Executive Summary
Today we are living in an era of globalization. Globalization, the very concept has opened up newer vistas of trade and business all around the globe. It is said that the opening up of economies has now tilted the balance in favor of market forces, which is helping the consumer by way of providing quality at reasonable prices. As a result of globalization, market forces have started the policies with the role of respective governments becoming limited in determining the nature of imports and exports.
It is now the MNCs who are effectively dictating the policies to the governments. With globalization, MNCs began to explore the markets outside their domestic grounds. In order to leverage the economies of scale at different locations, such companies try to set up some of their operations at these locations. Moreover, with the advancement in ICT, global distances have tended to become smaller while the world is gradually being seen as a global village. Bracken (2004) underlines that it was since the early 1990s when the term ‘Globalization’ became a catchphrase as it started entering into all walks of life even in developing economies.
The Asia Pacific region in general and the South Asian region, in particular, is being discussed and debated at almost all international forums for the huge size of their markets, IT sector competencies, quality manufacturing at cheaper labor costs, impressive GDP growth figures, and of course the growing influence in international affairs are some of the factors which are attracting investors from all over the world. The huge pool of English language speaking people in India and the strength of its IT-ITES sector, in particular, are the factors that have made India a much-desired destination for BPO and IT-related services.
The growth of the economy at around 10% has enabled the Indian government to take much bolder steps in strengthening its relations with international organizations and other nations. The strategic collaboration of Brazil, Russia, India, and China (BRIC) has been trying to make a power center for developing economies, and if the events of recent past an indication, the collaboration promises to emerge much stronger in due course.
Introduction
Globalization has been in existence for quite a while. In the early ages, it was essentially limited to business and trade. But with the beginning of the new form of market-driven governments, globalization has filtered down to almost all walks of life like media, culture, and of course the trade and business practices. Now countries prepare strategies to make the best possible use of liberalizing their economies. Similarly, companies also try to establish themselves in the economies having the market as well as the infrastructure. Traditionally ‘maximizing’ profits have been considered to be the objective of any organization.
Not any more….This criterion has been discarded. Now organizations are supposed to have multiple objectives, monetary as well as non-monetary. There are short-term objectives as well as long-term ones. Strategists are supposed to prioritize all such objectives so that there is clarity and ease of decision-making in situations where there is an apparent clash of objectives. In order to fulfill the long-term objectives, companies try to make plans for regions and markets which can help in sustaining the business. If the growth of the economies is an indication then the South Asian region is the happening place.
China and India in particular are the countries on the target maps of many companies for a variety of reasons. As per a report published in ‘The Economist’ (2006), India’s curries can be even hotter than the fieriest of Chinese hotspots. In view of revalidation of the Indian Information Technology – Business Process Outsourcing (IT-BPO) growth story, driven by a maturing appreciation of India’s role and growing importance in global services trade, the country aspires to attain an export target of USD 60 billion 2010 (NASSCOM, 2007). Therefore in this study, an effort is being made to analyze some of the strengths and weaknesses of India from a globalization perspective. India is one of the key constituents of the BRIC formation with Brazil, Russia, India, and China coordinating together in economic, trade, political, and military affairs.
Indian IT Sector: the strong point of India
According to recent research carried out by NASSCOM (2000a), India’s National Association of Software and Service Companies, the FY 2006-07 has been able to achieve double-digit revenue growth with the aggregate revenues growing by nearly ten times over the past ten years.
And the industry is full of optimism and has set its target towards an export figure of USD 60 billion by the year 2010. The optimism doesn’t appear to be out of place, because India has been able to establish itself quite well in the international arena in the field of IT and IT-enabled services. Though India remains largely a rural and agricultural economy, the industrial and services sector also is booming much faster. Of late the real powerhouse of the Indian economy has been the services sector with a major contribution from the IT sector. India is a relatively strong performer in international markets in the IT sector. It can very well be ascertained from the following facts;
- Revenue from the Indian IT software and services sector (including the domestic and exports segments and excluding hardware) touched nearly USD 40 billion during FY 07 and is expected to grow by nearly 27 percent to clock USD 49-50 billion in FY08 (NASSCOM, 2007a).
- The IT sector’s contribution to GDP in FY 07 was 5.2% up from 4.8% last year (NASSCOM, 2007a).
- The BPO sector, a key application area for IT and ITES has been able to register a growth at about 33.5% percent with USD 8.4 billion in FY2007, exceeding even the expectation of the industry (NASSCOM, 2000b).
- The renowned Investment bank Merrill Lynch expects that in the near future the outsourcing companies are likely to treble the amount of money they spend on IT outsourcing. The bank comes out with the finding that Indian software companies are going to be the main beneficiaries of this hike (Band, 2003).
- The US has been a major trading partner of India accounting for about 22% of India’s total merchandise exports and the software industry is a significant contributor to such exports (Datamonitor, 2005).
To test the competitive strength of nations, Michael Porter came out with a model, known as Porter’s Diamond. This model is also quite useful in analyzing why some industries within a country are more competitive than others (Porter, 1998). In fact, even before the publication of this book Porter’s theories were taken into account for the national reassessment in countries like New Zealand. His ideas have greatly influenced policy-making in many countries including India. Porter (1998) states that competitiveness has become a central preoccupation of government and industry in every nation, particularly in view of globalization and liberalization. To test the competitiveness of the IT sector in India we can make use of Porter’s diamond as follows;
Factor Conditions
For the IT industry availability of a large number of well-qualified and skilled workforce is a big asset for the Indian IT sector. In fact, during the pre-liberalization era, India used to be a big exporter of skilled manpower. But today the situation is such that, there’s a huge gap in the requirement and availability figures of skilled manpower, as far as IT sector is concerned. A study undertaken by NASSCOM points out that though there are around 9.9 million students enrolled in around 350 institutes of higher learning and 16,885 colleges, which are providing the manpower for its IT industry, yet there are indications that by 2010 there might be a shortfall of 0.5 million knowledge workers.
This is a pointer towards the strength of India’s IT sector and its emergence as a preferred outsourcing destination. These estimates point out that there will be a need for about 2.3 million professionals by 2010. The country is in the process of establishing more training and technical institutes to fill the gap. The cost of labor in the IT sector is quite reasonable as compared to some of the developed nations.
The labor costs are a reason for many MNCs to outsource their different IT needs to India. The other major factor which impacts the IT sector is the infrastructure. The central government as well as different state governments have already taken up the task of establishing special economic, IT parks, software technology parks, and knowledge hubs to fulfill the demands of the industry. Bangalore, a south Indian city is already known as the silicon valley of India, for its internationally acclaimed infrastructure and presence of IT companies like Infosys and Wipro. The respective governments have been trying their level best to encourage such initiatives by way of extending tax rebates and speedy clearances to the IT sector.
The political environment is another key area where India is able to score more points than neighboring China. Though the Chinese political system has become a lot liberal than its earlier avatar, still the democratic setup of India has been found more favorable to business prospects than the Chinese brand of communism. The metaphor globalist author Thomas Friedman uses a highway to contrast China and India (Shister, 2005).
He says, “The Chinese highway would be a six-lane, perfectly paved road but with a huge speed bump off in the distance labeled ‘political reform: how in the world do we get from communism to a more open society?’…. India, by contrast, is like a highway full of potholes with no sidewalks and half the streetlamps were broken. But off in the distance, the road seems to smooth out, and if it does, this country will be a dynamo.”
Demand Conditions
In today’s technology-driven society, the role of IT has become of paramount importance. As IT is gradually maturing and presenting a paradigm shift in its very ideation, the infrastructure has acquired a business character, a transcontinental personality, and a vending framework of wide-ranging, business, educational, scientific, and personal data. Therefore, almost all industrial sectors have demands for IT services.
Since the domestic industries too are a big market for these services, therefore the demand conditions are quite ideal for the IT sector. In addition, the Indian IT sector also serves the international clientele spanning across all the continents and almost all major industrialized countries. Porter states that “A country can achieve national advantages in an industry or market segment if home demand provides clearer and earlier signals of demand trends to domestic suppliers than to foreign competitors (Porter 1998).” Therefore, the Indian IT sector is bound to write a success story.
Related and Supporting Industries
The BPO sector in India is one big consumer of Indian IT products. Since many MNCs like HSBC, IBM, Dell, etc. have shifted their call center services, technical assistance services to India in recent years, the IT sector has found good support for its services. The CEO of General Electric, Jeffry Immelt was quite candid in figuring out the differences between India of yesteryears and modern resurgent India. He said, “In the past, anytime we invested in the people of India, we made a lot of money and anytime we invested in the market of India we lost”. But GE has now once again reinvented itself in the liberalized economy of India, now he proclaims that “The situation is ripe to directly invest again” (Shister, 2005).
Firm Strategy, Structure, and Rivalry
Though there a large number of IT companies in India like TCS, Wipro, Infosys, NIIT, HCL, iSoftTech, Mindtree, Satyam, Zensar, etc. but so far every company appears to have its hands full with orders from domestic customers as well as from foreign clients. The IT companies, being relatively new on the block, are relatively free from the deficiencies being suffered by some other traditional industries.
Moreover, these companies prefer to have an international ambiance within their campuses with the majority of the workforce from the youth segment. The young generation doesn’t believe much in concepts like trade unionism and other tantrums traditionally associated with the older generation. Therefore the IT companies have been able to bring a professional approach in managing the companies. Daft (2002) also underlines the crucial changes that have taken place in the field of management.
Demands on today’s managers go well beyond the techniques and ideas traditionally taught in management courses. Daft (2002) says that today’s managers must be well versed with the art of management from national as well as international perspectives. Indian IT industry requires to make use of this art for managing the businesses not only in India but at a number of overseas locations as well.
It is quite apparent that in the BRIC chain, the Indian IT industry has a big role to play. Levene (2007), says that the BRIC concept has been playing an increasing part in both global equity and emerging market funds ever since the concept emerged about three years ago.
Power Sector: The Non-Performing Sector
It is true that India is a powerhouse of IT talent, but some of this sparkle goes missing when the electricity situation in India is talked about. India is a big country, both geographically as well as in regard to the population. It requires determination and zeal on the part of the political leadership to make electricity available to all the areas in India. But there are areas in the country that still don’t have electricity supply and some areas have to remain content with long hours of electricity shortages. This calls for a major reforms process. The government of India appears to be seized of the matter and accordingly, plans are being made to have electricity for all by the year 2012. The ministry of power has set for itself the targets like;
- Sufficient power to achieve GDP growth rate of 8%.
- Reliable of power.
- Quality power.
- Optimum power cost.
- The commercial viability of power industry.
- Power for all.
One major reason for the loss of electricity is the pilferage during transmission and distribution. Termed as T&D losses, such losses are often the result of not having a support system to check such aberrations and take appropriate actions.
This sector, having much scope, has not been able to attract many investors from domestic as well as from foreign. Some past experiences like the Dabhol power project in the state of Maharashtra have not done much favor to this image of the power sector in India. The Dabhol Power Project was one of the most ambitious projects in the power sector, but due to political bickering and many other disputes with the state government, the project could not be carried through and the Dabhol Power Company (DPC) shut the plant in May 2001 after a dispute with the Maharashtra State Electricity Board.
The work on the project site is still in a suspended state, waiting for a breather from any concerned quarter. All stakeholders in the project like GE, Bechtel, and other foreign lenders, have been trying to recover their lost investments. In fact, the biggest stumbling block in the deficiency in electricity distribution is the growing population of the country.
India has been trying to control its population for many years, but the country has not yet been able to bring the rate of growth of its population in control. Official estimates state that with the existing rate of increase in population, the country might be heading for a figure of 1162.3 million by 2010, but India is actively pursuing plans for controlling the population and if these plans are able to deliver desired results this number could be arrested at 1107 million, ultimately resulting in stabilization of country’s population by 2045.
In fact, a large population is a boon as well as a bane for India. It is a boon because it presents a huge market of consumers, but the big population becomes a bane when facilities are to be arranged for their welfare activities. For a businessman dealing with consumer goods and services, more the merrier as he is looking for a return on his investments by way of serving more consumers. This is, in fact, the main reason for the continuation of a business. In order to arrange for a better return of evenhandedness (ROE) in a spirited environment, strategic plans plan are prepared by companies. Peter and Certo (1991), state that organizations by the income of well-planned management be inclined to increase their levels of income and productivity. But this population becomes a huge task for the government when it desires to supply them with basic amenities.
Regional Clusters and Industrialization
Cluster formation, in general, implies that some of the related industrial activities are located within a specified area, which helps in complementing and supplementing the needs of the related industries. This also results in a reduction in production costs as the transportation costs and labor costs are reduced. When an industry has thus chosen a locality for itself, it is likely to stay there long, because there are many advantages which people following the same skilled trade get from near neighborhood to one another.
This elementary localization of industry gradually prepared the way for many of the modern developments of a division of labor in the mechanical arts and in the task of business management. Setting up of software technology parks in areas like Hyderbad, Bangalore, Pune, NCR pockets, etc. are some of the areas where the Indian government has tried to prepare the clusters for facilitating the IT sector. Industrial cluster policy is followed not only in China but also in most countries in East Asia such as Japan, Malaysia, and Singapore. Silicon Valley in the US and Bangalore in India are well-known success stories of development in information technology. But the three factors which determine the successful clustering of industries are;
- Industrial zones, e.g. Export Processing Zones, Software Technology Parks, etc.
- Capacity building, and (e.g. Handicraft market in India, Cheap toys market in China, etc.)
- Anchor firms e.g. Intel is an anchor firm for computer chips, if it starts its production near an industrial zone, related firms from the host country are bound to start their business in the surrounding areas. Such anchor firms are the key to forming industrial clusters in implementing industrial cluster policy
Indian IT sector has had a successful experiment in the IT sector. But as far as the power sector is concerned, so far it remains a distant dream. Though the power sector reforms started together with the process of liberalization in the early 1990s, the unsuccessful attempt with ENRON in the state of Maharashtra has not helped the power sector reforms process. The majority of the power generation still lies in the hands of the public sector company NTPC, while the private players like Reliance energy etc. are now knocking on the doors of the government to seek permission to get into this sector. In the distribution of power though, there have been some successful attempts like BSES in Mumbai and Delhi the two major metro cities. The power sector, therefore, appears to be poised towards a better future as well.
Critical Analysis
On the international stage, India is yet to register itself as a leading force, on account of the kinds of conflicting signals that emerge out of the country. Be it the case of going in for liberalization or energy sector reforms, media reports keep narrating how one part of the government pitches for the reforms while the other section crying foul. The recent 123 agreement with the USA is one such example that saw deep fissures in the ruling coalition in the country, and the issue still remains unresolved.
But it is worthwhile here to mention that despite the opposition from many quarters the process of reforms has been going on since the early 1990s and the country has seen good progress all these years. While there are many sectors like power, infrastructure which require a lot of improvement before coming at par with the international standards, the new age Indian, in general, appears to be much more aware of the need to improvise. The flourishing IT sector is a fine example of such a change.
Conclusion
India indeed appears to be on its way to become a knowledge hub and an economic superpower on account of its strong points in the fields of technical training and education. Its large population, which was proving to be a burden for the Indian government, has also become a source of strength for the country when globalization and liberalization policies started the search for consumer societies. During the initial years, the vast pool of consumers in India could not prove to be of many benefits for the MNCs because the purchasing power of an average consumer was quite less, but the growing numbers of millionaires in the IT era have lent a helping hand to the average consumer. Now there are more avenues of earning for an Indian resulting in increased spending power.
Therefore, India appears to be working with a strategic vision. There are a number of hurdles to be cleared before the success story actually results in the ‘powerhouse’. Erecting a dependable infrastructure with well-laid roads, reliable power supplies, a corruption-free society, and hassle-free bureaucracy will definitely help resurgent India to become a developed nation. Having a look at some of the policies adopted by the Indian government in the recent past, it appears that the Indian government is aware of the situation and is slowly but steadily in the process of placing its strategies in action.
References
Band, John (2003). ‘The IT services Outlook-Making the global leaders work for you’. Business Insights Ltd. London.
Bracken, Paul (2004), Yale SOM Working Paper No. OB-06, PM-05, OL-19, Yale School of Management. Web.
Datamonitor (2005). India-Country Profile. Datamonitor USA, NY.
Daft, Richard L. (2002). ‘Management’, 5th edition, Thomson Asia Pte Ltd. Singapore.
De Wit, Bob, & Meyer, Ron (1999). ‘Strategy synthesis.’ London: International Thomson.
Levene, Tony (2007). ‘Energy offerings from BRIC nations’. Fund Strategy, Centaur Communications, UK.
Ministry of Power, Government of India (2007). ‘Power for All by 2012’. Web.
National Commission on Population (2007). Web.
NASSCOM (2007). NASSCOM Strategic Review 2007. National Association of Software and Service Companies in India. Web.
NASSCOM (2007a). Indian IT Industry: NASSCOM Analysis. Web.
NASSCOM (2007b). INDIAN ITES-BPO Industry: NASSCOM Analysis. Web.
NASSCOM (2007c). NASSCOM’s Education Initiatives: Sustaining India’s talent edge to fuel the next wave of IT-BPO industry growth. Web.
Peter, J. Paul & Certo, Samuel C (1991)., Strategic Management Concepts and Applications, ed. 2, 2004, McGraw-Hill (New York)
Porter, Michael E. (1998). ‘The Competitive Advantage of Nations’. The Free Press, NY.
Shister, Neil (2005). India the Next China. World Trade, August 2007, Business News Publishing Company.
The Economist (2006). ‘Too Hot to Handle’. The economist. Web.