High Tech and Hope
India wakes up to a new economic reality
By Janice Endresen, MA'85
Unquestionably, India offers an exciting and challenging new market for retail products. Satyam Viswanathan, MBA'02, senior product manager for Colgate-Palmolive (India) Ltd., who used to work for S.C. Johnson North America, is enjoying the switch to an underdeveloped market after having worked in a "sated, developed market" – the United States. "Marketing in India is challenging; we have a very heterogeneous culture and have to reach diverse consumers through poor, retail outlets, as well as through modern outlets similar to Target or Walgreens," says Viswanathan. "It makes marketing more challenging here, and also offers more opportunities for profitability; corporate India is experiencing double-digit growth the U.S. couldn't even dream about."
"There's a large middle class in India – 300 million people with spending power," says Bhalla. "That's the population of the United States. As spending power increases, that number will go up phenomenally. In 3 years, Toyota Corollas – the premium car on the road today – will be replaced with BMWs and Mercedes Benzes."
Vaidhyanathan also spoke of the rising wealth in India, claiming that "$200,000 salaries are common in India. 1.6 million households earn more than $100,000; and 83,000 earn more than $250,000, according to Merrill Lynch."
A boom in consumer lending is stimulating growth and prosperity, as well. "People used to fear going into a bank," says Harshad Talera, MBA '05, managing director, Smart Hotel Ventures. "There were no loans available to the working class; that's the way the system developed in a controlled socialist environment that attempted equitable distribution of wealth. You had to work hard and live frugally to age 50 before you could think of buying a home. Now, middle-class people who never before had money to buy a car or a house can get a loan."
New-found wealth has also created domestic venture capital for the financing of Indian entrepreneurship. "Entrepreneurs can get venture capital here now," says Vepa. "It's not too hard." Amol Palkar is banking on it: As CEO of Capital Explorations, he's building a VC fund focused on real estate, engineering services, and the retail industry. He's also a consultant for domestic companies that want to go international. "If you want to be a global business in five years, start thinking about vision and strategy now," he tells them.
The rise in spending power is also fueling a growing appetite for new technology. Case in point: cell phones. The telecommunications market in India is exploding, and the number of cell phones has surpassed land lines; as of September 2006, the country had 123 million mobile phone users. Cell phone charges that cost $1 per call a few years ago cost about two cents or less today, making them affordable for ever-broadening swaths of society. And as Vepa notes: "Cell phones are the first computer most Indians will see. They're driving adoption of other technology."
Bhalla agrees: "IBM is working on bringing technology to rural India." The big challenge is developing viable network-enabled applications and services that will address the nuances of rural India, where languages vary so much, encompassing over 1,500 dialects. "IBM is investing money in developing solutions," says Bhalla. "We're working on interfaces that are language 'agnostic' – for example, voice-based, touch-screen, and graphical user interfaces."
IBM is investing in India in many other ways, as well. In June, IBM held its annual investors briefing in Bangalore, where Chairman and CEO Sam Palisano announced that IBM would triple its investment in India over the next three years to $6 billion. Between 2003 and 2006, the number of IBM employees in India grew from 9,000 to 43,000.IBM is India's largest multinational, but they have lots of company: The combination of relatively low-cost, skilled knowledge workers and a burgeoning consumer market has led a host of multinationals to invest more in India. Accenture, which has 22,000 employees in India now, plans to ramp up to 50,000 in the coming year, says Vaidhyanathan. The Associated Press reported in June that Cisco Systems plans to invest $1.1 billion in research and training in India over the next three years. Microsoft announced in December 2005 that it would double its work force and invest $1.7 billion over four years. And Intel announced it would invest $1 billion in India.
"Every country is looking to capitalize on India's growth," says Vaidhyanathan. "The knowledge and techno[logically-savvy] workforce is huge."
A tug of war for educated workers
But the pool of educated workers is not big enough. In fact, the availability of skilled workers is stretched to the limits. "At Accenture, we're hiring like crazy, but it's tough to get and sustain talent," Vaidhyanathan acknowledges. "That's the biggest challenge."
"I recently couldn't find any people to hire for an IT project I was managing – I gave up in despair," says Gopal Y. Kamat, MBA '79, management consultant, BizAdvise Pty Ltd. in Mumbai. "I needed 100 people, I got five and they could not speak English, Hindi, or a local language, Marathi! There's a desperate shortage of IT-trained people. We knew this boom was coming. IT training effort: negligible!"
Kamat's frustration is born out by the numbers. According to the Economist's special report on the talent shortage, Oct. 7, 2006: "NASSCOM predicts that India's IT sector will face a shortfall of 500,000 professionals by 2010. GE Capital has posted signs in its Indian offices saying, 'Trespassers will be recruited.'"
Retaining staff isn't easy, either. According to Business Today, a magazine published in Delhi, the attrition rate at India's BPOs runs as high as 70 percent for many companies.
A particularly disturbing trend that Somaiya is seeing is the loss of knowledge workers – highly trained scientists, for example, who leave intellectually challenging positions to take jobs at BPOs that don't draw on their skill levels, but offer a higher salary. "One sugar factory engineer who'd worked for me for 20 years was hired away by a BPO that doubled his salary," relates Samir.
From an altruistic standpoint, as one who applauds India's growing economy and wants to see it reach new heights, Somaiya doesn't mind. "BPOs are creating a demand pool," he says, and supply will catch up. But on an immediate, practical level, it's frustrating – and sometimes painful. For example, a scientist at a Somaiya Group chemical plant on whose knowledge and ideas Somaiya had invested $2 million over seven years left an intellectually stimulating job that was cutting-edge for his field, where he had a chance to make a name for himself as a scientist – he decided to forsake all that for 25 percent higher pay at a BPO, where he would be nothing more than a "cog in the wheel," as Somaiya put it.
Such stories have become all too familiar in India, where the draw of a higher salary inevitably outweighs career satisfaction – and also leads to high rates of attrition. "Indians don't yet have the American concept of settling for less pay in order to enjoy a more satisfying job," says Biren Kapadia, MBA '88, of Nabira Exports, Mumbai. "Career satisfaction as an important element in building a happy, fulfilling life is still a foreign concept."
Multinational corporations have discovered both that India has the necessary talent and that R&D is more affordable in India than elsewhere. A case in point cited by Ram Akella, EMBA '03, a managing partner with Phoenix Capital Holdings: "I work with a clinical research organization that does contract R&D globally, and spends $400,000 to $1 million in the United States. They can do the same work in India for 28 percent of the cost. If the R&D isn't successful, at-risk capital is a lot lower." Another reason that's frequently cited: India is more attractive for R&D work than China, where costs are also low, but where intellectual property rights are regularly violated.
Challenges to Sustained Growth
The horizon looks bright for India's educated workforce, but their numbers are limited, and although India has huge potential demographically, the education pipeline for meeting projected demands is not in place. Primary and secondary schools are sorely lacking, in many places functionally nonexistent; certainly far from being up to the task of creating the necessary candidates for higher education. Education and income are inextricably linked, and social mobility, while possible, is rare. "Education is not widely available for the two-thirds of India that live in our villages," says Viswanathan. "The poor don't have the opportunity to upgrade their lifestyle."
"Of India's billion-plus people, 20 percent are now younger than 20," said industrialist Ratan Tata '62, chairman of Tata Sons, the principal holding company of the Tata Group, India's largest, most successful conglomerate, speaking as the 2006 Robert S. Hatfield Fellow in Economic Education at Cornell last spring. "By 2040 the country will have the world's largest working-age population, surpassing even China's. These young Indians want a place in the sun, an education, a job, the kind of life they know exists from television. Will there be jobs for them?" If not, the country may see "the makings of a revolution," he warned.