McKinsey on Indian Industry

McKinsey Quarterly discusses how other industries need to replicate the success of India’s outsourcing and automotive industries:

India has clearly benefited from closer integration into the global economy in industries such as automotive, business-process outsourcing, and IT. To build on that success, the government must now lower trade and foreign-investment barriers still further.

First, tariff levels should be cut to an average of 10 percent, matching those of Indias neighbors in the Association of South East Asian Nations (ASEAN). Although progress has been made on tariffs, the Indian government still prohibits imports of many goods and protects inefficient companies from foreign competition. To give those companies a chance to improve their operations, the government might first lower duties on capital goods and inputs. Then, over several years, it could reduce them on finished goods.

Foreign-ownership restrictions should be lifted throughout the economy as well, except in strategic areas, notably defense. At present, foreign ownership is not only prohibited altogether in industries such as agriculture, real estate, and retailing but also limited to minority stakes in many others, such as banking, insurance, and telecommunications.

Indias government should also reconsider the expensive but often ineffective incentives it offers foreign companies to attract foreign investment, for these resources would be put to better use improving the countrys roads, telecom infrastructure, power supply, and logistics. Whats more, MGI research found that the government often gives away substantial sums of money for investments that would have been made anyway.3 (To give one example, it has waived the 35 percent tax on corporate profits for foreign companies that move business-process operations to India, even though the country dominates the global industry.) Moreover, state governments often conduct unproductive bidding wars with one another and give away an assortment of tax holidays, import duty exemptions, and subsidized land and power. Yet MGI surveys show that foreign executives place relatively little value on these incentives and would rather see the government invest resources in the countrys poor infrastructure.

Finally, interviews with foreign executives showed us that Indias labor laws deter foreign investment in some industries. It is no coincidence that software and business-outsourcing companies are exempt from many labor regulations, such as those regarding hours and overtime. Executives tell us that without these exemptions, it would be impossible to perform back-office operations in India. To attract foreign investment in labor-intensive industries, the government should therefore consider making labor laws more flexible.

Some Indian policy makers might argue that the reforms proposed here would undermine long-held social objectives, such as creating employment. But the evidence shows that regulations on foreign investment, foreign trade, and labor have actually slowed economic growth and lowered the standard of living. A decade ago, Indias per capita income was nearly the same as Chinas; today, Chinas is almost twice as high.

Indias economy has made real progress, but further liberalization will be needed to sustain its growth. The country now has 40 million people looking for work, and an additional 35 million will join the labor force over the next three years. Creating jobs for all these Indians will require more dynamic and competitive industries across the economy. Opening up to foreign competition, not hiding from it, is the answer.

Wiki Ways

Business Week [1 2] writes:

When software developer Nicholas Pisarro Jr. saw his first wiki late last year, he knew it was unlike any Web site he had ever seen. On the site, a free online encyclopedia called Wikipedia, thousands of volunteers had written a breathtaking 500,000 articles in 50 languages since 2001 — all thanks to the defining feature of wikis. To contribute, all they had to do to was click on an “edit this page” button and start typing.

Now, Pisarro has wikis transforming the way people work at the company he founded, software maker Aperture Technologies Inc. Two dozen of the Stamford (Conn.) company’s 100 employees use them to brainstorm, track projects, write and edit documentation, and coordinate marketing. That has eliminated countless meetings, conference calls, and back-and-forth e-mails. Says Pisarro: “Wikis allow this collaboration much better than anything else, so we get things done faster.”

The amazing thing is that wikis work at all. Created in 1995 by Oregon programmer Ward Cunningham, who named them for the “Wiki-Wiki,” or “quick” shuttle buses at Honolulu Airport, wikis are special Web sites on which anyone can post material without knowing arcane programming languages. Likewise, anyone can edit them. This can lead to mischief: Jokers have posted images of male anatomy on Wikipedia. But graffiti is usually gone within minutes, because the previous version of a page can be restored with a click. In sensitive corporate situations, access can be controlled, too.

Like open-source software, wikis may make their biggest mark less as a business than as a potent force for change — in this case, in the way people work.

Nowhere is that potential more apparent than in today’s far-flung, time-pressed corporate teams. Aaron Burcell, director of marketing for e-mail software startup Stata Laboratories Inc., says working on a wiki has cut the daily phone calls he made on a raft of projects to one a week. It also has allowed Stata to outsource more work, such as engineering, to India. Says Burcell: “I could justify the cost of the wiki just from the lower teleconferencing bills.”

Verizon’s Challenges

I once worked at NYNEX, a Baby Bell, which evolved into Verizon, “which dominates the Northeast with 35 million local phone customers, $68 billion in annual sales and a market capitalization of nearly $100 billion.” So, reading about what’s happening in the US telecom industry is quite fascinating as competition comes in from multiple sides. WSJ writes about how cable and Internet players are targeting Verizon’s customers, and what Verizon is doing:

The rapid spread of new technologies is upending the Bells’ dominion. Increasingly, the telecom market is turning into a Hobbesian war of all against all as every company tries to offer every type of service across the country. The Bells are even beginning to steal one another’s local customers, after two decades of generally respecting regional boundaries.

That’s why New York-based Verizon is going after the business of law firms in Los Angeles, and San Antonio-based SBC Communications Inc. is dusting off a switching hub in Manhattan to serve Wall Street financial firms and other companies. At home, consumers are likely to hear pitches from cable-television companies, Internet telephone companies, long-distance providers and any other business that thinks it can grab a piece of the Bells’ pie.

This week, cable giant Comcast Corp. said it plans to make phone service available to 40 million households in the U.S. by 2006 — a direct challenge to the Bells. Comcast’s service will use Internet technology to deliver the calls instead of the traditional circuit switches favored by the Bells.

Verizon has cut more than 21,000 jobs through buyouts since December and is racing to automate processes that used to require fax machines and thick binders of documents. Verizon sold thousands of phone lines in Hawaii for $1.65 billion and has put others in upstate New York up for sale in an effort to cut its $44.5 billion debt and invest in new technologies. It’s also phasing out free weather-information lines and selling real estate vacated by laid-off employees.

“What’s happening right now at Verizon is a total change that is bigger than all prior changes of the Bells’ past combined,” Paul Lacouture, the company’s president of network services, told workers [recently].

This month, Verizon also announced a multibillion-dollar plan to bring high-speed fiber lines into millions of customers’ homes. The lines could eventually carry TV programs, turning Verizon into a direct competitor of cable companies such as Comcast.

Verizon is also going after business customers. Traditionally, they gravitated to long-distance companies such as AT&T or Sprint Corp., which have nationwide networks of optical fiber to carry calls. Now Verizon is telling those customers that it, too, is a national player.

Verizon has put 300 miles of fiber in the ground in Los Angeles, Seattle and Dallas, reaching into the territories of SBC and Qwest. It has built a national network that can accommodate the huge amounts of data that corporations send between points of their empires.

The new investments are beginning to pay off. In the past 18 months, Verizon has persuaded hundreds of corporate customers who previously used only its local service to sign up for Verizon services in other Bells’ territories. The new services bring in $250 million a year, and Verizon hopes that will rise to $1 billion a year by 2007.