Can India be the next big thing? [Mega-Merger]

As India stirs, the region must react quickly
by Karim Raslan
[email protected]

http://www.todayonline.com/articles/10753.asp

INDIA and Indians are changing. After decades of slumber, the subcontinent and its people (including its substantial diaspora) are waking up, and with surprising consequences.
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Recent events underline the extent to which India has departed from the Nehru socialism of its immediate post-Independence years as well as its long-standing commitment to the Non-Alignment Movement and traditional wariness of the US.
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In September, New Delhi shocked the Muslim world by hosting Israeli Premier Ariel Sharon and, only last week, an Indian-American Republican named Piyush “Bobby” Jindal narrowly lost a Gubernatorial contest in the US state of Louisiana.
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Furthermore, Standard Chartered Bank reported that India’s GDP was slated to grow at over seven per cent in 2003-04. Finally, the back-office services industry had expanded by over 25 per cent in the first three months this year, adding some 130,000 jobs and taking sector employment to 650,000.
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The region should remember that while India’s development is extremely uneven, it remains a land of vast opportunities. Bangalore, Mumbai or New Delhi more than compensate for the squalor and lawlessness (the Indians call it “dacoitry”) of states such as Bihar.
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Certainly, the whole of South-east Asia is going to have to adjust to a far more assertive and confident India — one that wants to be recognised as being on par with the other great Asian power, China.
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At the same time India is also becoming more overtly western and American in its orientation. This shift will have striking implications for the region as the two giants (along with the US) seek to influence South-east Asia.
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There needs to be a mindset change on dealing with people from India.
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For decades Indians have been looked down on — the terrible poverty there seen as a damning indictment of the country’s failures.
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As such, many are not entirely familiar with the idea of wealthy, worldly and successful Indians like Narayana Murthy of Infosys, the actress Aishwarya Rai or the New York-based publisher, Sonny Mehta.
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India has long been associated with backwardness. Over the past fifty years or so, a combination of Nehru’s socialism, a sclerotic bureaucracy and non-alignment in geo-political terms has left India on the sidelines as the Asia-Pacific region boomed.
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In the 1980s and 90s India stumbled as China streaked ahead. For example India — with a population of 1.1 billion — had external trade of only US$110 billion (189 billion) — noticeably less than Malaysia with over US$175 billion in trade.
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However, conventional thinking in Delhi has changed and C Raja Mohan, a columnist for a highly respected newspaper, The Hindu, has written a fascinating account of these trends in his recently published book Crossing the Rubicon. The author places a great deal of emphasis on what he considers to be India’s commitment to the ideas promoted by European “Enlightenment” thinkers of the 18th century.
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In doing so he groups India with the nations of the western world and Israel — societies that have, to his mind, done three things: Separated religion and state, adopted and promoted democracy and, finally, embraced modernity as symbolised by the worlds of science and technology.
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Interestingly the author distinguishes India from China and the Islamic world. He argues that these two civilisations are incompatible with the Enlightenment experiment. In doing so he covertly reaffirms the fact that India has sided with the US against both China and the Muslim world.
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Of course many people might argue that the ruling BJP party’s avowedly Hindu orientation and ultra-conservative religious inclinations make them an extremely dubious advocate of secularism.
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Both 911 and the US-led war on terror have had a searing impact on the way India views the world. The Indian Premier Atal Bihari Vajpayee identified himself immediately with the American cause, going so far as to offer military support to the Americans.
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This can be explained in part by the country’s long-running insurgency in the majority Muslim state of Kashmir as well as an underlying anti-Muslim bias, which is in itself linked to India’s historic rivalry with Pakistan. As America has grown more wary of Pakistan, India has used the opportunity to embed itself more closely with Washington.
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The shift towards the US has been accompanied by a tacit recognition within Washington circles of India’s vast economic potential as well as its possible role as a counterweight to China — the one country that the US remains fearful of. In their haste to embrace India, Americans have conveniently forgotten their anger at the detonation of an Indian nuclear device at Pokphan in May 1998.
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US-Indian relations are also being forged in business and people-to-people ties. The rapid growth of software industries — both in Silicon Valley and Bangalore — has created hundreds of thousands of new jobs.
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Whilst the economic connections are strengthening there are hurdles to future growth. Indian call-centres are taking jobs away from Americans and Europeans. HSBC’s decision last month to relocate over 4,000 back-office jobs from the UK to India caused a firestorm in the British media. The collapse of the Internet bubble and heightened US paranoia has made the lives of those recently settled in the States far more difficult.
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India’s shift away from Russia and its embrace of the US will create tensions for South-east Asia just as another giant to our north also begins stirring. Are countries in the region ready for the challenge? Can we engage with India?
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Karim Raslan is a Kuala Lumpur-based lawyer and author. His latest book, Journeys through South-east Asia: Ceritalah 2, was published last year and is available in English and Malay.
by Karim Raslan

Outsourcing to India in Business Week and at MIT…

Not all of our students will see this cover story in Business Week on the migration of high-paying jobs to India. But most attended a lecture in 6.171 by the folks who run MIT’s latest big IT effort: OpenCourseware (http://ocw.mit.edu), which distributes syllabi, problem sets, and other materials from MIT classes (at least one semester after the class is actually given). During the lecture the students learned that, although ocw.mit.edu is a purely static .html site, it is produced with a database-backed content management system. In fact, of the $11 million donated by foundations to support the service, about $2 million was spent on technology and the salaries of folks at MIT who oversee the technology.

The more sophisticated portion of ocw.mit.edu is a 100 percent Microsoft show. A student asks the speakers why they chose Microsoft Content Management Server, expecting to hear a story about careful in-house technical evaluation done by people sort of like them. The answer: “We read a Gartner Group report that said the Microsoft system was the simplest to use among the commercial vendors and that open-source toolkits weren’t worth considering.”

Students began to wake up.

A PowerPoint slide contained the magic word “Delhi”. It turns out that most of the content editing and all of the programming work for OpenCourseware was done in India, either by Sapient, MIT’s main contractor for the project, or by a handful of Microsoft India employees who helped set up the Content Management Server.

Thus did students who are within months of graduating with their $160,000 computer science degrees learn how modern information systems are actually built, even by institutions that earn much of their revenue from educating American software developers.

http://blogs.law.harvard.edu/philg/2003/12/01

India Looks Beyond Outsourcing
As Technology Firms Innovate

By SHAILAJA NEELAKANTAN
Staff Reporter of THE WALL STREET JOURNAL

BANGALORE, India – Indian companies are no longer mere suppliers of information-technology services. They’re now making top-selling software products under their own brands.

At 9:30 p.m. on any given weekday, iCode Inc.'s office in Bangalore buzzes with activity. That isn’t unusual in a city where every other company is a call center or a provider of IT services for multinational customers overseas. What is remarkable is that iCode is neither: It makes its own software products, and its staff is working late to service the 2,500 small-business clients in 40 countries who use iCode’s software to manage their accounting, payroll, customer transactions and other functions.

ICode is among a growing number of Indian firms that are developing and selling original software, instead of just supplying code-writing and other IT services to corporate clients. Until recently, many of the most popular software products from the likes of Microsoft Corp. and Oracle Corp. were made by Indians laboring in obscurity. But increasingly some of the world’s best-selling software products are being made in India by Indian businesses.

Their rise is because of a convergence of factors: With the U.S. cutting back on issuing and extending work visas for Indian professionals, many have returned to India equipped with the expertise to develop their own software. Meanwhile, a protectionist backlash against outsourcing is gaining momentum in the U.S. and Europe, and competition remains fierce in the offshore IT-services market. Indian concerns have cornered 60% of that market, valued at $16 billion a year. But with rivals slashing costs and margins in services shrinking, companies are realizing that the high-margin-products business, where Indian enterprises have tapped only 0.2% of a $180 billion global market, is the way to go.

India’s successful IT firms such as Infosys Technologies Ltd., Wipro Corp. and Tata Group’s Tata Consultancy Services Ltd. have developed their own software, but it is only a sideline; most of their revenues come from services. The real “Made in India” companies may have a small services component, but most of their revenues comes from their products, which are comparable to better-established rival goods, not low-cost alternatives.

The most successful such enterprise is i-flex solutions Ltd., whose Flexcube is the world’s best-selling banking-software package. Its 160 clients in 74 nations include Citigroup Inc.'s Citibank, American Stock Exchange, International Monetary Fund, Shinsei Bank Ltd. of Japan and Development Bank of Singapore.

“One of my heroes is [Apple Computer Inc. founder] Steve Jobs,” says Rajesh Hukku, i-flex’s founder and chief executive. “Like he said, ‘Think Different.’ … That has been my motto from the start.” Mr. Hukku created the precursor of Flexcube while he was with a Citibank unit in India that developed software. In 1992, Citibank split off that division as Citicorp Information Technology Industries and named Mr. Hukku its CEO. Flexcube was launched in 1997. In early 2000, the company changed its name to i-flex, to distance itself from Citibank, which through its venture-capital arm has a 43.44% investment in i-flex.

Though it provided early funding, Citibank hardly carried the software subsidiary; it wasn’t even among i-flex’s first 40 customers. But since then, i-flex hasn’t stopped growing. In the 12 months to March 31, the company’s net profit soared 71% to $37.3 million. And 65% of i-flex’s $134 million in sales came from products, which is the way the enterprise likes it. “We aren’t even tempted by a big order size if it isn’t in our domain,” Mr. Hukku says.

A handful of other companies are making their way up the software-product ranks. ICode, a purely product concern, developed one of the world’s first enterprise-resource-planning, or ERP, software products for small and midsize businesses. ERP software automates the operations of corporations, including accounting, inventory control and e-commerce. The company has been profitable since it started up in 1994, its officials say.

Talisma Corp. makes Web-driven customer-relations-management, or CRM, software, which supports client services, marketing and sales for businesses. Talisma officials say the enterprise, which counts Microsoft, Dell Inc. and Sony Inc. among its customers, grew 70% last year and expects to break even next year. The company also recently announced that its majority shareholder, Oak Investment Partners, would buy shares outstanding in Canada’s Pivotal Corp., a leading provider of CRM software for midsize firms, and intends merging the two companies.

Bangalore-based Subex Systems Ltd. got into the services business in 1997, but at the same time it decided to develop a telecommunications-fraud-management product. Ranger, launched in 2000, helps telecom carriers curb fraud through innovative subscriber-profiling techniques. Global Crossing Ltd. and Sprint Corp.'s Sprint Local are now among 39 clients in 16 nations.

Services contributed about 70% of Subex’s revenues in 2001 to 2002. That went down to 64% in 2002 to 2003. “We expect 44% of the revenues to come from products for the current year, and very soon we will be a 100% products company,” says Subhash Menon, founder and CEO, who adds that Subex has been profitable from the start.

Many of these India-based software-products concerns are incorporated in the U.S. But because they were founded by Indians and Indians perform all of the product work in India, they are essentially Indian firms. They have incorporated in the U.S. to leverage their contacts and to raise venture capital, and many of their top executives commute between the two countries. For instance, at U.S.-incorporated iCode, only 60 of its 350 employees work in the U.S. office; the rest work in Bangalore. “We are not an Indian company or a U.S. company; we are a global company,” says iCode’s founder and chief executive, Bijal Mehta, through a videoconference link from his office in Chantilly, Va.

Indian professionals who have returned to India from abroad understand corporate-software needs, they know which niches are potentially lucrative and they have global contacts. They’ve also gained exposure to the way multinationals do business from their IT-services experience. For instance, some of Talisma’s founders were part of the team that worked on the now ubiquitous Microsoft Explorer. “Being in Microsoft gave us the attitude that we can hit the jackpot with one product,” says Talisma’s chief technology officer, Anantharaman Iyer. Now, he says, at Talisma, “we want to do for India what Sony did for Japan.”

While the founders of some of these enterprises have returned from the U.S., their boldest ambition is to take their “Made in India” products right back there, to the heart of the industry. Already beginning to dominate the African, Middle Eastern and East European markets and to some extent the Asian market, these companies see the U.S. market as a gold mine. “We are competing against the likes of Siebel Systems and SAP; it takes guts to do that,” says Mr. Iyer of Talisma, referring to the top CRM-software makers.

The secret may lie in the better service provided by Indian firms, which are still small and specialize in one or two products. “One of our customers who had switched to a Subex product said that he much preferred it to one of the larger players’ products. We were told we are light years ahead of them in support,” said Mr. Menon, Subex’s CEO, who declined to name the rival. “Because all of us are small companies, our customer support is excellent. An Ericsson or an Alcatel [Subex’s competitors] concentrate on so many products that they may not pay equal attention to all of them. We are focused.”

URL for this article: http://online.wsj.com/article/0,,SB107041219292076600,00.html

Actually Flexcube from iFlex has become a dominant world beater. Every bank is either using it or evaluating it.

The Other Asian Giant

http://www.nbr.co.nz/home/column_article.asp?id=7753&cid=5&cname=Asia

Home » Asia » India: often overlooked but it’s the other Asian giant
India: often overlooked but it’s the other Asian giant
Column by Stuart McMillan
“I believe India and New Zealand are really two book ends to Asia. We on the western side and you on the east. And Asia lies in between,” said Dr Sanjaya Baru, editor of the Financial Express in Delhi to Asia 2000 Foundation’s Seriously Asia Forum in Wellington last month.

The phrase caught the imagination of Prime Minister Helen Clark, who used it when she opened and closed the forum (to the amazement of a number of Asian participants in particular, who remained for almost the whole day to absorb the presentations and the discussion), and she repeated it in subsequent post-Apec speeches.

The forum, among other things, ensured India was not overlooked in the regional preoccupation with the rise of China. So much attention is given to the huge market that China offers, to the flows of investment into China, to China’s mounting and inescapable exports, its economic reforms and to the idea that it will dominate the region by its influence and perhaps militarily that there is a danger that India is forgotten. The concentration on China is justified; disregarding India is not.

In population alone India, with 1.2 billion people, is expected eventually to overtake China. At present China has 220.1 million more people than India and also has a strict birth control programme. The consensus on India’s economic growth rate for the year to the end of March 2004, is it will be about 7%. This may be not as dramatic as the 9% or so that China is expected to reach but it is still high growth.

India has widespread poverty but it also has a reasonably affluent middle-class greater than the population of most countries. A quarter of India’s GDP comes from agriculture. Good monsoon rains this year are expected to boost farming by 10% or so and this will have an effect on consumer spending.

Dr Baru listed some of the points of contact between New Zealand and India. Some of these will help those who want to do business with India.

He said both countries were members of the Commonwealth. There was a huge Indian diaspora, some of which is in New Zealand. There was the common language of English used in academic institutions, in government and in the media in India. There was cricket. There was also cinema, many Indian films now being made in New Zealand. Both were multicultural democracies and both have security concerns about terrorism and the safety of the High Seas.

India is already a power in the services industry. India’s call centres and IT programming is widely known. A trawl through magazines and other news sources shows much greater complexity in the way in which India is using its vast number of highly educated specialists by providing out-sourcing for the US and elsewhere.

For instance, radiologists in India are reading X-rays from other countries. Some tissue samples are being sent to India physically for analysis; sometimes images of the tissue are being sent for analysis. Electrocardiograms from the US and from elsewhere are being read by Indian specialists. Some robotic surgery in other countries is being conducted from India and there are suggestions some monitoring of intensive care patients will be done in India.

Medical procedures are also being conducted in private Indian hospitals equipped to the standard of many advanced Western hospitals for a great deal less than the cost of medical procedures in a patient’s home country.

India was once well-known for manufacturing generic drugs, much to the annoyance of the major pharmaceutical countries, but is now conducting the basic research and patenting its own discoveries.

Financial research for major share-trading houses is being conducted in India and advanced research is being conducted in electrical engineering. The list goes on.

In manufacturing, India does not have the millions employed by China, though it is now making a range of motor vehicles.

The Seriously Asia forum dealt with far more than India but part of its value lay in bringing India more clearly into focus.

The idea of rejuvenating NZ links with Asia came from an initiative by Ms Clark. The belief is that the attention given to Asia during the 1990s has waned, partly because of the Asian financial crisis of 1997 and 1998 and partly because of Sars. The Asia 2000 Foundation organised several groups of people who gave attention to various aspects of Asia: a political and security group, a business group, and a society group, the last addressing such subjects as growth and innovation. These groups were charged with generating ideas and putting them into some sort of coherent form.

All this was then put on a website and the public was invited to comment and contribute. The ideas and comments by members of the public were taken into account in the papers presented to the forum by the conveners of the issues groups. The results were released this week and may be found at the website listed below.

Ms Clark is convinced of the need to have greater research on Asia done in New Zealand and hopes that such expertise can be co-ordinated better.

Her initiative over the whole project of engaging more closely with the countries of Asia makes considerable sense.

While many people at the forum made the point that engaging with Asia had to be about relationships, not simply the hope for economic benefit, the economic concern for New Zealand is far from theoretical.

Among the fears is that regional economic groupings could be formed excluding New Zealand, and that might result in this country facing a future in which it withers in its region.

Stuart McMillan, an adjunct fellow in the school of political science and communication at the University of Canterbury, was a member of the political and security issues group on the Seriously Asia project