Saturday, January 6, 2007

Day 5: Company visits and a construction boom!

Wednesday, January 3, 2007. 11:45 PM IST (Indian Standard Time). The trip continues to be full of amazing visits with senior level government officials and companies as well. Today we made a visit to the Secretary of Commerce, Mr G.K. Pillai. We discussed much of how India plans to become a global powerhouse, not just the current low-cost solution for off-shoring and outsourcing. There continue to be challenges and struggles for the country and although I think it will be difficult to implement the changes in the timelines envisioned, the critical success factor is the presence of a shifting paradigm. India is experiencing dramatic shifts in her economy, her politics and the culture of her people. Consider the fact that the world’s largest democracy is only celebrating its 60th anniversary this month. This is a country with some of the oldest civilizations on the earth.

But we digress, India is in a position for strong growth. GDP growth has been 8.9% which is second only to China at 9.9% GDP growth. However India ranks 144th in purchasing power which is indicative of the low GNP number. When considering Foreign Direct Investment (FDI), India receives $6 Billion compared to China’s $72 Billion. There is substantial opportunity in India for FDI and to support this, ROI of companies who invest in India is often much higher than expected and higher than realized from investing in China. To spur FDI and other investment in commerce, manufacturing needs to develop and strengthen in India. Currently 54% of India’s GNP is from the Services sector. The challenge is that jobs in the outsourcing and off-shoring businesses require advanced degrees. Therefore adding service jobs will not address the poverty issue. To employ people with lesser education, manufacturing jobs need to be created. To some extent, this is being done in cities such as Chennai where Nokia is a strong employer manufacturing mobile phones.

To further spur economic development, the government must reinvent itself. The Secretary admits that the government can at times become a roadblock due to the bureaucracy. The government realizes that it much become more nimble and adapt to the needs of the communities and businesses to thrive. One way to address this is by establishing Special Economic Zones (SEZ). These SEZ encourage investment by manufacturers such as Nokia. Incidentally, Japanese companies have been strong investors in Indian manufacturing.

The development of manufacturing and lower level jobs becomes increasingly important as the Secretary seeks to move 200 million people from agriculture jobs to elsewhere. The countryside have become very fragmented. Today, farms are defined by 1-2 acres at most. For this reason, it is important that rural citizens are encourages to take jobs elsewhere. Without an education, they will not be employable by the outsourcing firms. Again, manufacturing jobs will need to be created. It is quite interesting listening to the thoughts and strategies of a man who goes to bed thinking about how he plans to find jobs for 200 million people. Several hundred million square feet of new construction will be required in India in the coming years, which may lead to job creation. Every opportunity will need to be fully thought out. To put this in perspective for you, the US population just recently became 300 million. Think about it, in a country of over 1 billion people, the decisions that are made must be scalable due to the sheer volume.

After talking with the Secretary of Commerce, we visited a company by the name of Intellevate. Founded in Minneapolis, Intellevate is a company which provides outsourcing services to patent attorneys. One fascinating thing to think about is the fact that although such work is regulated and requires attorneys to hold state licensing, a large percentage can be outsourced so long as a piece of the work is completed by the licensed agent. For example, a patent attorney can outsource 95% of the work required to secure the patent so long as he completes 5% pf the work himself.

The IT Enabled Services is a strong and growing sector in India. In 2005, the industry size was $6.2 Billion and is growing at a rate of 37% CAGR. We were able to meet with a company which specializes in a very narrow outsourcing business – patents. The legal process outsourcing (LPO) industry is currently $80 Million and is expected to grow to $3-4 Billion by 2010. This particular company provides research and other legal services to clients to allow them to be more efficient in securing patents for their clients. The mission of Intellevate is threefold: (1) to reduce expenses, (2) to improve cycle time, and (3) to improve intellectual property (IP) capabilities.

It amazes me that a company with such a vision as Intellevate is able to open and find a market niche. What is even more amazing is that larger outsourcing companies are seeing to emulate some of the things that these specialized companies are doing. Visits to these outsourcing companies require top security. This is understandable since we are likely to see information about companies from around the world. Intellevate is the typical story of a successful firm in India. They were founded, succeeded, sold off to there investors, continue to flourish in small, cramped office space and finally await the completion of their new, beautiful office space close by.

Everyone has been quite hospitable and kind to us as visitors. At each company visit, we are provided tea and a biscuit. The hospitality is second to none here in India. Everyone has been welcoming to us and very open to talking freely about their business and processes.