A Project Report for International Business II Course

Abstract

In this report we will also look at different strategies that Microsoft India adopted at different points in time and how it shifted its strategy

from International strategy to Multi-domestic strategy and finally to Transnational strategy

1 About Microsoft India

Microsoft India Private Limited headquartered in Hyderabad, India is a subsidiary of US software giant

Microsoft Corporation. The company first entered the Indian market in 1990 and has since worked

closely with the Indian government, the IT industry, academia and the local developer community to

usher in some of the early successes in the IT market. Microsoft currently has offices in the 9 cities of

Ahmedabad, Bangalore, Chennai, Hyderabad, Kochi, Kolkata, Mumbai, New Delhi, and Pune.

Increasingly, the company has become a key IT partner of the Indian government and industry,

supporting and fueling the growth of the local IT industry through its partner enablement programs. Since

its entry into India, Microsoft has focused on three key objectives:

To become a key IT partner of the Indian government and the local IT industry

To support and fuel growth of the local IT industry through its partner enablement programs

To use the Microsoft Unlimited Potential program to enhance education, jobs and opportunities

and foster innovation through relevant, affordable access to computing.

1.1 Business Units

Microsoft in India has over 6000 employees and is the second largest employee base for Microsoft

outside of U.S. Microsoft India runs six major business units representing their entire product cycle

starting from basic research to product development, to architecture and applications and finally sales and

support.

Microsoft Research India (MSR India) - RESEARCH

Microsoft India Development Center (MSIDC) – PRODUCT DEVELOPMENT

Microsoft IT India (MSIT) – ENTERPRISE APPLICATION

Microsoft Services Global Delivery (MSGD) – ARCHITECTURE AND DESIGN

Microsoft Corporation India Pvt. Ltd. (MCIPL) – SALES AND MARKETING

Microsoft India Global Technology Support Center (IGTSC)- SUPPORT

Microsoft has over the years partnered with Indian government, academia, the IT industry and businesses

in making India a hub for innovation, supporting a digitally inclusive society, strengthening the local

knowledge economy and growing competitiveness of the Indian industry.

1.2 Vision of Microsoft India

“Use our talent and innovation to unleash every Indian’s true potential”

PEOPLE - Offer an environment for individuals to grow, exceed their aspirations & impact billions of

lives

COUNTRY - Be a responsible corporate citizen, and fuel India’s socio economic growth

PARTNERS - Create profitable, innovative & scalable opportunities for their growth

CUSTOMERS - Deliver an unmatched competitive advantage and profitable growth

USERS - Delight them with transformative experiences

COMPANY - Be the fastest growing large subsidiary and a source for talent & innovation

Under its mission of “Realizing India's Potential", the company has commenced strategic initiatives

towards creating a digitally inclusive society in India, forged local partnerships for building a vibrant

domestic IT ecosystem, and empowering the Indian developer community and working towards

innovating in India, with India and for India.

1.3 Microsoft Growth In India

In the two decades since its entry into the Indian market, Microsoft has made significant gains in market

share, with over 95 per cent of the PC-installed base in India using Microsoft platforms. Microsoft India’s

revenues have grown five-fold in 2004–11, as the country became one of the fastest growing geographies

for the software firm. Microsoft’s operations in India generated annual revenues of around USD1

billion3.

Moreover, the company is steadfast in its aim to ensure that India remains among its top five revenue

generators globally by 2013–15. It has already laid the groundwork for this by increasing its reach in

India from around 13 cities to at least 300 cities, through nearly 7,500 partners, The company’s network

now stands at 1.2 million developers, over 1,000 independent software vendors, and more than 2,000

system integrators.

2 Microsoft India Strategy – Entry Mode

2.1 Why IndiaMicrosoft Corporation was leader in domestic market and India offered a great potential to increase their

Market size. Being a leader in OS business, they wanted to take first mover advantage by entering new

markets like India before competitors do maintain their competitive advantage.

Entry to India was backed by liberalization of IT industries in late 1990s by Govt. of India. India offers

huge potential as the technology adoption in the country is lower than several of its emerging market

competitors; mobile phone penetration rate is still around 51 per cent, while PC penetration rate is

estimated to be in single digits. This reflects significant scope for growth in Indian market.

2.2 Challenges

Low Purchasing Power of Indian population

People were Enthusiastic but inexperienced when it comes to technology

Non-PC Users – Usually haven’t used PC before

Infrastructure and Traditional Practices used in small and medium Businesses

Piracy - With pirated OS and Office products eating into sales, pricing remains a sore point with

the company. To combat piracy, Microsoft India launched the "Genuine Windows" campaign and

introduced the "How to Tell" website that distinguishes between counterfeit and genuine

software.

Gaming is PC oriented rather than game console oriented.

2.3 Value Creation

When Microsoft entered India in 1990 it felt low pressure for cost reduction and local responsiveness and

followed the international Strategy of value creation. They only opened Sales and Marketing division in

India which was under tight control of the headquarters in U.S. The product development was happening

in Redmond, U.S. There were very few customizations of the product offering and market strategy.

As soon as Microsoft entered India, it realized that the customers in India are very different then the

customers elsewhere where Microsoft had operations. A simple application of CAGE could make

Cultural, Administrative and Economic differences between North America and India more visible and

help in assessing and comparing markets taking into account the impact of distance.

India in 1990

Cultural People in India are enthusiastic but inexperienced when it comes to technology

Traditionalism – High percentage of Non PC Users

Considered PCs and applications as additional cost to their business rather than an

asset to increase business efficiency

Reluctant to say they will purchase new products in next year

Immature users

Different languages and cultures in different states of India

A

dministrative

Weak institutions

Corruption/Weak legal institutions

Illiteracy in India – Majority did not know how to use computers

Piracy in software/Operating systems

Very Less IT spend by companies in India

FDI inflows in India recently started and hence people were inexperienced on how to

deal with foreign MNCs in India

Geographic Difference in climate and disease environments

Difference in time zones

Economic Low per capita income

Low level of monetization

Price sensitive society – Price remained barrier

Limited infrastructure – very low broadband penetration

Very soon, Microsoft realized that to gain success in India it needs to act local and followed the strategy of think

globally and act locally. As local responsive pressures increased Microsoft changed its strategy from International

strategy to localization or Multi-domestic strategy. Microsoft developed strategies aimed at garnering long-term

business growth and a firm market share in India.

Microsoft launched “Project Bhasha” program aimed at accelerating local language computing in India

wherein Microsoft focuses on product localization. Microsoft Windows and Office interfaces to be made

available in 12 Indian languages. Microsoft began work on this way back on 2003. Today, Microsoft has

localized Windows and Office (provided localized User Interface as well as User Assistance) in 12 Indian

languages that include Assamese, Bengali, Gujarati, Hindi, Kannada, Konkani, Malayalam, Marathi, Oriya,

Punjabi, Tamil and Telugu. Microsoft also provides Indian languages' support throughout the platform and

across the range of products. www.bhashaindia.com is an Online Community portal is India's leading

community for Indian language computing.

Apart from Project Bhasha Microsoft initiated multiple projects aimed and stronger Govt. collaboration,

academia/developer integration and building local language IT ecosystem through community/industry

participation.

In 2006, Microsoft and Hughes announced their commitment to roll out 5,000 broadband-enabled ICT

kiosks across the country. Part of "Project Saksham" that aims to set-up connected PC kiosks in at least

200,000 villages, the ICT kiosks will be deployed across 200 small towns and rural regions across India

and will be operated on a franchisee-based model offering entrepreneurs a chance to use technology for e-

commerce, education and e-governance.

Microsoft works closely with the central and state governments as a technology provider and consultant for

e-governance, helping develop technology blueprints for roll-out of citizen-centric services. Microsoft has

MoUs with 12 state governments with more than 150 e-governance applications deployed on the Windows

platform

Microsoft launched an array of academic programs to increase IT awareness among people, thereby

increasing the market potential.

o Partners-in-Learning Initiative: This program is geared to deliver comprehensive IT curriculum

development and training for teachers and students in addition to greater access to the latest

computer technologies. ‘Project Shiksha’ aims to accelerate computer literacy in the country to

over 80,000 school teachers and 3.5 million students across schools over the next 3 years. In

addition, Microsoft provides scholarships to students and teachers. For this, the company has

partnered with state governments, NGOs and other organizations.

o Microsoft training and certification initiatives: The program was launched to train high quality

professionals who implement Microsoft technologies. About 150,000 are certified as ‘Microsoft

Certified Professionals’, the second highest in the world.

o Microsoft Academic Developer Program: The program targets technical and engineering colleges

and aims at creating a future-ready, skilled developer community.

o Microsoft University Relations Program: The Indian Institute of Information Technology (IIIT),

Hyderabad was established in collaboration with Microsoft Corporation and has recently received

a grant of US$ 250,000 from the parent company

2.4 Leveraging the India Advantage

Microsoft followed the Adaptation strategy for local responsiveness initially and as it evolved and made

growth in Indian markets it planned to add Arbitrage strategy as well into its globalization strategy.

After opening sales and marketing offices across India, Microsoft opened its largest development center

outside US, at Hyderabad, India in 1998. Microsoft decided to expand its operations in Indian market for

following reasons

First, the country has an abundant supply of engineering talent. Every year, Indian universities

graduate some 400,000 engineers

Second, labor costs in India have historically been low. Cheap labor costs provided a low cost

advantage to Microsoft.

Third, many Indians are fluent in English, which makes coordination between Western firms and

India easier.

Fourth, due to time differences Indians can work while Americans sleep.

In 2005, Microsoft opened its Global Delivery center in India, MSGD (formerly known as Microsoft

Global Services India, MGSI) which was a consulting division providing low cost consulting services

globally to the Microsoft customers using Microsoft products. Also to reduce its R&D costs, Microsoft

opened its R&D center in India in 2010-11.

Moreover, the wholly-owned subsidiary is now an independent "strategic business hub" - no longer

clubbed with the Asia Pacific business zone - like China, Taiwan and Hong Kong; Microsoft India now

reports directly to headquarters in Redmond. The implication is clear: Microsoft India is now on the

global radar.

3 Competition, Challenges and Changing Trends (3 Cs)

As the technology trends in the world are changing, so is the Microsoft global Strategy. From a product

company Microsoft is transforming itself to devices and Services Company. Microsoft is fully

acknowledging that the model that powered the company for more than 3 decades and made it one of the

most powerful and richest companies in the world--sales of software--is effectively dead.

With the emergence of smartphones, tablets, cloud services and social networking the people are

changing the way they use technology. India is no far behind. People in India are now more technology

savvy and internet penetration in India, esp. in urban areas, has empowered Indian consumers to make

more informed decisions. Also, Microsoft is facing stiff competition in devices segment in India because

of other cheaper alternatives available to consumers. E.g. Android based smartphones (Samsung,

Micromax, Lava etc.) have penetrated in the market owing to its low price.

Moreover, entry of other foreign multination companies like Google, Amazon etc. coupled with changing

trends has negated the early mover advantage in India. Microsoft is already late in game to adopt device

and services strategy but it’s picking up quite fast. It has made certain strategic decisions globally, like

acquiring mobile phone division of Nokia and gaining control on both hardware and software of mobile

phones which is helping in developing low cost mobile phones.

In the tablets segment, Microsoft has not been able to launch its own Surface tablet because it has failed

to develop the strategy to beat the competition in Indian market. Microsoft fears that it may not be able to

sell its Surface tablet because of its high price and it may have to come up with its low cost version.

Microsoft is now beginning to shift its focus from large enterprises to small and medium business

segments (SMBs). Today technology adoption by SMBs is very low because of its complexity. But the

cloud technology has removed that barrier and they can use cloud services (SaaS) or Office 365 delivered

as service at your desktop, on your mobile, tablet or any other device. CEO, Satya Nadella believes that

India has the opportunity to leapfrog to cloud-based technologies, especially in the SMB to take

advantage of the huge cost reduction. Azure is Microsoft's offering in this space, providing software and

infrastructure as a service and also a platform to develop new applications on a pay-per-use model.

Microsoft has always made its products available to users in the traditional license model, and Azure

would be a paradigm shift not only in terms of technology but also in terms of the business model - from

a one-time license fee and periodical maintenance contracts to a pay-as-you-use flexible model.

To meet the competition, firms aim to reduce costs, transfer core competencies while paying attention to

pressures for local responsiveness. In the process Microsoft has now shifted its focus from Multidomestic

or localization strategy to “Transnational Strategy”.

4 Recommendations GTM strategy – Small and Medium Enterprises in India have a lot of potential and currently has

very low technology adoption. With the emergence of cloud computing, SaaS and IaaS can

definitely offer a low-cost substitute to this market segment. Additionally, changing business

model from licensing to pay as you use model is being adopted throughout enterprises now.

Microsoft should start targeting this segment before anyone else does.

Needs Product Strategy –

o Surface (Tablet) launch – Partner with Datawind, manufacturers of Akash tablets a.k.a

Ubislate, cheapest and best android tablet in India. Microsoft should partner with

Datawind to manufacture low cost windows based tablets targeted at Indian Students. Till

now Microsoft has not been able to launch Surface in India because of its high price and

fear that it may not sell in Indian market.

o Smartphones - Now that Microsoft has completely acquired Nokia Mobile division it

has control over the pricing strategy of windows OS based Nokia phones. It can provide

features and apps that are more relevant in Indian context e.g. making weather forecast

app available to Indian villager (farmer) at free of cost in local language or an app to

educate him to boost his crop production.

Govt. Partnerships – Microsoft should engage with govt. institutes to enable them to enforce

various societal changes and increase productivity in govt. offices and streamlining/simplifying

govt. processes impacting local/general people of India e.g. RTA/RTO functions, Railways

functions, Govt. hospitals, Govt. schools etc.

5 Appendix

Figure 1 Microsoft India - timeline

Figure 2 IT Spending in India

Figure 3 Growth of IT Spending in India

Figure 4 Microsoft Initiative - YouthSpark

Figure 5 - Microsoft India - Infographic