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It’s destination India again
San Antonio, Texas-based AT&T Inc., the largest U.S. telephone service provider, is coming back to India after a gap of four years. Eurocopter, the world's largest helicopter manufacturer, has announced investing $1 billion in India in two years. Starbucks Corp., the world's largest coffee-shop chain, is set to enter the Indian market next year. Three completely different sectors, but the story remains the same. You have to be in India.
AT&T has received approvals from Department of Telecommunications (DoT), a government organization responsible for formulating policies for the telecommunication services in India, for grant of national long distance (NLD) and international long distance (ILD) services. It has formed a joint venture AT&T Global Network Services India, with Mahindra group, India’s diversified conglomerate, where AT&T Global Network Services holds 74% stake.
This marks the comeback of AT&T in the Indian market. Although it has been offering its communication solutions in India, it was not very active here since it sold its stake in the mobile services business in 2002. AT&T had exited from its mobile services venture called Birla-AT&T-Tata (now renamed as Idea Cellular), its joint venture with Aditya Birla Group and Tata, India’s leading diversified business conglomerates, in 2002.
BT Group Plc., the largest phone company of Britain, is also planning to enter the long distance telephony market of India and looking for partners in the country. Earlier, it had exited all domestic telecom services operations in India in 2001, including Bharti Cellular Ltd. (now Bharti Airtel Ltd.), the largest GSM mobile company of India, where it had 44% stake in the company.
The other big instance of a come back was of Vodafone Group Plc, the world's largest mobile telecommunications company, which exited India in 2003 by selling out its stake in a regional mobile services operator RPG Cellular. In October 2005, Vodafone made its second entry by investing $1.5 billion in Bharti Tele-Ventures Limited (now renamed as Bharti Airtel Ltd), India’s largest GSM mobile phone operator for a 10% stake.
Eurocopter is setting up an Indian subsidiary, a helicopter training school, and maintenance, repair and overhaul (MRO) centre for helicopters in India with a planned investment of $1 billion. It is bidding for 260 high-altitude light helicopters for Indian Army and 200 ten-tonne helicopters for the Indian Navy jointly with Hindustan Aeronautics Limited (HAL). In the newsmakers section of our last edition we had written about the potential of the Indian aviation sector.
The aviation sector in India has seen great traction in the last couple of years. Indian companies had placed orders worth more than $31 billion since the previous year and additional orders worth more than $3 billion were placed at the 45th Farnborough International Air-show in Farnborough, U.K. last month.
Starbucks Corp has already set 18-month deadline for starting its India operations. The company is reportedly talking to a number of potential joint venture partners. With the organised retail in India projected to grow from current $7.7 billion to $24 billion by 2010, the government had recently allowed up to 51% foreign direct investment (FDI) in single brand retailing. Starbucks is said to be looking at Delhi and Mumbai for setting up its retail outlets initially, and expand to other locations in India later.
India is the place to go whatever you are looking for — big market, skilled workforce, lower costs, raw material, manufacturing base or a supply chain.
India Vs China: some extra food for thought in the classic debate
When we say India is the place to go, you might ask why not China. Of course, China too is a big opportunity. India, however, certainly has some advantages in terms of institutions and business practices, which are closer to the western world. The banking sector is an example of how India outscores China in financial services.
There are six reasons why investors should commit more of their capital to India, according to a recent article in Forbes.com, a business website of Forbes publishing and media company by Carl Delfield, head of global advisory firm Chartwell Partners. While India is a functioning democracy, China remains an authoritarian state. Delfield says that India is a natural ally of the U.S., while America’s relation with China will at best be wary and tense.
The third reason was that government ownership would limit the growth and potential of state owned companies. India’s capital market is better than China’s, and India has a more modern financial and banking system. While India is a youthful nation with 50% of its population under 25 years of age, China’s is set to face aging population and manpower shortage. And finally, India has a more balanced sustainable economy with nearly two thirds (64%) of GDP attributable to consumer spending and half of GDP coming from the service sector, while Chinese economy is more dependent on foreign investment, exports and resources.
China is opening up its banking sector for foreign banks now, while India opened its gates for foreign banks years back. At present, about 40 foreign banks are operating in India. State Bank of India (SBI), the largest commercial bank of India, has recently offered its help for reforming and modernising Chinese banking sector. Having a strong training infrastructure, SBI has expressed its willingness to help Chinese banking sector in the areas of training of human resource, non-performing assets (NPA) management, information technology, investments and capital market. SBI became the first Indian bank to start operations in China with its first branch in Shanghai. The infotech story is being repeated again, where China wanted India to help it grow in the software services area.
Now, it’s the turn of R&D outsourcing
Here you have an emerging stream of outsourcing after back office operations. Global organisations see an increased value from outsourcing research and development functions and believe that it provides an opportunity to improve time to market, reveals a recent study done by Outsourcing Centre, a portal dedicated to outsourcing activities.
There is a strategic change that is taking place in the way companies are looking at their R&D and new product development strategies. More and more companies are now partnering with outsourcing service providers to achieve faster time to market and cost-effective innovation. The cost reduction, however, is no longer the top driver for R&D outsourcing. While 67% respondents had said lower cost was the largest benefit of offshore development in 2004, less than one quarter of respondents counted the reduced R&D cost as a top driver for outsourcing this year. The study has emphasised that selecting an R&D partner with a deep knowledge of emerging markets and new geographies enhances the value that companies can achieve through their outsourcing strategy.
R&D outsourcing market for information technology in India is projected to grow to more than $9 billion by 2010 from $1.3 billion in 2003, according to a study conducted by the business consulting firm Frost & Sullivan. The areas of opportunity in IT include computing architecture, encryption and network security, human computer interface, programming language and software engineering.
Obviously, the new stream is an opportunity for Indian companies. India has already established its credentials in contract research in pharmaceuticals, and the same success story can be replicated in IT sector also. Our special report of this issue also highlights another stream for the Indian companies—outsourcing of engineering services. |
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