© Swaminathan 2007 India- A Future Economic Power Jayashankar M. Swaminathan Kenan-Flagler Business...

© Swaminathan 2007

India- A Future Economic Power

Jayashankar M. Swaminathan

Kenan-Flagler Business School

University of North Carolina, Chapel Hill

© Swaminathan 2007

India - At a Glance

• One of the oldest civilizations in the world• Seventh largest country in the world • Largest democracy in the world with over 1 billion people• Blessed with natural landscape and wildlife • More than 300 dialects • Most English speaking in a single country outside US• Secular with multiple religions• One of the largest country in terms of number of people

below poverty line

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India and the Global Economy

• Spices and Precious Material• Cotton and Silk• Cow, Elephant, Rhino and Tiger• Yoga and Spirituality• Call Centers and Software

© Swaminathan 2007

India - At a Glance

• One of the oldest civilizations in the world

© Swaminathan 2007

India - At a Glance

• Seventh largest country in the world

© Swaminathan 2007

India - At a Glance

• Largest democracy in the world with a population of over 1 billion people

© Swaminathan 2007

India - At a Glance

• Great geography and wild life

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India - At a Glance

• More than 350 dialects• Most English speaking

people in a country outside of US

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India- At a Glance

• Multiple Religions

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India – At a Glance

• Poverty

• One of the largest country in terms of number of below poverty line

• High percentage of illiterates in rural parts

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India: At a Glance

• Cows and Snake Charmers

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India: At a Glance

• Saree, Bindi and Jewellery

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India: At a Glance

• Spirituality and Yoga

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India: At a Glance

• Call Centers

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• From ancient days India has been known for its spices and craftsmen– Marco Polo, Vasco De Gama and Columbus

traveled long distances searching for India

• In the early part of 19th century India was the major producer of cotton for the globe

• In the most recent times, India has emerged as a popular destination for knowledge intensive work

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• Indian Economy (2005)– Population 1.08 billion (Growth- 1.5%)– GDP: $797.5 billion ($738 per capita)– GDP (PPP): $3.79 trillion ($3508 per capita)– Inflation: 5% (approx)– Foreign Direct Investment: 0.9% of GDP

Source: The Economist

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• Transformation from a underdeveloped to an emerging economy

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• One of the fastest growing economies in the world (average growth rate of over 7%)

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India and the Global Economy• Major Exports (2005-06)

– Engineering goods: 21%– Textile and Textile Products:

15.6%– Gems and Jewellery: 15.1%– Petroleum Products: 11.2%

• Major Imports (2005-06)– Petroleum Products: 30.9%– Electronic goods: 9.9%– Gold and Silver: 7.9%– Machinery: 6.9%

• Leading Markets– US: 17.6%– China: 8.7%– UAE: 7.7%– UK: 4.5%

• Leading Suppliers– China: 6.9%– US: 6.1%– Belgium: 4.9%– Singapore: 4.6%

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India and the Global Economy• Indian Market

– 200 million people in the middle class

– India’s retail market projected to be $300 billion in 2010

– Only 2% of retail sector is organized retailing – rest is mom and pop stores

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India and the Global Economy• Emerging as Multinationals

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• Indian Workforce– More than 100000 professionals engineers and

doctors from universities– More than 50% of population is under 25

years– Large pool of english speaking workers– Cultural mindset geared towards knowledge

and skill related work

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• Indian Manufacturing Sector– In the recent years, manufacturing sector is

picking steam– 5 Deming quality prizes for Indian firms

(largest outside of Japan)– Major investments by US, European and

Asian firms - POSCO, Dell, Motorola, Flextronics, BMW, Ford, Intimate Apparels

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India and the Global Economy• Indian BPO Sector

– The domestic BPO sector is projected to increase to $4 billion in 2004 and reach $65 billion by 2010 (McKinsey)

– There are over 200 call centers in India with revenues over $2 billion and a workforce of over 150,000

– Offshoring activities are moving towards higher value added activities such as legal, consulting, healthcare processing and insurance from technical support and airline reservations

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India and the Global Economy• Indian Software Sector

– Bangalore has become a synonym for best software off-shoring

– 80 of the World’s 117 highest quality certified firms (CMM- Level 5) are based in India

– From cost to quality to innovation

Source: McKinsey Nasscom

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Offshoring to India• Global demand for information technology $847 billion• India is among the top spot in offshore outsourcing

– ITES: $ 0.6 billion in 2000 to $8.4 billion in 2007– Software: $5.3 billion in 2000 to $31.4 billion in 2007

• Growth from simple low end activities to high end R&D outsourcing

• 347 institutes of higher education• Only 10-15% of the workforce is directly employable on a global

platform• Shortfall of 500,000 by 2010 (Nasscom)

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Key Offshore Models• Third Party

– Economical for smaller teams (<100)

– Responsiveness to client requirements

– Bench strength to accommodate rapid growth

– Staff rotation to add and create more variety

– Dedicated offshore centers to emulate a captive center

• Captive– Economical for larger teams (>100)

– Greater liberty in deciding incentive pattern of employees

– More leeway in hiring, retention and training of employees

– Possibility of utilizing cutting edge technology

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Dissatisfaction with Offshoring• Client Contributions

– Systemic problem in Managing the Offshoring Process

– Unreasonable Expectations

– Lack of Awareness of How to Make Offshoring Succeed

• Supplier Contributions– Ineffective Project Management– Lack of Communication– Inadequate Investments towards

Improving Employee Productivity– Ineffective Management of

Operational Challenges

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Operational Challenges• Hiring

– Challenge in recruiting and training talent• Training

– Large training budgets required• Turnover

– 15% to 30% of team turnover• Quality

– Scaling the quality processes in the BPO sector is a considerable challenge

• Communication and cultural differences – Manage both written and verbal communication

• Protecting client intellectual property rights– NASSCOM “4E Framework” and India IT Act

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India and the Global Economy• India's GDP will reach $ 1

trillion by 2011, $ 2 trillion by 2020, $ 6 trillion by 2032, $ 10 trillion by 2038, and $ 27 trillion by 2050

• Will become the 3rd largest economy after USA and China

• In terms of GDP, India will overtake Italy by the year 2016, France by 2019, UK by 2022, Germany by 2023, and Japan by 2032

Source: Goldman Sachs

© Swaminathan 2007


• Some recent news– Two of the biggest acquisitions in steel by

Mittal (Arcelor for $32b) and Tata (Corus for $11b) last year

– Fastest growing market for cellular phones in the world

– 3rd most number of billionaires in the country after USA and Russia (Forbes 2007)

– The stock market is at an all time high

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• Democracy and Market Economy– Coalitions and Strong Regional Parties– Finance, Retail, Insurance and Power Sectors

still partially controlled

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• Inadequate Planning for Rapid Growth– Inflation rose above 6%– Financial lending high– Educated labor pool limitation– Cities and urban areas choking

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• Potential Religious and Regional Tensions– Hindu Muslim Conflicts– Threat of War with Pakistan– Violence in Sri Lanka and Nepal

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• What will India’s economy look like in the future?Title: Indian Economic Power: Fiction or Future

Jayashankar M. Swaminathan

Publish Date: Summer 2008

Publisher: Imperial College Press, London and

World Scientific, Singapore

© Swaminathan 2007 India- A Future Economic Power Jayashankar M. Swaminathan Kenan-Flagler Business...

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