Posted on 03/11/2007 1:15:26 PM PDT by grey_whiskers
A lot has been made over the last several years over the economic miracle taking place in India. In particular, there is an impression given within much of the press that the reason India is doing so well is that it is blessed, if not overrun, with a huge contingent of supremely-motivated, highly educated, eager, young, and generally invincible workforce. If this impression were solely from Indians themselves, they might be dismissed as mere bombast. However, this impression is also fostered by highly-placed executives at major Western firms, including household names such as Google, Intel, GE, IBM, Cisco, Microsoft, and Hewlett Packard. And the firms have put (a small portion, given the wage rates) of their money where their mouth is.
IBM for example, recently announced that they will be investing $6 billion in India; as of June 2006, they had 43,000 employees there and plans to hire maybe 20,000 more. Intel has announced that they will be building a 65-nm chip fabrication plant in India. Hewlett Packard’s former CEO, Carly Fiorina, gave the infamous quote, “No American has a right to a job.” And HP continues to walk the talk, as 89,000 people are employed in Asia (read: cheap) to translate legacy code to modern languages. Microsoft is pushing for removal of the caps on H1-B visa holders, following Brian Valentine's “Think India! Two for the price of one!” line. The impression given is that India is the only possible place for any multinational corporation to any hiring short of C-level executives.
However, there is a lot about India which is left unsaid by these same people. On purpose. There is sort of a gentleman’s agreement, at least, among many of the executives, and those trying to increase India’s fortunes. As one example, the highly influential consulting firm McKinsey has actually received a retainer from the government of Karnataka to create 1 million jobs by 2008. Or one may consider the business professors C. K. Prahalad (Michigan) and Jagdish Bhagwati (Columbia) – both ardent supporters of outsourcing. And by coincidence perhaps, both Indian. They have pioneered the idea (among others) that one great way for companies to grow is to market to the large, low-margin Third World. And of course, to do that, one must lower costs enough that people in the Third World can afford your product. As President Bush said in a speech during a trip to India in March 2006, “And the class opportunity for our American farmers and entrepreneurs and small businesses to understand, there's a 300-million-person market of middle-class citizens here in India, and that if we can make a product they want, then it becomes -- at a reasonable price -- and then all of a sudden, people will be able to have a market here. ” Left unsaid is the fact that "middle class" in India means maybe $3000 a year in U.S. Dollars. So there isn't much we can produce here that will be cost effective there. But the effort goes on apace.
In order for this to work, the electronic infrastructure had to be put into place to allow work to be transferred easily across the globe, much as the compartmentalized shipping container made it possible to outsource much of manufacturing to China. Hence the push, back in the heady dot-com days, to hype investment in companies such as Global Crossing and Level Three Communications. And now, it seems, with that bottleneck gone, the multinational companies have come across two other bottlenecks, when attempting to reach and expand India's market.
The first can be seen in this article, The Real India. It points out that most of India is NOT in fact Hyderabad. There is a reason India is a Third World Country. The infrastructure – from transportation to energy to labor practices. Consider this quote: “India needs manufacturing to boom if it is to boost exports and create jobs for the 10 million young people who enter the workforce each year. Suddenly, good infrastructure matters a lot more. Yet industry is hobbled by overcrowded highways where speeds average just 20 miles per hour. Some ports rely on armies of laborers to unload cargo from trucks and lug it onto ships. Across the state of Maharashtra, major cities lose power one day a week to relieve pressure on the grid. In Pune, a city of 4.5 million, it's lights out every Thursday -- forcing factories to maintain expensive backup generators.”
Get that? Regular power outages, masses of manual laborers for transport? This sounds like the “bad old days” of power mismanagement and unionized stevedores in California under Gray Davis. And there is another thing: similar to the agricultural industry, where there are masses of cheap laborers available, mechanical or automated solutions are stifled.
The second is the labor bottleneck. The article above mentions that there are ten million workers entering the job force in India each year. But how many of them are qualified, how many of them can read and write English as opposed to “Engrish”? IBM has adopted a strategy of sucking the oxygen out of the room by hiring as many Indian techies as it can, in order to make the lament (so common in the U.S.) of “nobody with the skills we need” come true for its competitors. But it seems they may have cast too wide of a net. Last year, the CEO of IBM announced The Great Mind Challenge designed to foster the software development skills of Indian students, and to provide solutions for government agencies, solution providers, and academia. Well, how about that! I thought it was *American* students and IT professionals who weren’t up to snuff? Why then is IBM writing solutions for free for distribution throughout India, unless they are admitting India’s tech resources cannot do the job on their own?
There is also this quote from Business Week of Feb. 28, 2006:
”While there are no numbers, anecdotal evidence suggests that scores, perhaps hundreds, of former GE and McKinsey executives and consultants play key roles as both suppliers of outsourced services and customers for them. ``Every time we have an outsourcing forum, it's like a GE and McKinsey alumni association meeting,'' says Sunil Mehta, vice-president of NASSCOM, India's software industry association.”
Recall the Jack Welch was the one who came up with the idea of “lifetime employability” as opposed to lifetime employment (similar, no doubt, to the lifetime marriageability given to his wife when he left her for a younger woman); and the earlier snippet about India paying McKinsey to push outsourcing in order to create Indian jobs. And finally, allow for the possibility that India is requiring major offshoring initiatives of companies in order to allow them to do business in India. Dangling the carrot of “large markets” (as per Prahalad) in order to secure jobs. From the Business Week article “The Trouble with India” again:
”The first project to take advantage of the new law is the $430 million international airport scheduled to open next year in Bangalore. The facility is designed to handle 11.5 million passengers per year -- nearly double the capacity of the overburdened existing airport. It will be owned by a private company, which will turn it over to the Karnataka state government after 60 years. Global engineering and equipment giant Siemens (NYSE:SI - News) is helping to build the facility, and Switzerland's Unique Ltd. will manage it. These companies are also equity investors. The state had to contribute just 18% of the cost. Without such an arrangement, Karnataka wouldn't be getting a new airport.”
In other words, if you want to build in India, you have to invest your own company’s money in the project, instead of getting paid. And then you have to turn it over to the government. This is not exactly the most business-friendly climate I can think of.
It is because of these factors that I have another image of India’s business environment. It is that of a climbing plant, growing by suction. From a mystery story written by Dorothy Sayers:
”There is a man we both know slightly – a man called Paul Melvile.”
Lord Peter’s eyes narrowed. “M’m, yes, I fancy I’ve seen him about the clubs. New Army, but transferred himself into the Regulars. Dark. Showy. Bit of an ampelopsis, what?”
”Ampelopsis?”
”Suburban plant that climbs by suction. You know – first year, tender little shoots – second year, fine show – next year, all over the shop. Now tell me I am rude.”
---Dorothy Sayers, The Unprincipled Affair of the Practical Joker.
Good essay.
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