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Business Week in their Dec 8, 2003 issue had a cover story titled "The Rise of India". It can be found at http://www.businessweek.com/cgi-bin/register/archive.cgi?c=&y=03&w=49&h=b3861002_mz001.htm (requires free registration). Here is the article itself. The article touches on various technologies, the positive and negative and IT services.

DECEMBER 8, 2003 • Editions: N. America | Europe | Asia | Edition

Cover Image: The Rise Of India

Graphic: Where India Is Making An Impact...And Where It's Going Next

Chart: Why Corporate America Is Beating A Path To India

Graphic: Who's Bulking Up

Graphic: Where China Is Way Ahead...Where India Has The Edge

India And Silicon Valley: Now The R&D Flows Both Ways

COVER STORY

The Rise Of India

Commentary: Meeting the Asian Challenge

Commentary: India Is Raising Its Sights At Last

COVER STORY

The Rise Of India

Growth is only just starting, but the country's brainpower is already

reshaping Corporate America

As you pull into General Electric's (GE ) John F. Welch Technology Center,

a uniformed guard waves you through an iron gate. Once inside, you leave

the dusty, traffic-clogged streets of Bangalore and enter a leafy campus

of low buildings that gleam in the sun. Bright hallways lined with plants

and abstract art -- "it encourages creativity," explains a manager -- lead

through laboratories where physicists, chemists, metallurgists, and

computer engineers huddle over gurgling beakers, electron microscopes, and

spectrophotometers. Except for the female engineers wearing saris and the

soothing Hindi pop music wafting through the open-air dining pavilion,

this could be GE's giant research-and-development facility in the upstate

New York town of Niskayuna.

It's more like Niskayuna than you might think. The center's 1,800

engineers -- a quarter of them have PhDs -- are engaged in fundamental

research for most of GE's 13 divisions. In one lab, they tweak the

aerodynamic designs of turbine-engine blades. In another, they're

scrutinizing the molecular structure of materials to be used in DVDs for

short-term use in which the movie is automatically erased after a few

days. In another, technicians have rigged up a working model of a GE

plastics plant in Spain and devised a way to boost output there by 20%.

Patents? Engineers here have filed for 95 in the U.S. since the center

opened in 2000.

Pretty impressive for a place that just four years ago was a fallow plot

of land. Even more impressive, the Bangalore operation has become vital to

the future of one of America's biggest, most profitable companies. "The

game here really isn't about saving costs but to speed innovation and

generate growth for the company," explains Bolivian-born Managing Director

Guillermo Wille, one of the center's few non-Indians.

The Welch center is at the vanguard of one of the biggest mind-melds in

history. Plenty of Americans know of India's inexpensive software writers

and have figured out that the nice clerk who booked their air ticket is in

Delhi. But these are just superficial signs of India's capabilities.

Quietly but with breathtaking speed, India and its millions of world-class

engineering, business, and medical graduates are becoming enmeshed in

America's New Economy in ways most of us barely imagine. "India has always

had brilliant, educated people," says tech-trend forecaster Paul Saffo of

the Institute for the Future in Menlo Park, Calif. "Now Indians are taking

the lead in colonizing cyberspace."

This techno take-off is wonderful for India -- but terrifying for many

Americans. In fact, India's emergence is fast turning into the latest

Rorschach test on globalization. Many see India's digital workers as

bearers of new prosperity to a deserving nation and vital partners of

Corporate America. Others see them as shock troops in the final assault on

good-paying jobs. Howard Rubin, executive vice-president of Meta Group

Inc., a Stamford (Conn.) information-technology consultant, notes that big

U.S. companies are shedding 500 to 2,000 IT staffers at a time. "These

people won't get reabsorbed into the workforce until they get the right

skills," he says. Even Indian execs see the problem. "What happened in

manufacturing is happening in services," says Azim H. Premji, chairman of

IT supplier Wipro Ltd. "That raises a lot of social issues for the U.S."

No wonder India is at the center of a brewing storm in America, where

politicians are starting to view offshore outsourcing as the root of the

jobless recovery in tech and services. An outcry in Indiana recently

prompted the state to cancel a $15 million IT contract with India's Tata

Consulting. The telecom workers' union is up in arms, and Congress is

probing whether the security of financial and medical records is at risk.

As hiring explodes in India, the jobless rate among U.S. software

engineers has more than doubled, to 4.6%, in three years. The rate is 6.7%

for electrical engineers and 7.7% for network administrators. In all, the

Bureau of Labor Statistics reports that 234,000 IT professionals are

unemployed.

The biggest cause of job losses, of course, has been the U.S. economic

downturn. Still, there's little denying that the offshore shift is a

factor. By some estimates, there are more IT engineers in Bangalore

(150,000) than in Silicon Valley (120,000). Meta figures at least

one-third of new IT development work for big U.S. companies is done

overseas, with India the biggest site. And India could start grabbing jobs

from other sectors. A.T. Kearney Inc. predicts that 500,000

financial-services jobs will go offshore by 2008. Indiana notwithstanding,

U.S. governments are increasingly using India to manage everything from

accounting to their food-stamp programs. Even the U.S. Postal Service is

taking work there. Auto engineering and drug research could be next.

More Science in Schools

Tech luminary Andrew S. Grove, CEO of Intel Corp. (INTC ), warns that

"it's a very valid question" to ask whether America could eventually lose

its overwhelming dominance in IT, just as it did in electronics

manufacturing. Plunging global telecom costs, lower engineering wages

abroad, and new interactive-design software are driving revolutionary

change, Grove said at a software conference in October. "From a technical

and productivity standpoint, the engineer sitting 6,000 miles away might

as well be in the next cubicle and on the local area network." To maintain

America's edge, he said, Washington and U.S. industry must double software

productivity through more R&D investment and science education.

But there's also a far more positive view -- that harnessing Indian

brainpower will greatly boost American tech and services leadership by

filling a big projected shortfall in skilled labor as baby boomers retire.

That's especially possible with smarter U.S. policy. Companies from GE

Medical Systems (GE ) to Cummins (CUM ) to Microsoft (MSFT ) to

enterprise-software firm PeopleSoft (PSFT ) that are hiring in India say

they aren't laying off any U.S. engineers. Instead, by augmenting their

U.S. R&D teams with the 260,000 engineers pumped out by Indian schools

each year, they can afford to throw many more brains at a task and speed

up product launches, develop more prototypes, and upgrade quality. A top

electrical or chemical engineering grad from Indian Institutes of

Technology (IITS) earns about $10,000 a year -- roughly one-eighth of U.S.

starting pay. Says Rajat Gupta, an IIT-Delhi grad and senior partner at

consulting firm McKinsey & Co.: "Offshoring work will spur innovation, job

creation, and dramatic increases in productivity that will be passed on to

the consumer."

Whether you regard the trend as disruptive or benefical, one thing is

clear. Corporate America no longer feels it can afford to ignore India.

"There's just no place left to squeeze" costs in the U.S., says Chris

Disher, a Booz Allen Hamilton Inc. outsourcing specialist. "That's why

every CEO is looking at India, and every board is asking about it." neoIT,

a consultant advising U.S. clients on how to set up shop in India, says it

has been deluged by big companies that have been slow to move offshore.

"It is getting to a state where companies are literally desperate," says

Bangalore-based neoIT managing partner Avinash Vashistha.

As a result of this shift, few aspects of U.S. business remain untouched.

The hidden hands of skilled Indians are present in the interactive Web

sites of companies such as Lehman Brothers (LEH ) and Boeing (BA ),

display ads in your Yellow Pages, and the electronic circuitry powering

your Apple Computer (AAPL ) iPod. While Wall Street sleeps, Indian

analysts digest the latest financial disclosures of U.S. companies and

file reports in time for the next trading day. Indian staff troll the

private medical and financial records of U.S. consumers to help determine

if they are good risks for insurance policies, mortgages, or credit cards

from American Express Co. (AXP ) and J.P. Morgan Chase & Co. (JPM ).

By 2008, forecasts McKinsey, IT services and back-office work in India

will swell fivefold, to a $57 billion annual export industry employing 4

million people and accounting for 7% of India's gross domestic product.

That growth is inspiring more of the best and brightest to stay home

rather than migrate. "We work in world-class companies, we're growing, and

it's exciting," says Anandraj Sengupta, 24, an IIT grad and young star at

GE's Welch Centre, where he has filed for two patents. "The opportunities

exist here in India."

If India can turn into a fast-growth economy, it will be the first

developing nation that used its brainpower, not natural resources or the

raw muscle of factory labor, as the catalyst. And this huge country

desperately needs China-style growth. For all its R&D labs, India remains

visibly Third World. IT service exports employ less than 1% of the

workforce. Per-capita income is just $460, and 300 million Indians subsist

on $1 a day or less. Lethargic courts can take 20 years to resolve

contract disputes. And what pass for highways in Bombay are choked,

crumbling roads lined with slums, garbage heaps, and homeless migrants

sleeping on bare pavement. More than a third of India's 1 billion citizens

are illiterate, and just 60% of homes have electricity. Most bureaucracies

are bloated, corrupt, and dysfunctional. The government's 10% budget

deficit is alarming. Tensions between Hindus and Muslims always seem

poised to explode, and the risk of war with nuclear-armed Pakistan is

ever-present.

So it's little wonder that, compared to China with its modern

infrastructure and disciplined workforce, India is far behind in exports

and as a magnet for foreign investment. While China began reforming in

1979, India only started to emerge from self-imposed economic isolation

after a harrowing financial crisis in 1991. China has seen annual growth

often exceeding 10%, far better than India's decade-long average of 6%.

In the Valley's Marrow

Still, this deep source of low-cost, high-IQ, English-speaking brainpower

may soon have a more far-reaching impact on the U.S. than China.

Manufacturing -- China's strength -- accounts for just 14% of U.S. output

and 11% of jobs. India's forte is services -- which make up 60% of the

U.S. economy and employ two-thirds of its workers. And Indian knowledge

workers are making their way up the New Economy food chain, mastering

tasks requiring analysis, marketing acumen, and creativity.

This means India is penetrating America's economic core. The 900 engineers

at Texas Instruments Inc.'s (TXN ) Bangalore chip-design operation boast

225 patents. Intel Inc.'s (INTC ) Bangalore campus is leading worldwide

research for the company's 32-bit microprocessors for servers and wireless

chips. "These are corporate crown jewels," says Intel India President

Ketan Sampat. India is even getting hard-wired into Silicon Valley.

Venture capitalists say anywhere from one-third to three-quarters of the

software, chip, and e-commerce startups they now back have Indian R&D

teams from the get-go. "We can barely imagine investing in a company

without at least asking what their plans are for India," says Sequoia

Capital partner Michael Moritz, who nurtured Google, Flextronics (FLEX ),

and Agile Software (AGIL ). "India has seeped into the marrow of the

Valley."

It's seeping into the marrow of Main Street. This year, the tax returns of

some 20,000 Americans were prepared by $500-a-month CPAs such as Sandhya

Iyer, 24, in the Bombay office of Bangalore's MphasiS. After reading

scanned seed and fertilizer invoices, soybean sales receipts, W2 forms,

and investment records from a farmer in Kansas, Iyer fills in the farmer's

82-page return. "He needs to amortize these," she types next to an entry

for new machinery and a barn. A U.S. CPA reviews and signs the finished

return. Next year, up to 200,000 U.S. returns will be done in India, says

CCH Inc. in Riverwoods, Ill., a supplier of accounting software. And it's

not only Big Four firms that are outsourcing. "We are seeing lots of firms

with 30 to 200 CPAs -- even single practitioners," says CCH Sales

Vice-President Mike Sabbatis.

The gains in efficiency could be tremendous. Indeed, India is accelerating

a sweeping reengineering of Corporate America. Companies are shifting bill

payment, human resources, and other functions to new, paperless centers in

India. To be sure, many corporations have run into myriad headaches,

ranging from poor communications to inconsistent quality. Dell Inc.

recently said it is moving computer support for corporate clients back to

the U.S. Still, a raft of studies by Deloitte Research, Gartner, Booz

Allen, and other consultants find that companies shifting work to India

have cut costs by 40% to 60%. Companies can offer customer support and use

pricey computer gear 24/7. U.S. banks can process mortgage applications in

three hours rather than three days. Predicts Nandan M. Nilekani, managing

director of Bangalore-based Infosys Technologies Ltd. (INFY ): "Just like

China drove down costs in manufacturing and Wal-Mart (WMT ) in retail," he

says, "India will drive down costs in services."

But deflation will also mean plenty of short-term pain for U.S. companies

and workers who never imagined they'd face foreign rivals. Consider

America's $240 billion IT-services industry. Indian players led by

Infosys, Tata, and Wipro got their big breaks during the Y2K scare, when

U.S. outfits needed all the software help they could get. Indians still

have less than 3% of the market. But by undercutting giants such as

Accenture, IBM, and Electronic Data Systems (EDS ) by a third or more for

software and consulting, they've altered the industry's pricing. "The

Indian labor card is unbeatable," says Chief Technology Officer John

Parkinson of consultant Cap Gemini Ernst & Young. "We don't know how to

use technology to make up the difference."

Wrenching Change

Many U.S. white-collar workers are also in for wrenching change. A study

by McKinsey Global Institute, which believes offshore outsourcing is good,

also notes that only 36% of Americans displaced in the previous two

decades found jobs at the same or higher pay. The incomes of a quarter of

them dropped 30% or more. Given the higher demands of employers, who want

technicians adept at innovation and management, it could take years before

today's IT workers land solidly on their feet.

India's IT workers, in contrast, sense an enormous opportunity. The

country has long possessed some basics of a strong market-driven economy:

private corporations, democratic government, Western accounting standards,

an active stock market, widespread English use, and schools strong in

computer science and math. But its bureaucracy suffocated industry with

onerous controls and taxes, and the best scientific and business minds

went to the U.S., where the 1.8 million Indian expatriates rank among the

most successful immigrant groups.

Now, many talented Indians feel a sense of optimism India hasn't

experienced in decades. "IT is driving India's boom, and we in the younger

generation can really deliver the country from poverty," says Rhythm

Tyagi, 22, a master's degree student at the new Indian Institute of

Information Technology in Bangalore. The campus is completely wired for

Wi-Fi and boasts classrooms with videoconferencing to beam sessions to 300

other colleges.

That confidence is finally spurring the government to tackle many of the

problems that have plagued India for so long. Since 2001, Delhi has been

furiously building a network of high- ways. Modern airports are next.

Deregulation of the power sector should lead to new capacity. Free

education for girls to age 14 is a national priority. "One by one, the

government is solving the bottlenecks," says Deepak Parekh, a financier

who heads the quasi-governmental Infrastructure Development Finance Co.

Future Vision

India also is working to assure that it will be able to meet future demand

for knowledge workers at home and abroad. India produces 3.1 million

college graduates a year, but that's expected to double by 2010. The

number of engineering colleges is slated to grow 50%, to nearly 1,600, in

four years. Of course, not all are good enough to produce the world-class

grads of elite schools like the IITs, which accepted just 3,500 of 178,000

applicants last year. So there's a growing movement to boost faculty

salaries and reach more students nationwide through broadcasts. India's

rich diaspora population is chipping in, too. Prominent Indian Americans

helped found the new Indian School of Business, a tie-up with Wharton

School and Northwestern University's Kellogg Graduate School of Management

that lured most of its faculty from the U.S. Meanwhile, the six IIT

campuses are tapping alumni for donations and research links with

Stanford, Purdue, and other top science universities. "Our mission is to

become one of the leading science institutions in the world," says

director Ashok Mishra of IIT-Bombay, which has raised $16 million from

alumni in the past five years.

If India manages growth well, its huge population could prove an asset. By

2020, 47% of Indians will be between 15 and 59, compared with 35% now. The

working-age populations of the U.S. and China are projected to shrink. So

India is destined to have the world's largest population of workers and

consumers. That's a big reason why Goldman, Sachs & Co. (GS ) thinks India

will be able to sustain 7.5% annual growth after 2005.

Skeptics fear U.S. companies are going too far, too fast in linking up

with this giant. But having watched the success of the likes of GE Capital

International Services (GE ), many execs feel they have no choice. Inside

GECIS' Bangalore center -- one of four in India -- Gauri Puri, a

28-year-old dentist, is studying an insurance claim for a root-canal

operation to see if it's covered in a certain U.S. patient's dental plan.

Two floors above, members of a 550-strong analytics team are immersed in

spreadsheets filled with a boggling array of data as they devise

statistical models to help GE sales staff understand the needs, strengths,

and weaknesses of customers and rivals. Other staff prepare data for GE

annual reports, write enterprise resource-planning software, and process

$35 billion worth of global invoices. Says GE Capital India President

Pramod Bhasin: "We are mission-critical to GE." The 700 business processes

done in India save the company $340 million a year, he says.

Indian finance whizzes are a godsend to Wall Street, too, where brokerages

are under pressure to produce more independent research. Many are turning

to outfits such as OfficeTiger in the southern city of Madras. The company

employs 1,200 people who write research reports and do financial analysis

for eight Wall Street firms. Morgan Stanley (MWD ), J.P. Morgan (JPM ),

Goldman Sachs (GS ), and other big investment banks are hiring their own

armies of analysts and back-office staff. Many are piling into Mindspace,

a sparkling new 140-acre city-within-a-city abutting Bombay's urban

squalor. Some 3 million square feet are already leased to Western finance

firms. By yearend, Morgan Stanley will fill several floors of a new

building.

For Silicon Valley startups, Indian engineers let them stretch R&D

budgets. PortalPlayer Inc., a Santa Clara (Calif.) maker of multimedia

chips and embedded software for portable devices such as music players,

has hired 100 engineers in India and the U.S. who update each other daily

at 9 a.m. and 10 p.m. J.A. Chowdary, CEO of PortalPlayer's Hyderabad

subsidiary Pinexe, says the company has shaved up to six months off the

development cycle -- and cut R&D costs by 40%. Impressed, venture

capitalists have pumped $82 million into PortalPlayer.

More Bang for the Buck

Old economy companies are benefiting, too. Engine maker Cummins plans to

use its new R&D center in Pune to develop the sophisticated computer

models needed to design upgrades and prototypes electronically. Says

International Vice-President Steven M. Chapman: "We'll be able to

introduce five or six new engines a year instead of two" on the same $250

million R&D budget -- without a single U.S. layoff.

The nagging fear in the U.S., though, is that such assurances will ring

hollow over time. In other industries, the shift of low-cost production

work to East Asia was followed by engineering. Now, South Korea and Taiwan

are global leaders in notebook PCs, wireless phones, memory chips, and

digital displays. As companies rely more on IT engineers in India and

elsewhere, the argument goes, the U.S. could cede control of other core

technologies. "If we continue to offshore high-skilled professional jobs,

the U.S. risks surrendering its leading role in innovation," warns John W.

Steadman, incoming U.S. president of Institute of Electrical & Electronics

Engineers Inc. That could also happen if many foreigners -- who account

for 60% of U.S. science grads and who have been key to U.S. tech success

-- no longer go to America to launch their best ideas.

Throughout U.S. history, workers have been pushed off farms, textile

mills, and steel plants. In the end, the workforce has managed to move up

to better-paying, higher-quality jobs. That could well happen again. There

will still be a crying need for U.S. engineers, for example. But what's

called for are engineers who can work closely with customers, manage

research teams, and creatively improve business processes. Displaced

technicians who lack such skills will need retraining; those entering

school will need broader educations.

Adapting to the India effect will be traumatic, but there's no sign

Corporate America is turning back. Yet the India challenge also presents

an enormous opportunity for the U.S. If America can handle the transition

right, the end result could be a brain gain that accelerates productivity

and innovation. India and the U.S., nations that barely interacted 15

years ago, could turn out to be the ideal economic partners for the new

century.

By Manjeet Kripalani and Pete Engardio

With Steve Hamm in New York

Copyright 2003, by The McGraw-Hill Companies Inc. All rights reserved.

-- Thank You Regards. Dave Mahadevan.. mailto:mahadevan@xxxxxxxx 12:51 PM, Friday, 2 January 2004 ------------------------------------------------------------------------------------------------------------------------------ If I want your opinion, I'll ask you to fill out the necessary form. ------------------------------------------------------------------------------------------------------------------------------

Rise of India - Business Week - Dec 8, 2003