Monday, July 19, 2010

The Indian story

This came in the The Star few days... back..

INDIA, in many ways is a land of dichotomies. Be it in the social sphere – the ridiculously rich to the heart-tugging poor; or the business sphere – the sophistication of world-class Indian behemoths to the humble cottage and rural-based industries; a bursting trillion-dollar IT story staged against a backdrop of bustling chaos, power blackouts and long-ignored infrastructure and road systems.
But within none of these, can the message that India is moving blisteringly fast to own its spot as one of the world’s emerging economic powerhouses be missed.
Here’s why. Over the next two years, consumption is expected to grow by 16%, thanks largely to a growing middle class; it boasts of a “demographic dividend” of a rising employable population (of a population of over a billion); over US$1 trillion will be ploughed in to plug its infrastructure deficit; a telecommunications market that shows promise of growing by 75 million subscribers per year; a revving auto and auto parts industry (total production vehicles crossed 14 million in 2009-2010) and this – an economy that’s conservatively expected to grow by 8%-9% a year between 2010 and 2014.
The icing on the cake for the international business community – its fluency in English.
Branding India
To pitch India’s appeal to the rest of the world, India Brand Equity Foundation (IBEF) was formed. It is essentially a public-private partnership between the Ministry of Commerce and Industry, Government of India, and the Confederation of Indian Industry. It is now seven years old.
No doubt, with Indian bellwethers such as Tata Group. Reliance, Mahindra Satyam, Bharti, Wipro, Infosys, Genpact, Kingfisher Airlines, Maruti Udyog and Ranbaxy laboratories and many more that have made it to Forbes Global rankings and are recognisable corporations world over, IBEF’s tasks has been made a lot easier.
“We (IBEF) were the first PPP in the country set up to create awareness. The talent of India, its robust growth story and the Indian multi-national corporations are re-scripting the game in India,” says IBEF CEO Aparna Dutt Sharma.
Coming out of the global crisis
But that’s not to say India came out unscathed from the recent global financial crisis triggered by the subprime mess in US. While it didn’t face a financial meltdown as witnessed by US or Europe, there was a significant squeeze in capital flows.
Given that manufacturing, which is largely export-oriented and had led to growth in past decades, was badly hit, growth had also declined.
A Government stimulus plan – cranking up government expenditure on infrastructure, cash transfers and farm debt waiver scheme as well as tax cuts – was crucial in turning things around.
“These were crucial drivers in turning things around over the past year,” says Abheek Barua, chief economist at HDFC Bank, India’s second largest private bank.
The macro data trickling in thus far has been encouraging with a broad-based revival in domestic growth. Abheek attributes the country’s resilience to the structural reforms that it had put in place after the enormous upheaval in the late 90s when the business cycle was dealt a major blow.
“Between 1998 and 2002, the overall GDP was down in the dumps and it only started to pick up from 2004 onwards. This period of extended slowdown coincided with a lot of structural changes like liberalisation measures, tariff reductions, doing away with quotas and aligning our market more with the global system.
“A lot of the belt tightening efficiencies led to palpable and dramatic improvements in operating ratios of companies. So, we didn’t really have to wait for this (recent) crisis to make those chances. In a sense, we were internally more prepared to take the global crisis on, which explains how we were able to bounce back quickly,” he says.
With that, he points out that even the hardest hit industries, largely export oriented ones such as the textiles industry, leather, handicraft and engineering goods such as auto parts have also been displaying strong signs of recovery.
But there are risks.
“Rising inflationary pressures and an aggressive withdrawal of fiscal and monetary stimulus are key domestic risks. On the external front, there is always the fear of a repeat of the ‘black swan’ events of 2008,” said the bank in a report.
Real estate bubble?
Given the flow of investments, real estate prices in India, particularly the hot spots – Delhi, the national capital and Mumbai – appear to be hitting the roof. According to a survey conducted by global HR consultancy Mercer, New Delhi is the most expensive city in India.
It has the highest cost of living for foreign professionals followed by Mumbai.
However, Anshuman Magazine, managing director of real estate consultancy firm CB Richard Ellis, South Asia said that in contrast to the rising prices being witnessed currently, real estate prices for residential space were significantly impacted as a result of the global financial crisis, falling by about 30%-40%.
“All of it was largely due to sentiments as people were not buying although on hindsight, India was not impacted as much. But the high end segment did not drop too much as there’s limited supply there,” said Anshuman.
Hardest hit however was the office space which was bogged down by a massive oversupply situation.
“We had a property overhang here in 2008 and 2009. It was quite painful as the rental yield of office space dropped by 22%-30% depending on the location.
“But more than the rental, demand also declined. Most developers do not mind if rental is low, so long as there’s take up but that too had slowed down. This year, rentals are flat but demand has improved,” he says, adding that he expects the overall property market to improve further going forward.
BPO and its better half – KPO
There’s yet another story playing out in the world’s second most populous country.
The offshoring or business process outsourcing (BPO) industry in India employs about 1 million people, according to the National Association of Software and Service Companies (Nasscom).
India represents about 70% of the world BPO market.
Here’s the crunch. By some estimates, the industry is expected to touch a trillion-dollar mark soon. Of this, only 3% is currently being outsourced. Industry estimates for the coming decades state that in future, some 70% of all business processes will be outsourced compared a meagre 2% now.
Therein lies another sweet spot for India as well as other BPO hubs namely Philippines and Brazil.
Still, BPO has not been stigma free. Critics refer to it as “electronic sweatshops” given the typical nature of the job – dawn to dusk shifts, labour intensive, high targets and low wages.
In recent years, there’s been another resurgence in the remote working sphere – Knowledge Process Outsourcing or better knowns as KPO, the better half of BPO. Evidently, India is gradually becoming a hot spot for KPO, owning about 70% of the global market share.
Ashish Gupta, country head and global chief operating officer of Evalueserve, one of India’s leading KPO providers, wraps up the evolution of the outsourcing sphere in India.
“The evolution of services in India began with IT services in the late 70s to early 80s and this put India on the world map. It has since become a stable and mature industry. In the early 90s, the first BPO operations was started by GE and American Express in Delhi.
Towards the latter half of the 90s, other private companies started setting up office in the BPO space. Since then, it has grown to include lots more value added services beyond the back office services that are typically provided.” One of them includes the area of research and analytics (R&A).
“Our business model is to provide very high value added knowledge based analytical service. We had to create the term KPO to set us apart from BPO. Our clients come from financial services, healthcare, consulting, telecommunications, oil and gas and research firms,” says Ashish, an IT graduate and ex McKinsey executive.
Evalueserve, like its other KPO peer’s main appeal is that where resources is scarce, it can offer a dedicated team of up to 250 people to carry out the R&A works.
“Rather than our clients having to hire their own people, we can have a virtual dedicated team of 50-100 people to do what they need us to do,” he says.
The other appeal – low cost. “Our prices can be one fourth to one fifth of the average cost others would charge. We can do this as the salaries and cost structure in India is low.
This is one reason why we also went to Romania – to access their cost effective landscape and language capabilities as well as to have access to those markets and deliver global services.
“With connectivity, it really doesn’t matter any more where you’re working as you can pretty much work from everywhere. As they say, geography is history with the Internet,” says Ashish.
Evalueserve, which is considering a listing in US sometime next year, employs just over 2,000 people. North America contributes the largest share of revenue to the group of 40% while Europe and Asia respectively bring in 45% and 15% respectively.
India vs China
The pitting of India vs China and which one will emerge as the next economic powerhouse has been the subject of countless debates and studies.
Truth is, both countries have different strengths, and hence, cards to play in this global race towards competitiveness.
But one thing’s for sure – India, not unlike China, offers enormous business opportunities and an incredible talent pool.

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