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Tuesday, October 26, 2004

India Inc. Is Growing Twice as Fast as Japan Inc.

The US/IT Analyst View( Via AMR Research ) : India Inc. is Twice as Fast as Japan Inc - Erik Keller, Research Fellow, AMR Research and Ex Vice President, Gartner, Enterprise Software Group writes, Japan Inc. took almost 30 years to obtain a strong position in key U.S. industries, such as Automotive and Consumer Electronics. It will take half as long for India Inc. to do the same for service -oriented industries with IT leading the charge. The term India Inc.,an embodiment of the new competition arising from India in IT and other service areas. For manufacturers, this has a similar resonance of Japan Inc., a term that came about in the 1970s as Japan attacked key U.S. manufacturing industries, including Automotive, Steel, and Consumer Electronics. Many U.S. and European companies continue to underestimate the impact of India Inc. and have not made the needed changes to their business and employment models. The fastest change is occurring with the major software vendors that have moved much of their core product development to India. For example, nearly all of SAP’s BW product development and much of NetWeaver resides in India. Oracle and PeopleSoft have accelerated deployment of Research and Development (R&D) and support resources in India; Oracle has more than 6,400 people now employed in India and plans to have nearly 10,000 by the end of 2005. Some companies, such as Kana, have taken an extreme view and have sent all R&D to India. Venture capitalists require that any startup have a plan and capability to deploy R&D in India. While technology-oriented companies have embraced offshoring, most end-user organizations continue to be cautious about how much and how fast they can offshore IT operations. In the next few years, however, their internal IT cost models will prove too high and force them to change.
Like Japan Inc., one of the initial attractions of India Inc. is low-cost labor. Ironically, India offers lower cost labor than Japan ever did, but higher quality than is delivered by many companies today. This paradox is not readily understood and is why many U.S. and European companies continue to ignore the potential of India Inc. Indian software companies hold the highest number of Level 4 and 5 Software Engineering Institute-Capability Maturity Model certifications, which is the software equivalent of Six Sigma certification for defects in manufacturing.Along with this enhanced quality comes enhanced delivery of value. The perception that India is only capable of low-cost, tactical work is as true as the false perception that the Japanese cars of the 1980s were cheap U.S. knockoffs. The establishment of low-cost offshore delivery centers in India for traditional IT service providers / Systems Integrators (SIs) is well underway, as are business processing outposts for all the services industries (Financial, Telecommunications, Legal, Engineering, etc.).And unlike many of their U.S. and European counterparts, upwards of 50% of all SI/ Business Process Outsourcing (BPO) jobs are profitably taken with a fixed price bid. The high stock price of many Indian offshoring companies, as well as pre-tax margins in excess of 20%, illustrate that these companies have management expertise and execution quality.
The availability of inexpensive and reliable network and computing technology implies that any job or task that does not require the physical presence of a person can be sent offshore. India followed by others, is creating a sophisticated pool of highly specialized and educated workers who have shown the ability and willingness to deliver high-quality, low-cost work. Using many of Japan Inc.’s techniques of continuous improvement, quality circles, and process innovation, India Inc.’s 30% annual growth in IT services is being replicated in other service industries. U.S. and European companies need to reevaluate their worldwide employment models to ensure that they can benefit from India Inc. rather than be consumed by it. U.S. automakers and consumer electronics firms ignored Japan Inc. for decades until it was too late to recover; IT and other service providers do not have nearly as much time to recover from a similar misjudgment.

The Indian industry view about this development:( Via The Hindu BusinessLine): Across every industry spectrum, there is potential for knowledge work to relocate to India - G.B.Prabhat of Satyam , argues that India would soon become a hot favourite work destination for foreigners. As India grows as a centre for knowledge work, exciting times are ahead, not only in terms of a broad spectrum of knowledge work coming here, but also in foreign nationals opting to work out of India. This trend is clearly visible across sectors, says G.B. Prabhat, Director, Enterprise Business Solutions, Satyam Computer Services. "Across every industry spectrum — pharmaceuticals, market research, IT, or even manufacturing — there is potential for knowledge work to relocate to India," he says. When knowledge work relocates in small chunks there is little attraction for a foreign workforce to relocate to India. But when this happens on a much larger scale, many foreigners will face the prospect of either relocating to India or losing their jobs. There are already foreigners who are specifically asking for positions in India "because they see the future being here. They know that eventually India will provide them with everything that the western world gives them now, plus more if they are lucky. So they're asking for jobs here," says Prabhat.
On why foreign nationals would want to work out of India, Prabhat says, "The worldview they are all adopting is that all manufacturing will, in some manner or the other, eventually centre around China, and India will clearly take the lead in information flow. They believe there is a long-term future in industries relating to information flow, which will also involve knowledge work. Given our educational infrastructure, English-speaking ethos and the bias towards intellectual work in India, there is no choice but to relocate here." And in this phenomenon, clearly the early birds will derive a greater advantage. And, in many ways, foreigners opting to work out of India will also get a higher quality of life at a much lower price. "For one thing, they will not be spending much time on menial tasks of the day which can be done by domestic help here. They're also looking at larger, more spacious houses and increased material comforts in what they can buy. But what they cannot buy are the roads, electric supply, etc, but these will improve," he says. Indophiles, while getting ecstasic,about these developments need to be well prepared as Thomas Friedman pointed out in New York Times article, Making India Shine ,which we covered earlier. A few days back we covered in this blog, Offshoring in reverse saying, India Headquartered software companies are hiring US nationals for top jobs and how well the trend is entrenched and seen to be a success. The effects of globalisation beginning to touch professional lives is there for everyone to see.
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