Infosys in India: Building a Software giant in a Corrupt Environment

Submitted by: Rajesh T. Sec A, MBA 2011

Introduction It may be that in no other time in history have entrepreneurship, economic activity and stock markets been so important and interwoven with the economic prosperity, political stability and environmental sustainability of societies than they are at present. The Financial crisis and the economic turmoil that this crisis has triggered have shown how fragile the world economy is. The private sector can be a good source of dynamic innovation and growth. Nonetheless, as Transparency Internationals Global Corruption Report 2009 clearly shows, economic prosperity can also fail to live up to its potential, if corruption goes unchecked, and turn into a destructive force that undermines fair competition, suppress economic growth and political development and ultimately undercuts its own existence. There have been many prominent scandals that have brought down governments, politicians, corporations etc and lack of transparency and accountability is considered as the cause of financial crisis. There has always been a fight between the good and the evil. However, in this era of rapid growth where money and power is everything corporate commitment to fight corruption is not reflected properly. Crucial corruption risks, as well as loopholes in transparency, accountability and oversight, exist across all industries and all countries. Dynamic markets continue to produce new corruption challenges. It is like the multiplier effect where greed plays a dominant role. Corruption in India Political and Bureaucratic corruption are major concerns in India. A 2005 study conducted by Transparency International in India found that more than 15% of Indians had first-hand experience of paying bribes or influence peddling to successfully complete jobs in public office. Taxes and bribes are a fact of daily life and common between state borders; Transparency International estimates that truckers pay US$5 billion in bribes annually. Former Prime Minister Indira Gandhi is quoted as saying that corruption is a misuse of power. Well, the irony is that the Gandhi family is considered to be involved in many scams of net worth of $9.41 billion (Rs.42,345 crore) to $18.6 billion (Rs.83,900 crore). "India needs to deal with the malice of corruption and improve governance in Asia's third-largest economy." Prime Minister Manmohan Singh said on March 18, 2011. Criminalization of Indian politics is a serious problem. In July 2008 The Washington Post reported that nearly a fourth of the 540 Indian Parliament members faced criminal charges, "including human trafficking, immigration rackets, embezzlement, rape and even murder". India tops the list for black money in the entire world with almost US$1456 billion stashed in Swiss banks (USD 1.4 trillion approximately) in the form of black money. According to the data provided by the Swiss Banking Association Report (2006), India has more black money than the rest of the world combined. Indian Swiss bank account assets are worth 13 times the countrys national debt. The recent scams involving unimaginably big amounts of money, such as the 2G spectrum scam, are well known. It is estimated that more than trillion dollars are stashed away in foreign havens, while 80% of Indians earn less than 2$ per day and every second child is malnourished. It seems as if only the honest people are poor in India and want to get rid of their poverty by education, emigration to cities, and immigration, whereas all the corrupt ones, like Hasan Ali Khan are getting rich through scams and crime. It seems as if India is a rich country filled with poor people, the organisers of Dandi March II in the United States said. It is commonly said that The rich get richer and the poor get poorer. Children grow up in India with a notion that without greasing the palms of the Sarkari babu (civil servant) no file can move. When the children grew up, they understood that they are living in a world of being practical. You cant get a government job without greasing the palms of

recruitment officer, your children cant get admission into a good school without giving a forced donation and you cant get a good treatment in a government hospital, no wonder private hospitals have flourished so well. Corruption has been imbibed in to the system; you got to live with it or die fighting against it. So that is quite a lot of accolades for a developing country like India. India ranks 88 th in Transparency International report. So, how do we interpret Indias ranking, Is it good since it is ahead of countries such as Russia, Philippines and Indonesia or is it really bad that countries such as Singapore, New Zealand and Austria. Well, it seems that for a developing country corruption is like a freebie or may be once India is developed, it would be in the top rank. Corruption is not just an integral part of the public sector but also in private sector. There have recent frauds in the stock market, scam in an IT company Satyam computers etc. Anyways, not all companies in India are corrupt. Corporations such as Tata group, Wipro and Infosys are considered to have good corporate governance and zero tolerance against corruption. These companies played an important role in the development of the country for the past two decades. Information Technology in India The Indian Information Technology industry accounts for a 5.19% of the country's GDP and export earnings as of 2009, while providing employment to a significant number of its tertiary sector workforce. More than 2.5 million people are employed in the sector either directly or indirectly, making it one of the biggest job creators in India and a mainstay of the national economy. The World Information Technology business is considered to be $1.5 trillion to $1.7 trillion. Indias annual revenues from IT-BPO sector is estimated to have grown over US$76 billion compared to China with $35.76 billion and Philippines with $8.85 billion. India's outsourcing industry is expected to increase to US$225 billion by 2020. The most prominent IT hub is IT capital Bangalore. The other emerging destinations are Chennai, Hyderabad, Coimbatore, Kolkatta, Kochi, Pune, Mumbai, Ahmedabad and NCR. Technically proficient immigrants from India sought jobs in the western world from the 1950s onwards as India's education system produced more engineers than its industry could absorb. India's growing stature in the Information Age enabled it to form close ties with both the United States of America and the European Union. However, the recent global financial crisis has deeply impacted the Indian IT companies as well as global companies. As a result hiring has dropped sharply and employees are looking at different sectors like the financial service, telecommunications, and manufacturing industries, which have been growing phenomenally over the last few years. India's IT Services industry was born in Mumbai in 1967 with the establishment of Tata Group in partnership with Burroughs. The first software export zone SEEPZ was set up here way back in 1973, the old avatar of the modern day IT Park. During the 1970s, because of the restrictions by the Indian Government on imported computers, Indian software development faced a temporary halt. In 1977, the Government rules tightened because of which many foreign companies shut their shops in India. Several Indian companies mushroomed to fill the gap created by the foreign companies. More than 80 percent of the country's software exports happened out of SEEPZ, Mumbai in 80s. India had a low per capita income and yet possessed the second largest English speaking scientific manpower reservoir in the world as well as well functioning technical education system. Indian technical colleges produced 60,000 technical graduates each year. Each year India produces roughly 500,000 engineers in the country, out of them only 25% to 30% possessed both technical competency and English language skills, although 12% of India's population can speak in English. India developed a number of outsourcing companies

specializing in customer support via Internet or telephone connections. By 2009, India also has a total of 37,160,000 telephone lines in use, a total of 506,040,000 mobile phone connections, a total of 81,000,000 Internet userscomprising 7.0% of the country's population, and 7,570,000 people in the country have access to broadband Internet making it the 12th largest country in the world in terms of broadband Internet users. Total fixedline and wireless subscribers reached 543.20 million as of November, 2009.

The Story of Infosys Infosys was founded in 1981 in Pune. The company had a humble beginning. The company started its operations with the borrowed money from Sudha Murthy. The companys founders had put in lot of hard work to build such a big enterprise. Instances such as Shibulal staying late in office to complete the work, instructed by Narayan Murthy speak volumes about the dedication of the founders. The company faced many road blocks during its journey to what it is today. As described in the article, the first road block faced by Infosys was the customs official refusal to give clearance for the Mainframe system. The decision to pay double the cost for the Mainframe system was turning point for the company. The decision laid a foundation stone for the companys core values. A start up often finds itself in a delicate situation. Its aspirations are higher but its resource base is narrower. As it is not known and visible, it does not get an all-round support from the external environment (Government, public etc). The support, if any is from select quarters such as venture capitalists, friends & family etc. But even support from venture capitalists comes at a price. So at that time every penny for Infosys was very important. Murthy took decision under a tough situation, thinking about the long term image of the company. In the article he gave an example of a hypothetical case. Suppose he is travelling in train through Siberia and he is intimated to have a consensual relationship with a lady co-traveller. He would have violated marital vows if he had agreed to the relationship. That to me is a value something that always stays with you exclaimed Murthy. Such examples speak a lot about Murthy and the values on which Infosys was founded. Clayton once said that he might be tempted to do a sin just for once but that sin might be committed each time he is tempted to do so. Such examples impressed me a lot. The company had an impressive policy i.e. Whenever there is a dispute regarding payments to the government, pay up and then fight hard in appeal. Todays businesses operate in complex social and political environments which generate a range of demands and expectations. Decisions which once were treated as internal management responsibilities increasingly are subject to scrutiny from the general public or major institutions of society (government, news media, etc.). Even within large companies, issues of ethics, loyalty and trust increasingly concern employees and sometimes spill over into news reports. As business becomes more global, dealing with all of these issues becomes more complex as well. Infosys has a strong commitment to transparency at any cost. In one instance Infosys raised money through IPO and later invested part of it in stock market as per the norm. The company disclosed its misadventure in its annual report. The shareholders took the disclosure as a strong signal of transparency. Through this the company added one more value to its kitty when in doubt, disclose. CEO Nilekani explained, This approach of putting values first has a high cycle time when it comes to positive business gains and short term pains. Another two examples which impressed me, where in the company stuck to its values. The first incident, the customer wanted a Car to give the contract to Infosys. In the second incident a corrupt official wanted $1000 per acre to clear the purchase of the land. The company bluntly refused to pay in both the incidents. This strategy reaped benefits for the company in the long run. Now, very few people approach Infosys for bribes. The firm

decisions taken by the senior executives set an example for the Infosys managers. The customers were also impressed by the transparency and high level of cleanliness. These aided to build a strong image for the company. The company was highly successful in passing these values to its next generation of managers though C-life. As per the article, C-life was formed because people from different backgrounds join Infosys and to nurture and instil the core values of the company, C-life was the way. In one instance the company fired one of its Project Leader for fudging the Taxi bill, though the Project Leader was crucial for a project. Many companies had not taken this malpractice and Infosys one of first companies to crack down such corrupt practices. The article does not clearly specify, however, whether the core values were followed across the lower level too or the project leader might have done it unintentionally. It is important that the ethical values are followed both internally and externally. I would like to quote one example about my previous company, which was in steel manufacturing. One of my colleagues was fired from his job since he had fudged some bills and was unable to provide some substantial proof for it. He tried to defend himself that he fudged the bills due to some unavoidable bills. In another instance, my employer had to pay bribes to a Government authority to roll a special grade of steel. Every time the company wanted to roll the special boiler grade it used to heavy bribes to the concerned authority. I question the ethics of the company, which has different internal and external values. For the company, it is ok to pay bribes that were in millions but fire an employee since he tried to fudge a Taxi bill. As per the article, it seems Infosys were following their core values for both external and internal environment. However, the article does not clearly specify about their accounting practices. As per my knowledge, many companies follow different methods to evade taxes such as having multiple sister concern, have different bases to benefit from state taxes in different cities etc. Another point to which I do not agree is that Infosys was ready to pay higher prices for getting the job done in a correct manner and later claim the amount in the court. At the end of the day, the money belongs to the shareholders. There is lot of opportunity cost associated with each decision. The company can approach the higher authorities to get the work done in a correct manner rather than paying a higher price. Every company does not have deep pockets like Infosys to survive in difficult environment. Future of Infosys in the corrupt environment Indian economic is continuously growing at 8% annually. Such a rapid development brings lot of loopholes too. The Government has implemented lot of policies to control corruption at each level. But most of the policies have loopholes; the officials twist these policies and work against the common man. In 2005, the government had passed a bill called Right to Information act which is similar to U.S.s freedom of Information act that gives common man access to information. But do such acts are powerful enough to stop the corrupt officials from taking bribes. Hong kong has its own story of creating anti-corruption watchdogs. Independent Commission Against Corruption (ICAC) was created by the government but isnt it such kind of Independent commissions already exist in India. The state of Karnataka, where Infosys head office is located, already has such Independent commission that cracks the corrupt officials. Even then Karnataka is one of the most corrupt states in India. Even after such acts frauds such as 2G spectrum, vote for cash have propped up. India requires a strong corruption free government that sends the message down the hierarchy that any sort of corruption or favourism is intolerable. Recently there has been a nationwide agitation to fight corruption and implement an independent commission. The agitation was led by a social activist named Anna Hazare. The government was initially not accepting the proposal and

wanted a dominant power to control the commission but the government had to bow down to the people, to keep commission free of politicians. Indian Government has to become something like a Singaporean government. So the question is where does Infosys stand among all this mess and what it can do in the future? Infosys has done well to ward off corruption. Since, Infosys is growing at a rapid pace and with it the number of employees and offices are also increasing. Infosys would find it very difficult to implement its strong core policies across all the levels. It would always find some or the other hindrances in the path of its growth. Conclusion Business in India was tough in the past. For a business to sustain and succeed it requires strong devotion from its founders , innovation that delights the customers, passionate leadership that inspires the best of the class to join this venture and an unwavering commitment to act as a responsible player in the community, nurturing the public trust and support on which all businesses ultimately depend. Corruption can be a major detrimental factor in the development of a business. Corruption has a corrosive effect on the strong foundation of the business. It is an easy way out to attain success but the success stays only for a short period of time and tarnishes the image of the company. In this corrupt world, Infosys has to not only keep its integrity intact but also it has to encourage many business leaders to come together to fight corruption and take India to new highs. Just by paying up the government initially and then fight hard in appeal wont help, since the corrupt officials would find some other loopholes and its not only about Infosys, corporate like Tata group too got affected. Mr. Ratan Tata once mentioned how a minister wanted bribes to clear a deal. Such incidents affect the growth of the country. India needs something like the no cooperation movement by the corporate world to eradicate the corruption or at least minimize it. Mr. Murthy rightly said once to a group of students that differing circumstances might require different tactics but not different ethics. References:

Wikipedia Transparency International report

http://www.iimahd.ernet.in/publications/data/2008-01-09Dixit.pdf http://www.politicachina.org/imxd/noticias/doc/1253798292Global_Corruption_Report_2009.p df