IT.India Part I : Offshore R & D

For the past month or so the Indian rupee is getting stronger against the American dollar, which has come down to 39 INR compared to 45 INR. This is already bleeding Indian services companies and their Q3 numbers speaks for that. When the rupee was getting weaker these service companies used to make 4-5% of their margins just by keeping their money in dollars and converting them back during the results announcement. Nowadays Indian service companies are mulling multiple options to resolve this problem — six day working week, reduced hike for employees, productivity improvement, moving to lower cost geographies (like China and eastern europe) etc. With STPI tax sops are getting withdrawn by 2009, Indian IT companies are having challenging times ahead.

Let me take the example of product R & D happening in Indian companies as an example. Of course value creation can be done at multiple levels apart from R & D as well. Majority of MNCs which are having their engineering centers in India are working in the ‘Offshore R & D’ or ‘Engineering services’ model. In this model, the offshore team owns majority piece of the SW that goes as a part of the product and take the complete ‘delivery ownership’ from India. This is slightly better than the ‘pure-vanilla-service’ model which Indian service companies (like Infosys, Wipro etc..) are offering majorly.

To understand this slightly better, let me take ‘Core vs Context’ framework introduced by Geoffrey Moore’s latest book ‘Dealing with darwin’. Let us understand the four quadrants with
some new definitions:

Core: Processes that enable and amplify your chosen vector of competitive differentiation
Context: All other processes

This Core and context can be again classified on ‘Mission critical’ and ‘Non-Mission-Critical’ which leads us with four quadrants. See the picture below to get a better idea:

Indian service companies, which are offering ‘pure-vanilla-service’ come under the bottom right side of this model, which is popularly known as ‘outsourcing’. There is very little value addition can happen here as it falls under ‘non-core’ activity.

The offshore R & D organizations are operating under the top-right quadrant. This means the activity is ‘mission-critical-but-non-core’ portion. For example: if a company is working on a enterprise router, the offshore R & D team can work on adding new features, maintaining the existing code and do some level of program management. From the business point of view this is critical, because the product is generating revenue for the company at present. In a way this quadrant is higher in the product value chain, but still it is not coming under the ‘core’ portion of the company’s strategy. Because the work the offshore entity doing is not providing any ‘competitive differentiation’ to the parent company. On the other hand, the parent companies will place all the resources into developing core portion of the product.

Sitting in places like India, contributing into the ‘core’ portion is extremely difficult. Following are the major challenges Indian companies are facing now:

  • The offshore team is totally un-aware of the customer needs. They are far away from the customers and most of the technology products won’t get deployed in countries like India. I won’t see this changing in the near future because these ’emerging markets’ need to mature a lot before they start adapting any new technologies. Except for the areas mobility I don’t see any technology has taken off in countries like India.
  • The local job market is over-heated where retaining talent has become uphill task. Engineers jump jobs every 1-2 years and its very hard to build the product building expertise with this mindset. I have personally seen engineers dedicating 30 years in a same product and understanding ‘nuts-and-bolts’ it. Its very very hard to such stuff here.
  • The offshore leadership team is primarily grown in the engineering domain and lack business acumen. For example a second level manager don’t have much idea about the big picture of the overall product. They only possess expertise in areas like: resource management, delivery management and to certain extent program management.

Now, how does the future looks from here on?

At one end its hard to imagine any US/UK based company to offshore the ‘core’ work because it doesn’t make business sense.On the other end the offshore entity can’t do much because they don’t know the customer. In a way the ‘offshoring’ is stuck in top right portion (quadrant-III) of the Geoffrey Moore model. In my perspective, it will continue to stay there for a long period
of time until the local market gains significance. The local market growth will mainly depend on multiple factors like: Good governance, robust infrastructure, litracy and technology awareness. I would say the ‘india-offshore-story’ has just begun and it is foolish to start celebrations at this point in time. These companies have got to cover much more distance before they really achieve ‘value creation’.

Tech/Biz Magazines

Here is some of my favorite magazines!

These mags are targeted to a specific audience, providing vital information. I started liking these type of stuff as they are catering to my interests. They also give altogether a ‘positive’ outlook of India.

1. Dare (http://www.dare.co.in): This is published by cyber- media completely focused on Entrepreneurship. They started the print edition from Oct ’07 and the website is yet to be populated. Got a chance to read their Nov ’07 and found it very interesting. It covered various aspects of Entrepreneurship — new business ideas, VC/private funding, value creation and guest columns by successful Entrepreneurs. I also learned that their advisory committee consists of stalwarts like C.K.Prahlad, N.R.Narayana Murthy, Kanwal Reiki etc. Welcome effort from cybermedia!

2. Smart techie (http://www.thesmarttechie.com): This is a technical career magazine launched from Bangalore, which is a sister concern of Silicon India. I found this magazine provides very deep insights into interesting work some of the Indian companies doing. Also comes with loads of career related articles. Considering the young nature of technology industry in India, this magazine is very vital to bring in the proper exposure.

3. Mint (http://livemint.com): Launched as JV between Hindustan times and WSJ, this provides crisp business update. I got a chance to read their print edition when I visited Delhi during May, but recently they launched in Bangalore too. But I subscribe to their RSS feeds, found it pretty good to read. In a way this magazine lives truly up to its name ‘Mint’ — Just digest it.

4. Business Gyan (http://www.businessgyan.com): Excellent magazine published out of Bangalore targeting small and medium businesses. I have read printed edition (digest) as well as RSS feeds. The ‘classifieds’ section of their printed edition gives very useful information about all contact details (legal, real-estate, website building etc…), which are the first set of elements to build a business ground up.

Long way to go

No doubt! The 1991 economic reforms brought magnanimous changes to Indian economy. Indian companies are going ‘global’ by acquiring foreign firms, getting into joint ventures, reporting consistent profits and become much more professional. What about public sector organizations? By virtue they have long legacy by creating a good brand image among average middle class Indians. On the other side they are facing stiff competitions from their private counterparts and ‘somehow’ learning to think about customer satisfaction. Recently I came across a couple of interesting observations.

The first one was with getting landline and internet connectivity,when I moved to a new house. I chose BSNL without doing much research and initially got a good impression by looking into their website – well designed contents; downloadable application forms, electronic billing and payment facility, rate plan details etc. Added to that, I got the landline in a week’s time without any issues. But the real face of the public sector got exposed after some time:

  • The broadband internet connection was not given. When I called up all the support numbers provided in their website (except their toll free 1500), no-one answered the phone. Finally (after much frustration) I was able to get hold of one officer who routed me to another number. But again no response from the new number.
  • I opted for electronic clearance of my bills but it was not done. When I called up their billing department I got the answer saying it will be done from the following month. Finally it was never done.
  • In order to get the status of the internet I visited the BSNL office but got one uniform answer: ‘your connection is not yet approved’. It was as if I am at their mercy and they are doing a big favor by ‘approving’ my application. When I asked the ‘why’ and ‘when’ questions, nobody was able to give any answer.

As internet is a must have especially for me to surf endlessly , I decided to cancel my landline and application for a BSNL broadband and approached Airtel. The experience was totally different.

  • The connection was provided within 48 hours of submitting the application forms. The support engineers reached my home at 9 PM in the night and did the installation. They were totally professional — explained the operational manual completely, installed all necessary software in my laptop, provided their mobile number for immediate support.
  • The next day I got a call from their support desk asking for the feedback about installation and support engineer. After a month they called me again and explained every minute details of the first bill.
  • The line maintenance is always done in early mornings (3 AM to 5 AM) and Airtel notifies its users of the same by sending an SMS well in advance. Even though there is very little probability of using the line during that time the user is not in for a rude shock while on the net at that time.

I am a more satisfied user by opting for Airtel!

Coming to statistics, India’s teledensity (number of landline telephones in use for every 100 individuals living within an area) is 19.26% as of May 2007. Given the one billion Indian population, this presents a mammoth opportunity for telecom companies as rural India is not connected, and needs reliable connectivity. The BSNL might have got the early mover advantage in landline (by having 78% of the market share) and but has already lost ground in mobility. As remaining 80% of population needs to be connected, public sector companies like BSNL need to become extremely competitive.

Now let me move out of telecom! I wanted to enable electronic clearance for BESCOM (Bangalore Electricity Supply Company) and checked my e-banking website. I got the following information, which shows the number of days required to enable this facility:

Organization

Number of days

BESCOM

65

BSNL

45

Airtel

2

Reliance

2

Here also public sector’s reality got exposed!


In summary words like — competition, customer satisfaction, professionalism, reliable service, adopting technology is ‘new’ to these public sector organizations. They are used to operating in the old-economy style with bureaucratic mindset. Now all of a sudden they are asked to change their mindset and operate in globalized world. They are learning in their own phase, which may not be acceptable in today’s world. They have a long way to go to attain world class excellence and I hope will not be too late.

Tale of two Indias

In order to attend a training program, I visited another facility of my company, which happens to be a building with seven floors. Also it is one of the well planned and truly upto the global standard, somewhat similar to Singapore technology parks. During the break time I opened up the curtains and observing the surrounding areas. This is basically a very well constructed technology park (called as Bagmane Tech Park in C.V.Raman Nagar, Bangalore) and houses about 7000-10000 technology professionals.It was looking really great from the seventh floor — well designed parking lots with about 1000 cars , clean and green surroundings, regulated traffic etc.(See the picture below).


When I turned another 30 degrees to my right, I got a big shock. Just next to the technology park there is a slum followed by a dumping yard (See pictures below).

The experience was really an eye opener for me as it clearly depicted two Indias. If I can call the first case as the ‘developed India’, what name should I give for the second one? Should I feel happy or sad?

BOOK REVIEW: Silicon Valley Greats

Author: SS Kshatriy

Price: 180 INR

ISBN: 81-259-1459-5

When I visited Silicon Valley in the year 2002, I was amused to see so many Indians out there. Not only Indians are one of the major immigrant communities in the San Francisco bay area (which consist of counties like San Jose, Santa Clara, Fremont, Sunnyvale etc.) they are also one of the most successful group when it comes to Entrepreneurship. I remember reading one of the WSJ articles where as much as 30% successful Entrepreneurs in Silicon Valley are from Indian origin.

Thanks to Nehru’s socialistic democracy, bulk of highly educated (mainly from IITs) engineers migrated to the US and made fortunes there. Right from 1970s these folks built tons of high-tech organizations and generated abundance of wealth, which built a very strong brand for India. Two decades later when Indian opened up the economy in 1991, it was ‘homecoming’ experience for these wealthy entrepreneurs as they acted as a bridge between India and USA.

In his book ‘Silicon Valley Greats’, author Kshatriy met some of these ‘rags–to-riches’ Entrepreneurs, compiled their profiles in a good way. Starting with K.B.Chandrasekhar (co-founder of Exodus communications), the author presents the profiles of B.V. Jagdeesh (co-founder of Exodus), Kanwal Reiki (founder of TiE), Sabeer Bhatia (hotmail) and also domestic Entrepreneurs like Pradeep Kar (founder of Microland), Narayana Murthy (Infosys). All these people come from a middle-class background and migrated to USA with some hundred dollars in their pocket. From there these folks rose to one of the world’s successful tech-entrepreneurs.

At an outset the author compiled their profiles to answer questions like: What made them successful Entrepreneurs? How did they build their companies? How did they raise money for their venture? What drives them to contribute back to India? What sort of donations they have made to Indian universities? How do they lead their personal lives? What sort of ‘Indianness’ do they have inside them? How did they create a global brand for themselves? While compiling their profiles, author included some of the small but interesting incidents in their lives which had a profound impact later. For example, Sabeer Bhatia has always had ‘another method’ for solving mathematical problems during his school days. This lateral thinking helped him to think the web based e-mail, which lead to the birth of hotmail.

However at some of the chapters I found pretty lengthy as it was getting too much into their family and background information. It could have been more concise and brief. Also the shape of the book was bit odd and bulky. The publisher (Vikas publishing) could have taken more care while designing. Especially for bedroom readers (like me) it’s pretty hard to hold it and read.

In conclusion, I found this book is a good read technology professionals who are aspiring Entrepreneurs. I very much plants ‘positive’ and ‘progressive’ thought process in that direction.

India and the flat world

In his bestselling book ‘The world is flat’, author Tom Friedman illustrates his ‘flat world’ concept. For people who have not read the book, let me give a quick background. The three billion people from India and China are much more empowered and connected today. It started when India opened up the economy and China signed the WTO agreement for open trade. Fuelled by these open trade policies, the ‘Outsourcing’ and ‘Off-shoring’ are the latest buzzwords for western world organizations for leveraging the eastern world. According to Friedman, this new worldwide phenomenon has leveled the competing field and the whole world has become flat. I really enjoyed reading the book mainly because the author extensively traveled to various geographical regions, met people, experienced the changes personally and came up with his conclusions.

Now, let me look from the reverse angle and ask some questions to myself:

Is the world really flat from India’s perspective?
Can I do the same things from Bangalore, what I would be doing from Santa Clara?
Does the word ‘Bangalored’ really threatening westerners?
Can India sustain this boom?
Are we prepared for the social consequences of capitalism?

As a technology professional, let me take example of Indian software industry and try to get answers. Before getting into answers, let us see the definition for Outsourcing from wikipedia. Please give more emphasis to the words underlined:

Outsourcing entered the business lexicon in the 1980s and often refers to the delegation of non-core operations from internal production to an external entity specializing in the management of that operation. The decision to outsource is often made in the interest of lowering firm costs, redirecting or conserving energy directed at the competencies of a particular business, or to make more efficient use of worldwide labor, capital, technology and resources.

From the above definition it’s very clear that Indian companies will get to do only non-core activity. For software companies, most of the work will be in the areas of defect fixing, production support, software maintenance, software patches and working as an extended team. This is a great achievement in our history and loads of jobs got created because of outsourcing. The new ‘generation-Y’ Indians have more disposable income and purchasing power which leads to more business creation and wealth creation. The educated middle class is rising like big time and a new, vibrant, energetic and confident India is emerging. This ‘emergence’ is happening after eight hundred years of Indian history. The western companies are able to reduce the cost by handing over the work, thanks to India’s strong telecom backbone and English speaking population. It’s all a ‘Win-Win’ game. With this can I say the world has become flat from India’s perspective? Definitely NOT!

Even though the above mentioned advantages are very true, terms like product definition, understanding customer needs, customer interfacing, product marketing, technology evaluation and product ownership are still ‘unheard’ words in Indian software industry today. All we are good at is to hire bunch of fresh engineers from the college, train them, bill them, build process framework, commoditize engineers and manage attrition. What is the real ‘value addition’ happening here? According to me it is very minimal. We are currently enjoying the benefits of outsourcing mainly because of the lower wages in India which is catching up very fast. For example, today there is not much salary difference (based on my personal experience) between an engineer in Bangalore and Singapore. Then why should any firm outsource to India?

The Internet has played a significant part in making the world look ‘flat’ but lot of work needs to be done from India’s point of view. Following are three important points to consider:

  • The first need is to develop a domestic market for technology products and services, which demands ‘bottom of the pyramid’ innovations. The economic engine should fuel the domestic market creation and ultimately create an array of product making organizations from India. This is what the Asian tigers (Countries like Japan, Korea, Singapore, Taiwan and Hong-Kong) have successfully demonstrated in the past forty years.
  • India should become a manufacturing hub, mainly in semiconductors and automobile areas. This not only creates product building capability, also generates need for more software products. Of course, infrastructure is a major challenge in this case.
  • Industries should play significant role in forming relationship with academic institutions and do long-term strategic investments. This would create a competitive, industry ready workforce who can be deployed without much training. Missing on this would prove very costly in India, as it will create demand-supply problem.

I can keep adding to the list mentioned above, but they are major points to consider. As of today comparing Bangalore with Silicon Valley is nothing but a joke, where nobody in India talks about value creation. The world might look ‘flat’ from the westerner’s point of view, but India has to go a long way to really to make it a reality.

Moms and Mega serials

My 55 year old mother watches 3 mega-serials every day in TV and feels very uncomfortable if she misses a single episode of any of those three. Apart from watching, frequent discussions on these mega serials happen with neighborhood aunties. I am sure people who are reading this blog would also feel either their mom or wife or aunties are also addicted to this ‘Megaserialobia’. According to me this Megaserialobia is cultivating huge amount of ‘Negative’ and ‘Depressive’ thoughts among people.

The pattern and the objective of these mega-serials are very simple: Tap people’s emotions and make a huge business out of it. The mega-serial work starts with hiring 35+ year old cine actresses who lost almost all her opportunities acting in cinemas and make a ‘Heroine’ centric story around her. Then this 35+ year old ‘So-Called-Heroine’ gets married and moves into her in-law’s place. There she faces all sorts of problems ranging from humiliation to criminal case thanks to her ‘In-laws-and-co’ and some more ‘External villans’. This story moves on and on for years and shows how this ‘So-called-heroine’ fights against all her odds and finally wins her ‘War’ called ‘Life’. Even though some of the problems the ‘So-called-Heroine’ faces is true in real time, most of the other problems are well packaged to ‘emotionally blackmail’ people. This serial lasts for about 500 episodes in which about 450 episodes are focused on the ‘Negative’ and ‘Depressive’ areas of life and the remaining 50 is attributed to the end of this serial. To put in simple term the whole serial focuses on the ‘Negative’ aspects of life.

Nowadays these serials are becoming big hit by tapping the negative emotions of people which according to me not a healthy sign at all. On the other end people who make these mega serials make huge money out of this venture. To give simple statistics, a 10 second ad during these mega serials costs up to to 35,000 INR. Assuming seven minutes advertisement time per episode the producer makes about 75 crores by the end of one mega serial which is really a huge number by any standard. I am not concerned about producers making money (After all they are here for doing business) but they make it by showing negative things like humiliation, joint-family problems, deceiving and molestation.

Apart from mega serials I have also observed most of our TV channels show ‘Negative’ things happening around us rather than ‘Positive’. If we can have series of polls and debates on recent Mumbai bomb blasts why there not much TV programs on India’s booming economy, Raising middle class, Budding Entrepreneurs or even for that matter more comedy programs? I remembered one of the excellent speeches given by our President Dr. APJ Abdul Kalaam’s and an excerpt from the speech is given below:

I was in Tel Aviv once and I was reading the Israeli newspaper. It was the day after a lot of attacks and bombardments and deaths had taken place. The Hamas had struck. But the front page of the newspaper had the picture of a Jewish gentleman who in five years had transformed his desert land into an orchid and a granary. It was this inspiring picture that everyone woke up to. The gory details of killings, bombardments, deaths, were inside in the newspaper, buried among other news. In India we only read about death, sickness, terrorism, crime. Why are we so NEGATIVE?

To conclude I also do have the same question Dr.Kalaam has: WHY ARE WE SO NEGATIVE?

Economy and Governance

The World Bank has declared India as the 12th richest country in the world during the year 2005 based on its GDP numbers. According to the Times of India article India’s Gross Domestic Product (GDP) has touched 785.47 Billion dollars in the year 2005 and India is the only south Asian country in the list. This is really good news indeed. We are harnessing the results for the golden economic reforms that we have made in the year 1991. Today India is one among the hot-spot destinations as far as Foreign Institutional Investors (FIIs) are concerned and I am able to witness the raise of educated Indian middle class in front of my eyes.

Having said that the economic growth alone cannot be called as ‘real’ growth because we are still fighting against fundamental problems like poverty, illiteracy, health-care and infrastructure in almost all parts of the country. The vibrant economy is helping me to buy a Honda City car but my poor governance is making me drive in the worst roads. So the need of the hour is good Governance which should make this economic growth to remove the poverty and improve the ‘Quality-of-life’ for everybody. We should learn from south-east Asian countries that got independence at the same time (Singapore, Malaysia, Taiwan and Japan) and implement good governance.

Providing good governance in India is a real challenging task because of its ‘Diversified’ nature. Even though ‘Diversity’ is considered as strength in the Corporate as well as in the Investment world, in case of our country it is acting as a weakness because we are ‘Too-much-diversified’. We cannot talk to the whole country in a single language or bind the whole country under a single ideology. This makes the ‘Coalition’ government inevitable and makes the ruling party left with very less power to implement anything drastically. The recent ‘Hold-on-Disinvestment’ shows how difficult it is for any government to make any bold decisions.

Going by theories Economic reforms should change the needs of people and that need will drive the country towards good governance. For the past 1200 years India as a country is able to survive in spite of the foreign invasions is mainly because of its strong culture. Now it is time for us to take pride in our country and its strong culture and March towards improving ‘Quality-of-life’ and transforming ourselves into a ‘Developed’ nation.

Suhaana safar aur yeh mausam haseen

A month back I wrote a blog about Small-And-Medium Businesses (SMB) in India and the importance of technology in enabling these businesses to scale and perform better. After writing the blog I got to know that KPN travels (https://www.kpntravels.in/) have launched their website and bus tickets can be booked online. For people who don’t know KPN travels, it is one of the biggest privately operated bus services covering almost all parts of southern India. I have been traveling in their buses for the past give years and I can bet that their business will grow in multiples because of their online system as most of the people travel in their buses are ‘Bangalore-techies’ for visiting their native places over the weekend. This is a perfect example for the ‘SMB + Technology’ combination which I am sure is a ‘Killer combination’ in Indian context.

Also compared to other businesses, travel business in India seems to be the leader as far as adapting technology is concerned. According to ‘Digital Summit 2006’ statistics Indian railways (http://irctc.co.in/) is selling tickets worth Rs.30 crore every month which is having about 200,000 online transactions. The low-cost airline Air Deccan (http://www.airdeccan.net/) is making user of their online reservation system for all sorts of customers (Retail, travel agents, corporate bulk booking) and their run rate is Rs.1000 crore per year. Couple of days back Prathap Kalra CEO of ‘Makemytrip’ (http://www.makemytrip.com/) appeared in NDTV’s ‘Boss-day-out’ program and he was explaining about the travel and internet usage in India. Even though I don’t remember the exact numbers the growth potential offered by the online travel is simply amazing.

The benefit and ease of online travel has not yet reached average non-urban Indians. It is mainly because of the less PC and Internet penetration. The idea of Rs.10, 000 PC is looking good but its success is not yet proven. Here is where the ‘Affordable access devices (AAD)’ come into picture and I cannot think of a better AAD than mobile phones in Indian context. By bringing Internet into the mobile phone and developing applications especially for online ticketing is an area which is yet to be tapped.

The initial momentum for online travel is looking good from the service providers as well as from the consumer’s end. This should ultimately remove the long queues in reservation counters by make ticketing very easy and make the consumer sing the song ‘suhaana safar aur yeh mausam haseen’ 🙂

Technology, Society and Business

There are numerous definitions for the word ‘Leadership’. One of the definitions says ‘The ultimate test of practical leadership is the realization of intended, real change that meets people’s enduring needs’ and my mind cannot think of a better person than Sam Pitroda who is the best example I can ever think of practical leadership. The man who demonstrated for the first time to Indians what technology means and how it can change the whole society. His leadership brought ‘Technology-Business-Society’ together and being a tech-industry professional I have only one word for this person: ‘Hats-off’

For people don’t know who Sam Pitroda is, look into the nearby STD booth in any small ‘Ghalli’ in India. He is the man behind ‘conceptualizing’ the STD booth based business model and made it possible in India’s ‘Ever-challenging’ environment using technology. He founded Center for Development of Telematics (C-DAC) in 1984. He along with his colleagues ‘invented’ the telephone time measurement and billing machine which we can now see every ‘Ghalli’ of India. This is ‘low-cost-high-robust’ machine, produced in large volumes and operates well in adverse climatic conditions of India. Also he did all these things when Indian economy was closed and there is no support from any foreign entity for this simply because of the tight trade regulatory environment.

Today ‘Roti, Makhan aur Mobile’ is the latest buzzword in India. Wherever we go we can see people using mobile phones, landlines and Broadband Internet connections. For most of the telecom companies in the world India is the hottest market and investment is pouring in from all directions. Ranging from Singtel (Which holds 31% stake in Bharthi telecom) to Verizon I can see every global player in this field now. Apart from service providers handset manufacturing firms like Nokia are setting up manufacturing facilities in India. According to the latest statistics India has 49 million fixed telephone line users and 76 million mobile phone users, which is 12.5% of total population. This also shows that there is remaining 87.5% of population who don’t have telephone connections and opens up a huge opportunity for telecom companies. India is one of the very few countries in the world where incoming mobile calls are free. Apart from this the ‘Connecting’ India, telecom industry is acting as the backbone of IT industry. Without this strong telephony infrastructure off-shoring an out-sourcing would not have been made possible.

No one can deny the fact that Sam sowed seeds two decades back because of which India is benefiting today. He stands out as an example for vision, demonstration of leadership, enabling less privileged people using technology, building business and generating employment in India and of course acting as a inspiration for lakhs and lakhs for young Indians like me.