Can India script great economic success stories & challenges
Today India is fast marching on to catch up to Developed world, Indians are confident that reforms can be counted on to bring them up to speed. There is consensus within the government that India needs to be more like China – to build rods and airports, and to draw in more foreign investment, leading to more jobs. The continuing presence of the English language in India is now supercharging the country’s economic growth. In the process, middle class Americans and Britons are growing increasingly worried that their jobs will be moved from Boston to Bangalore andManchester to Mumbai. More than a million white-collar, service-industry jobs have already moved to India. Nine million American jobs will move overseas during the next thirty years, estimates McKinsey & Company. On behalf of foreign companies, Indians answer phone calls, write computer code, and increasingly take on far more sophisticated jobs — from accounting to investment banking — that were previously performed strictly in corporate offices across America and Europe. As China has famously become the factory to the world, India is becoming the world’s back office. Of the world’s 500 largest companies, 400 send middle class work to India, up from 150 in 2000.
India’s thriving biotechnology industry began as a vehicle for widespread production of generic drugs and copycatting of other drug companies’ inventions but has grown into an innovative industry. India already has 75 pharmaceutical plants approved by US FDA — more than any nation except the US itself. Meanwhile, big Western drug companies are tapping India’s well trained doctors to conduct clinical trials for drugs under development.
Success of the off shoring movement has been a catalyst for economic growth in India. The creation of just a million jobs for college graduates in a land with a billion people has had a disproportionate effect. It has stimulated other parts of the economy by creating spin-off jobs — restaurants, construction companies, motor cycle and car factories. The explosion of new jobs and new spending has helped India’s economy grow quickly.
It is easy to see why India has not yet attracted many new factories. Broadly speaking, India is competitive in manufacturing only after goods make it to the airport or the seaport where they are exported, and that is much more time consuming in India than in China. There are a number of inefficiencies beyond infrastructure both in exporting and even in selling to the Indian market. Companies must navigate antiquated customs processing, variations in taxes and byzantine rules for transporting goods between Indian states, in addition to the crumbling highways, decrepit airports and what-me-hurry seaports.
As a result, while India increasingly supplies the brains foreign companies need, it doesn’t yet provide much of the brawn. Many Indians could work in factories, but because there aren’t enough manufacturing jobs, millions are unemployed or continue to eke out a living in farming. Still, as the rush to move service industry jobs offshore gives foreign investors confidence in India, the nation’s manufacturing industry is also benefiting. Some are beginning to look to India as a manufacturer because they have already moved so many factories to China and are worried about becoming over dependent on the output of a single nation.
Many of the world’s big auto makers now buy labor intensive parts from Indian companies. India’s auto parts exports have been growing by 25 percent a year and are expected to rival China’s by 2015.
Foreign companies doing business in India follow strategies radically different from their approach in China. E.g. Philips has been in India since 1930 making light bulbs. The Indian factory with its 1000 workers is the most efficient the company has anywhere in Asia – Chinese factories don’t come close. Yet the Indian factory can’t compete in global exports because of poor infrastructure. For competitive exports — even to keep its exports in one piece — Philips, like many other companies must turn to China. In 2003, the entire Philips board met in India and toured other companies’ back office operations. They were immediately sold on the off shoring concept. Today, about 300 accountants and financial analysts work in Chennai on behalf of Philips North America. The next 200 workers hired there will do back office work for offices in Europe and elsewhere. Philips finds Indian employees more creative than Chinese at dreaming up new products and strategies. Philips “Innovation Campus” in Bangalorehas grown to 1700 employees and is expected to reach 3000 in 2008.They write 20 percent of Philips software worldwide, much of which winds up in products made across the border in China with the brawn of 50,000 factory workers churning out Philips goods.
Few western companies are the cheapest and the best at assembling what they sell. Apple created the iPod and markets it, but the chip that powers it — the brains of the iPod — was invented by PortalPlayer, a small Indian company in Hyderabad, and the devices are made in China and shipped around the world.
As each month passes, the Indian market becomes more attractive to Western companies. Even as Americans watch jobs moving to India, American companies are benefiting from the boom there — selling more products inIndia.
Even as the New India cohort thrives, much of the rest of India is making much slower gain or even being left behind, creating social and political tensions that cloud India’s impressive strides forward. The lowest paid workers in the offshoring industry earn median wages of $275 a month. But most Indians still earn less than $60 a month, or below just $2 a month. And 36 percent of Indians live on less than one dollar a day. Change has come in small increments to India’s villages, where 70 percent of the population lives. Many villages still lack running water, electricity and reliable access to medical care.
India’s rural poor, are out of sight for many visitors, but its urban poor are extremely visible. Bringing India’s poor along on the ride to a New India will remain a challange.
