The Commodity Chain And Value Chain Business Essay

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The objective of this project is to analyse the financial performance of the three major I.T. companies of India and also make a comparison between the companies using SPSS and various other tools and technique of financial statements, ratio analysis and following the market trends.


From a nascent start, India has made rapid progress in the I.T. domain. The opening of the economy in the early 1990s gave it a tremendous boost. India's prowess in the software field is now recognized the world over, with its software consultancy firms having a truly global presence and with nearly all the top Fortune 500 Companies as

Its clients. The existence of a separate Department of Information Technology under the Central Government is a reminder to the importance attached to I.T. and the impact it is having on various fronts including governance. Information Technology has come to be recognized as a key-leveraging factor in the National Development. It has had a profound effect on other industries in increasing productivity and changing cost structure.

The Indian I.T. success story has also highlighted India's attractiveness as an investment destination far beyond the I.T. sector. The rapid growth of I.T.E.S.-B.P.O. and the I.T. industry as a whole has made a deep impact on the socioeconomic dynamics of the country, having a significant multiplier effect on the Indian economy. Apart from the direct impact on national income, the sector has risen to become the biggest employment generator with the number of jobs added almost doubling each year.

The industry's contribution to the national economic output is estimated to account for 4.1 per cent of the national GDP in the year 2004-05.


These are a few literature review in respect to IT industries in India

1) "The Indian software services industry is relatively young, with many of its most mature companies incorporated in the late-1970s and early 1980s. The domestic market for IT services was always small and continues, even today, to account for only about 25-30 percent of the industry's sales (Nasscom, 2001). The Indian industry received a big boost in the early 1990s when the demand for skilled manpower in IT services in the developed world outstripped the available supply. India enjoys the advantages of "people attractiveness" and "location

Attractiveness" (Budhwar, Luthar and Bhatnagar, 2006) in the IT sector. India, during early 1990s was graduating 150,000 English-speaking engineers a year with only a limited demand for their services within the country, was well placed to take advantage of this opportunity (Ethiraj et al., 2005).

Faced with a small and undeveloped domestic software services market, Indian software firms focused primarily on the export market. Their early work, however, was neither technologically very sophisticated nor critical to clients' businesses. The origin of the Indian

software industry was firmly rooted in performing low-end, technically less demanding and labor-intensive work for the global IT industry and exploiting labor cost arbitrage opportunities between India and developed country markets (Nasscom, 2001). Between 1989 and 1998, over 3000 software services firms were founded that aspired to serve export markets. Firms also needed to improve the productivity of labor to compete effectively in the market (Ethiraj et al.,


In purely onsite projects, the Indian firm supplies software professionals who possess the requisite technical skills that the clients demand. The entire project is then developed and executed at the clients' site. In purely offshore projects, in contrast, the Indian firm typically sends a few software professionals to the client site to understand its requirements and specifications, but thereafter the entire software is developed in India. The post- development support and maintenance of the software is also carried out largely from India. In some cases, a hybrid of the two types is also observed. Obviously, the offshore development model is more cost effective due to labor market arbitrage (Chandrasekaran & Ensing, 2004). In the early

days of the Indian software industry, Indian companies executed a majority of the projects onsite. This happened because, first, the overseas clients had limited confidence in the Indian firms' ability to execute projects in conformance to their needs. Second, the Indian firms also had only a limited

understanding of clients' needs and often required close and regular interaction with the client (Ethiraj et al., 2005).

Since the mid-1990s there has been a distinct shift in the nature of software projects executed by the leading Indian software firms. They gradually shifted their role from that of merely implementing a design provided by their overseas clients to becoming active participants in the

design of the complete application product.

"As a consequence, they now span the full spectrum of jobs from highly labor-intensive code migration work such as the integration of old mainframe-based systems into new e

-commerce platforms, or developing new

code for predesigned applications and software tools, to projects that involve both conceptual design and implementation of customer relationship applications and supply-chain management systems"

(Ethiraj et al., 2005: 26). All such developments and trends have serious implications for the Human Resource Management (HRM) function given that the software industry is primarily

People-driven (Budhwar, Luthar and Bhatnagar, 2006). The existing literature, however, contains no empirical studies conducted in India that highlight the need for flexibility relevant to the Indian IT sector with respect to the global delivery mode."




MAY 2011

2) "MNCs are constantly in pursuit of the best balance between vertical integration and reliance on the market for inputs (Castells, 2000). Efficiency is one of the driving forces as a way to achieve global competitiveness for labor intensive products, thus, MNCs have moved to low wage countries. This strategy of flexible centralization is complementing the benefits of scale economies with the advantages of low input costs (Bartlett and Ghoshal, 1998). As firms continue to transform themselves from a large, vertical

corporation several organizational arrangements continue to emerge.

One of the arrangements that has emerged is the network model that adds flexibility and adaptability for the corporation (Castells, 2000). This transformation is termed "quasi-disintegration", the transformation from

vertical integration to increased reliance on sub-contractors (Aoki, 1988), or

"quasi-integration", the unity of firm with its suppliers, distributors into networks beyond

pure market relations (Kenny and Florida, 1993). This is one of the trends that has led to the booming of the sub-contracting or outsourcing market. The concept of networks is similar to that of value chain which "divides a company's activities into the technologically and economically distinct activities it performs to do business" (Dedrick and Kraemer, 1998) and a commodity chain which is "a network of labor and production processes whose end result is a finished commodity." (Hopkins and Wallerstein, 1986,

pg. 159. 3) The commodity chain and value chain approaches have numerous similarities

between them. As "a firm's value chain is an interdependent system or network of activities, connected by linkages. Linkages occur when the way in which one activity is performed affects the cost or effectiveness of other activities" (Porter, 1990, pg. 41). In case of a commodity chain "all firms or other units of production receive inputs and send outputs. Their transformation of the

inputs that result in outputs locates them within a commodity chain (or quite often within multiple commodity chains)" (Hopkins

and Wallerstein, 1994, Pg. 17). Study of the Unites States (US) in late nineteenth and early twentieth centuries has found that the commodity chains were incorporated within the organizational boundaries of vertically

integrated corporations. Then the "visible hand" of corporate management served as the governance structure of these corporations (Chandler, 1977). "Under these circumstances, the governance structure, which is essential to the coordination of transnational production systems, is no longer synonymous with a corporate hierarchy" (Gereffi, Korzeniewicz and Korzeniewicz, 1994, Pg. 7). In the last several

decades of the twentieth century the commodity chains have become more

internationalized. Some of the links that were internal to the vertically integrated corporation are being outsourced as tasks to be performed by a network of independent firms (Gereffi, Korzeniewicz and Korzeniewicz, 1994).

"In today's global factory, the production of a single commodity often spans many countries, with each nation performing tasks in which it has a cost

advantage. The components of a Ford Escort, for example, are made and assembled in fifteen countries across three continents" (Gereffi, Korzeniewicz and Korzeniewicz, 1994, Pg. 1). This complex international disaggregation of stages of production and consumption under the organizational structure of densely networked firms or enterprises applies to both manufacturing and services (Dicken, 1992; Porter, 1990; Reich, 1991). The Indian information technology (IT) services firms since the beginning have been part of the external

networks of MNCs. MNCs, because of their reorganization of IT services, have increasingly sourced IT services from India. MNC's international network of production of goods and services "combines a lead firm, its subsidiaries and joint ventures, its suppliers and subcontractors, its distribution channels, VARs [Value Added Resellers], as well as

its R&D [Research and Development] alliances and a variety of cooperative agreements…. The lead firm outsources not only manufacturing, but also a variety of high-end support services." (Ernst, 1997, pg. 20). This international organization of production and consumption led by the major MNCs is an

important reason for the outsourcing of IT services in India.

The growth of IT services is largely driven by the Multi National Corporations' (MNCs) desire to outsource their IT services. The oft-sited strategy is that of General Electric (GE) management's 70-70-70 outsourcing strategy. This strategy mandates that 70% of GE's IT service requirement will be outsourced, out of which, 70% will be given to strategic suppliers, who will in 4 turn execute 70% of the work outside of high wage countries. It is estimated that GE currently sources more than $ 500 million worth of IT services from

India and that is about 8 % of the Indian IT services export (Nasscom, 2003).

A network of firms provides IT services to GE from India. In an industry with both MNCs and India based firms performing IT services, it is important to investigate the organization and specialization of work. The organization of IT services industry into MNC networks and the industry's specialization of work has to be investigated in order to have a more profound understanding of this industry."

Pratyush Bharati

Management Science and Information Systems

College of Management

University of Massachusetts, Boston


A database of the three I.T. services firms in India has been collected and compiled from

the company's annual reports.

This data of I.T. firms will be integrated with the data from the online share trading portals and other portals with give the current information about the market movements of the companies stock and help in calculation of respective ratios.

Given below are a brief description of the respective companies and the data that are collected from the company's annual reports.


Tata Consultancy Services Limited (TCS) is an Indian multinational information technology (IT) services, business solutions and outsourcing Services Company headquartered in Mumbai, Maharashtra. TCS is a subsidiary of the Tata Group and is listed on the Bombay Stock Exchange and the National Stock Exchange of India. It is one of India's most valuable companies and is the largest India-based IT services company by 2012 revenues.






























Infosys Limited is an Indian multinational provider of business consulting, technology, engineering, and outsourcing services. It is headquartered in Bangalore, Karnataka. Infosys ranked among the most innovative companies in a Forbes survey, leading technology companies in a report by The Boston Consulting Group and top ten green companies in Newsweek's Green Rankings.

Infosys was voted India's most admired company in The Wall Street Journal Asia 2008 every year since 2000. The corporate governance practices were recognized by The Asset Platinum award and the IR Global Rankings.

Infosys was also ranked as the 15th most trusted brand in India by The Brand Trust Report.