hired Wipro software programmers to write codes for GE’s products. While getting much revenue from GE, Wipro learned a hard lesson to improve its own operating efficiency of General Electric.

By the late 1990s, after getting beneficiary from GE to do some sophisticated tasks for its products, Wipro began to move up the value chain. It had opportunities to do larger software projects with HP, Home Depot, Nokia, Sony and Weyerhaeuser. Moreover, it also took over whole IT system, for example, all development work on this producer line from 200 employees in Minneapolis. Wipro takes steps to move rapidly into high value-added software services.

Gradually, Wipro is a more global company. Hiring local nationals and buying local companies, it’s getting on the “Global Outlook” road, when it must manage the global workforce.

2. IN EARLY DAYS OF WIPRO:

Wipro was just a jumbled conglomerate company selling everything from cooking oil and personal care products to knockoffs for Dell microcomputers and light bulbs. But in 1989, GE made a joint venture with Wipro, Wipro GE Medical

System, to make and sell ultrasound scanners under license in India. In the first year, the revenue of Wipro is tiny, $15 million and sales did not come to expectations of GE. But, there’s a question, how did outsourcing work to Wipro improve GE’s ability to compete in global market?

Firstly, the strategy that GE used to enter Indian market is that it made a joint venture with Wipro to establish Wipro GE Medical System. It’s a smart step of GE to have entry into new countries in the developing region and specifically the market which had the second largest population in the world. A joint venture entails establishing a firm that is jointly owned by two or more otherwise independent firm. It’s also a strategy to enter a new market, excluding acquisition, merger, Greenfield investment… Why did GE choose this strategy?

GE can receive benefits from a local partner’s knowledge of the host country’s competitive conditions, culture, language, political systems and business systems. While GE provided technological know-how, the local partner – Wipro provide marketing expertise and the local knowledge necessary for competing in India. Moreover, GE could share their costs or risks with Wipro. GE did not need new facilities, bureaucracy fee to establish new firm in India but saving their cost to continue using land, labor, energy and available customers in India which was property of Wipro. And GE faced a low-risk of being subject to nationalization of other forms of adverse government interference.

Secondly, GE can utilize maximum human resources in India. India had a cheap source of talented engineers and programmers. There, it has a technology-oriented education, so India possesses a solid base of technology-focused universities and colleges that turn out many engineers every year. On the other hand, Indian workers do not tend to demand too high a wage rather than those in the United States. In general, software programmers in the United States who has two-to-four-year experience require $64.000 a year, whereas skilled programmers at Wipro want to earn $10.000 a year, because that amount of money can already provide them with good living conditions, of course, depending on GNI/PPP per capita throughout years. So, those factors help GE save their cost to hire foreign labor but having more or less the same quality. Therefore, it quickly sets aside $5 million a year to hire Wipro software. This reflects an obvious advantage of globalization of production.

Thirdly, it made competition between its partners in India to save cost. GE was soon contracting out work to other Indian information technology companies. So Wipro and other firms had to adjust requirements as suitable. So, GE can reach ever lower cost while playing them off against each other on its drive. Moreover, GE was ready to transfer its technology and management strategy to Wipro to enhance these aspects. Senior GE managers began to encourage other units to follow the medical division’s lead and outsource information technology work to Indian companies. GE also led and instructed Wipro to own the operating efficiency. By these ways, working and service efficiency of Indian companies, such as Wipro went up, and cost of services provided for GE came down.

But, following the GE’s strategy, does it harm or benefit to American economy?

We can see clearly the advantages American economy has through GE’s outsourcing work. American products, such as GE products – GE ultrasounds and IT Scanners - will have a new market – Indian market. This is a developing market which has above one billion citizens. And from India, GE can go beyond borders to Asian market where one-third of the world population lives.

Inside the United States economy, there will be a fierce competition among multinational firms. Those firms always want to be the first company to enter a new market. Gross National Product (GNP) is in an upward trend. Customers will have an opportunity to buy at a cheaper price thanks to cheap labor and cheap natural resources. Shifting jobs to lower cost countries would benefit the United States in the long run.

But, it also makes some negative drawbacks.

“Outsourcing is killing our jobs. Forcing our middle class to compete with cheap labor will result in systemic job loss and hurt America’s standard of living” - Lou Dobbs, CNN's Lou Dobbs Tonight, September 2004, Issue 35. One of the challenges for multinational global suppliers was to take this job creation and

wealth creation, and see how it could be leveraged to improve the quality of life for a much larger set of people. This could lead to unemployment in the US.

The US government also faces challenges from managing this kind of outsourcing work. Money can be lost through outflow to other nations. It also means regular occurrence of law violation, and this is difficult to solve because of differences in cultures, laws or political system.

Not only GE had benefits, but also it help to create Wipro.

When Wipro is a jumbled conglomerate company selling everything, it did not find a suitable product target for commercials. GE appeared and gave works to Wipro – selling ultrasound scanners under license in India. So they found their concentration on one kind of business that was their strength, and utilized it. Employees in Wipro now had a concentrated work with fair salary.

Wipro also copied a way that GE had done to enhance the working efficiency. GE just gave Wipro a window into GE’s relentless push for operated efficiencies.

GE provided a management model – Six Sigma process, for Wipro to improve efficiency made famous by GE. Nowadays, this model help Wipro executives learn hard but essential lessons.

Beside Wipro, GE still gave work to other Indian companies. It may harm Wipro by putting pressure on Wipro. But it had a positive sign. Wipro increased the efficiency and quality of productivity.

3. MOVE UP THE VALUE CHAIN:

After receiving GE’s investment as well as help from it, Wipro began to move up the value chain. In different expression, Wipro began to prosper. And, if

Wipro continue, what will happen to the income difference between software programmers in the United States and India?

As we mentioned, wage of programmers in the United States is around $64.000 but those in India only want $10.000. If this Indian company keeps prospering like today, wage rates between the US and India will be more or less equalized. The income gap will be as close as possible, but not mathematically equal because of competition from other high-skilled workers from other countries preventing them to equalize with US’s level. New American programmers will be paid less than they formerly received. Vice versa, Indians require more from company because of fairness in human resources policies. Moreover, demand for Indian engineers grows, so Indians can move to higher-wage companies, so owners of firms must increase their engineers’ income, and there would be an insufficient supply of skilled Indian engineers.

So, what are the implications for American economy?

Clearly, unemployment in information technology fields in the United States would happen. New programmers must compete with their colleagues from India, and if they are not content with the income, they lose their jobs. Standard of living and good consumption in the US would suffer and decline following the happening of this.

It may also lower the attraction of US labor market on global scale because the world has more options to choose suitable candidates for their company with cheaper price from.

But, it is not the end of the road for workers in US. They can move to other high-paid companies to work, with higher knowledge level and stronger competition. It’s called global division of labor but it is still controlled by government.

On the other hand, the price of IT products will be cheaper due to declining wages and decreasing good consumption.

4. MORE GLOBAL COMPANY:

“In order to compete with firms like IBM and Accenture, Wipro needs to be far more global than what it is today. Currently, it is too India-centric” – Ramesh Emani, President of Product Engineering services, Wipro Technologies.

Since 2000, Wipro has moved abroad, establishing sales offices in 35 nations and design centers in nine. Why is Wipro doing this?

Because globalization is a popular trend, so it’s normal if one company wants to extend their sale and commerce to make profit from other sides of the world. Wipro must not be outside of this tendency. In the 1990s, Wipro expanded by doing larger software projects, taking over whole IT systems and back-office functions. Its scale got bigger and bigger, so they must find other markets to maximized profits.

GE taught Wipro a hard lesson, but it’s a necessity. GE is a successful global brand, considering the perfect globalization of production. So GE is an ideal model for Wipro to learn. They don’t want to do normal work anymore, but they want to do something more profitable.

A true global company is one which appeared to be local wherever it does business. Hiring a local talent and buying a company that gave it instant industry presence help Wipro come closer to its customers and it constantly seeked opportunities to arbitrage labor market.

In other cases, Wipro can witness their archrivals even in their nations and their traditional market.

What would happen to the company if they did not follow this strategy?

If they miss the opportunities on account of not following this strategy, they will forever do normal work for giants in this field and lose the competitive advantages as well as postpone their growth. Bankruptcy is also a common obsession. Few companies can survive when doing business in a small area after

ten to fifteen years. Wipro might have been forever dependent on giants like GE, Weyerhaeuser… if it hadn’t done what it did.

CONCLUSION

What does the rise of Wipro teach you about the nature of the global economy in the first decade of the twenty-first century?

Bill Clinton has said that: “Globalization is not a policy choice, it is a fact”. Or we usually use the sentence: “Globalization is not a choice, it’s a reality”. By analyzing the rise of Wipro, we can understand more clearly the beneficiary and an indispensable trend of Globalization today.

When entering a new market, the most important thing to do is keeping local presence, and customizing to the clients’ tastes and preferences in local nation. “We invest in people. In three years, we will have a far more global footprint. Around 10% of our employee population will be based out of Philippines, Europe and other parts of the world” – Sangita Singh, Senior Vice President and Head of Enterprise Application Services, Wipro Technologies. It has the same meaning that we should focus on expanding domestic workforce in target markets.

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