Innovative Express

"Improving effectiveness by making the complex simple and making the simple work!"

January 2007

In this issue:

Visiting India
The New Land of Oz India in the News
Personally Speaking...

Happy New Year!

I hope that you had a safe and relaxing holiday season and time to reconnect with your families. I also hope that the holidays gave you an opportunity to reflect on the year gone by as well as ponder the opportunities that lie ahead in 2007.

As for me, I had an opportunity to visit India for the last three weeks. Make no mistake about it: This sleeping giant has awakened! The current issue of Innovative Express deals with the headlines as well as my personal observations as they relate to this country in the midst of a major transformation.

Inspired to agree, disagree, or otherwise comment? Have an interesting story to share? We hope that you will let us know your thoughts.

Wishing you a fabulous year ahead!

Abhay Padgaonkar
President, Innovative Solutions Consulting, LLC

Visiting India - The New Land of Oz

Eric Bellman, writing in The Wall Street Journal said, “India's economy has evolved from the lumbering, sometimes slumbering elephant of Asia into the region's second-fastest growing economy. It has changed from a largely closed economy to one that is increasingly important for global trade and investment. And it has become a leader in some international business trends such as outsourcing, call centers and offshore software development, which are changing the way global companies do business. Economic reforms have been unshackling India's potential and powering its growth for 15 years. In 1991 the government started easing restrictions on businesses, opened the economy to more trade and foreign investment and started pulling the state out of industries it didn't need to be in.”

India’s foreign exchange reserves have grown significantly since 1991. The reserves, which stood at a paltry $5.8 billion in 1991, have since increased gradually to $168 billion.

Yes, major obstacles such as poor infrastructure, bureaucracy, and corruption stand in the way. For example, Transparency International ranks different countries on corruption perception index as seen by business people and country analysts. India was ranked 70th with a score of 3.3 vs. USA at 20th with a score of 7.3. The score ranges from 10 (highly clean) to 0 (highly corrupt).

Having said that, overall governance and public accountability seemed to be improving in India and in the Indian media.

Airline travel within the country is much smoother. There still aren’t enough decent quality hotel rooms. While I didn’t personally experience it, power outages are not uncommon. I was fortunately in Delhi, when the entire Mumbai area was without water for 24 hours as part of a pre-planned shutdown. Despite being extremely careful (like brushing teeth with bottled water), the stomach bug did get to me on this trip. I had eaten Pizza Hut and Domino’s the night before!

While I was there, they were rolling out set-top boxes for digital TV. High def is not too far behind. You get the best of both worlds with BBC and CNN along with a host of US cable channels including ESPN and CNBC. Wired and wireless Internet connections are as ubiquitous as in the US.

For years, there were only two age-old car models on the streets. Now the streets are teeming with American, Japanese, and South Korean cars. Two and three car households are not that uncommon. Driving in India is clearly not for the faint-hearted, but then neither is it in New York City or Los Angeles. It is best left to the professionals who can tolerate close encounters of an inch or two. While it appears chaotic, there were surprisingly few incidents on the streets. The pollution is actually less—now that almost all the public buses, taxis, and rickshaws have been converted to CNG.

There are high-rise buildings going up all over Mumbai and the real estate costs are skyrocketing along with them. Global companies are scrambling to set up offices in India. There were stories galore of real estate prices on condos doubling in less than two years. The rising tide is lifting all boats. The consumer spending is blatantly obvious. Shopping malls, multiplex cinemas, video arcades, book stores, fast-food restaurants, and coffee shops all point to a consumer-driven economy in high gear. After being isolated for decades, the Indian consumers are going on a binge helped by well-paying jobs and a robust economy.

We have heard of outsourcing or shipping of American jobs overseas. A new trend is emerging called reverse outsourcing or shipping of American white collar workers overseas! Americans are now being trained by Indian-owned high tech companies like Infosys in India to come back and help manage their firms in the US. I heard about it on NPR’s Here and Now. To listen to this fascinating new development go to the Here and Now website.

I already knew that India was becoming a powerhouse. A quick scan of the headlines over the last 3-4 months showed me just how rapidly that is happening. I was astounded by the depth and breadth of the progress in India. Here is a quick synopsis to bring you up to speed with this global phenomenon...

India in the News

Growth

The 30-stock Sensex gained 47% in 2006, after foreign institutional investors bought $8.34 billion in local stocks, making India a top performer among emerging markets.
India's economy is expected to expand 8.7% in 2006 and could grow 7.7% in 2007, thanks largely to nonagricultural growth, low real interest rates, and rising household savings.
India's economic expansion could accelerate to more than 10% annually in the next five years, said the country's finance minister P. Chidambaram, confirming a trajectory that puts India on a similar growth path as Asia's other star performer: China.

Foreign Investment

NYSE Group will buy a 5% stake in India's largest stock exchange, the National Stock Exchange, for $115 million, in a deal showing that the trend of consolidation and globalization of national exchanges is spreading to Asia and the developing world.
Goldman Sachs is scouting for investments in a range of industries that are riding India's fast growth, as the U.S. investment bank goes ahead with its plan to pump $1 billion into the country over the next two years.
Vodafone announced that it will make a firm bid for the 67% stake in a leading Indian mobile-phone company owned by a unit of Hong Kong's Hutchison Whampoa Ltd.
IBM said business grew around the world. Emerging markets grew strongly, led by a 37% increase in sales in India.
Cisco will set up a center in India to support all aspects of its world-wide operations. Cisco's $1.1 billion India investment plan is on course. It plans to triple its work force in India to 6,000 employees over the next three to five years.
Clifford Chance, one of the largest law firms in the world with 29 offices in 20 countries, plans to consolidate and move big chunks of its administrative functions to India, eventually resulting in up to $18 million a year in savings.

Indian Companies Going Global

Tata Consultancy Services Ltd., India's largest software exporter by sales, reported a 44% rise in fiscal second-quarter net profit on higher outsourcing orders.
Infosys Technologies Ltd., India's second-largest software exporter by sales, said its net income soared 52% in its fiscal third quarter amid an increase in outsourcing orders and some billing rates.
Wipro Ltd., India's third-largest software exporter by sales, said net profit for its second quarter rose 46% despite a squeeze on operating margins as large outsourcing orders offset rising wage costs.
Tata Steel unit is expected to bid for Corus Group PLC, a British steelmaker. The bid, expected to be valued at about $10 billion.
India's Ranbaxy Laboratories Ltd. said it is interested in bidding for German chemical and pharmaceutical company Merck KGaA's generic-drug business.

Trade

The European Union and India stepped up free- trade negotiations that could one day link two of the world's biggest markets by early 2009. "India is a market the EU has to get closer to before it goes off with another partner," EU Trade Commissioner Peter Mandelson said.
The U.S. Congress approved a civilian nuclear deal for India, in a move that could open a torrent of U.S. high-tech trade with the subcontinent. Both the House and Senate approved the bill that would allow U.S. firms for the first time to sell nuclear technologies to India. (India has the capacity to produce 3,500 megawatts of power from nuclear reactors, but wants to increase this to 60,000 megawatts by 2030.)

People

Two Indian women made it to the WSJ’s The 50 Women to Watch 2006 list. At #2 is Indra Nooyi, President and CEO of Pepsico, a strategist recognized for turning a struggling soft drink company into a convenience-food powerhouse. And at #12, Naina Lal Kidwani, India Group General Manager and Country Head for HSBC Holdings.
For more than 20 years, Dr. Rashmi Barbhaiya lived a comfortable life in New Jersey as a researcher for drug maker Bristol-Myers Squibb, commuting from his five-acre suburban estate in a blue Mercedes. Now, in a move that hints at a big shift in the global pharmaceutical business, he is back home in India still trying to discover new drugs with an all-Indian- born research team at a company he founded.

The Bottom Line: Tom Friedman said, “I think the world is flat.” I think the world is becoming flatter by the day and India has a lot to do with it.

Personally Speaking...

It was quite nostalgic to visit the Indian Institute of Technology’s (IIT) Mumbai campus where I did my undergraduate in engineering before coming to the US.

The Wall Street Journal has said that “Arguably, it is harder to get into an IIT than into Harvard or MIT.” About two decades ago, over 80% of IIT graduates hopped on to a plane as I did, the preferred destination being the US. Tom Friedman in his book, The World Is Flat says, “For most of their first fifty years, IITs were one of the greatest bargains America ever had. It was as if someone installed a brain drain in New Delhi and emptied in Palo Alto.”

What was the outcome? Immigrant entrepreneurs' companies employed 450,000 workers and generated $52 billion in sales in 2005. Indians founded more engineering and technology firms in the US between 1995 and 2005 than people from the four next biggest sources — United Kingdom, China, Taiwan and Japan—combined. Indians obtained the most patents—after the Chinese—during the same period. “These are the people who give the US its competitive advantage,” says Vivek Wadhwa the report’s author.

However, the times they are a changing! The brain drain from IITs has diminished to a trickle. With India offering job opportunities and high salaries, students are preferring to stay home. Only a few academically inclined ones who want to pursue high-end research are leaving, but this amounts to less than 10% of the students.

The Bottom Line: How will the US keep its competitive advantage when global opportunities are exploding, especially in the face of a short-sighted and misguided immigration policy?

Disclaimer: "This written advice is absolutely intended to be used, and if used under expert supervision is known to improve organizational and individual effectiveness substantially."