Tag: India

New Types of Travelers Boost India’s Hospitality Industry

Posted on October 31, 2012

The Confederation of Indian Industry and real estate consulting firm Cushman & Wakefield recently launched a report on the Indian hospitality industry. The report, “Survival to Supremacy: India Hospitality Story 2012 & Beyond,” notes that globally, the hospitality sector is “one of the most sensitive sectors that is affected by any and all events — global, regional or local,” and points out that “while impact of global conditions may not have been very positive on many other aspects of India’s economy, the travel and tourism industry managed an annual growth rate of 8.9% in foreign tourist arrivals.”

According to Akshay Kulkarni, regional director for hospitality in South and Southeast Asia for Cushman & Wakefield, apart from traditional business or leisure travel, India’s hospitality sector has been witnessing interest from a variety of segments like meetings, incentives, conferences and exhibitions (MICE), wellness tourism, and spiritual and pilgrimage tourism. “The demand has been strong from both foreign as well as domestic tourists,” Kulkarni notes. “Given the rather diverse nature of demand, the hospitality industry is also looking at creating adequate products to service the varied tourist requirements. With support and initiatives by the governments at various levels, the hospitality sector is moving toward comprehensive growth.”

The report points out that as noted by the World Travel Tourism Council (WTTC), the contribution of travel and tourism in India in 2011 was 6.4% of total GDP. By the end of 2012, this is projected to increase to 7.3%. The investment made in this sector in 2011 was Rs. 1,254 billion, approximately 5.1% of the total investment in the country and is expected to rise to 12.3% by the end of 2012.

However, the report also says that India’s hospitality sector is not ranked high on the global competitive index. According to the Travel & Tourism Competitiveness report of 2012 by the World Economic Forum, India is ranked 12th in the Asia Pacific Region and 68th overall. In tourism infrastructure, India remains at a low 89th-place rank. At the same time, though, the report is bullish in terms of outlook. It suggests that “though the performance of the Indian hospitality market has been below par compared to the high occupancy levels of 2007, the sentiments in the markets are improving. There is a widely-held consensus that the Indian hospitality industry will register improved ARRs [average room rates] and occupancy post-2013 and the markets will stabilize in 2015-2016. The report goes on to say that the industry is “expected to witness strong performance backed by proactive improvements by the government in licensing and development policies that will further facilitate growth of the hospitality industry and make India a strong and much improved competitor in the global arena.”

Occupancy rates may see an upward trend in the second half of 2012 keeping ARRs steady, Kulkarni predicts. “However, since there is a substantial supply that [is] expected to enter the market over the new few years, the pressure on occupancy rate and ARRs, will continue,” he notes. “The phasing of the new inventory and gradual growth in the demand for hotels will help keep the rates at modest levels across the country.” Going forward, the group expects average room rates to improve in the next 12-18 months on account of stability in the economy and expected growth of tourism in India. “Also, with more and more international brands operating in the country, the market will move toward being more organized,” Kulkarni notes. “[It will also experience] standardization of processes including cost per room night.”

Posted in Knowledge@Wharton Today, Marketing | Also tagged | Leave a comment

India NGO Study Takes Aim at U.S. Snack Food Brands

Posted on April 10, 2012

As schools in America gear up for a nutritional overhaul of their meals, thanks in part to a campaign by First Lady Michelle Obama, a new study by the Centre for Science and Environment (CSE) is urging schools in India to ban junk food within their premises.

CSE, a New Delhi-based non-governmental organization, recently tested 16 major brands of foods — including some from leading multinationals like Nestle, PepsiCo, McDonald’s and KFC (firms that have also come under fire from U.S. groups working to curb childhood obesity and promote healthier diets.) The study, “Nutritional Analysis of Junk Food,” is aimed at making Indians aware of what popular food items really contain and how they impact one’s health.

According to CSE, most of the brands tested contain very high levels of trans fats, salt and sugar. The study points out that the levels are far higher than the recommended amounts. (The National Institute of Nutrition and the World Health Organization have set certain benchmarks of how much salt, sugar, carbohydrates and fats every individual can have on a daily basis to stay healthy.) The CSE study further notes that many companies resort to large-scale misbranding and misinformation.

For instance, while Indo Nissin’s Top Ramen Super Noodles (masala flavor) claim zero trans fats, the CSE study found the product had 0.7 grams of trans fats per 100 grams. The CSE study also reported that a 100-gram package of PepsiCo’s Lays potato chips contained 3.7 grams of trans fats, although the company says it contains none. An 80-gram package of Maggi noodles has over 3.5 grams of salt. This is more than 60% of the daily recommended amount, but salt does not feature at all in the product’s nutritional label.

Chandra Bhushan, deputy director general of CSE, says that “the food-related laws in India are inadequate.” He notes that “while what the companies are doing may not be illegal, it is definitely unethical.” Bhushan adds that when PepsiCo began cooking some of its Lays products in rice bran oil, which is a healthier cooking medium, the firm heavily advertised the change, adding the “Snack Smart” label to those items. But when the firm recently switched over to palm oil, it quietly removed the label. “It amounts to misleading the consumers,” Bhushan states. (PepsiCo CEO Indra Nooyi has recently faced some criticism over the flat earnings and waning customer interest that followed her efforts to introduce wholesome offerings into the company’s line of sugary beverages and snacks.)

The mismatches in nutritional information listed on products sold in India versus what is available elsewhere is yet another of CSE’s concerns. “We have very clear evidence that the nutritional information shared in India and the U.S. for unpackaged junk foods is very different,” Bhushan says. “McDonald’s, for instance, gives information on 22 nutritional attributes on its website [in the U.S., while its Indian counterpart provides information only on six nutritional attributes. Unlike in the U.S., it provides no information on the trans fats. KFC’s American website also provides information on 12 nutritional attributes, including the serving size, types of fats (including trans fats), and fibers. But its Indian website gives nutritional information on only four attributes."

According to Bhushan, the information provided by the companies in India is meaningless since they decide the serving size arbitrarily. He proposes mandatory labeling that also provides data for serving size, trans fats, saturated fats, sugar and salt.

Meanwhile, the companies studied in the CSE report have refuted the allegations. According to a PepsiCo India spokesperson, "[The CSE report] is contrary to the consistent test reports we have, which indicate the trans fats to be well within the regulatory norms for making a claim of ‘trans fat free.’” PepsiCo, in fact, goes as far as to say that “all food products manufactured by PepsiCo India are trans fat free.” According to the company’s official statement, “Trans fat is produced during the hydrogenation of vegetable oils. Since the launch of our business in India, we have not used hydrogenated vegetable oils to manufacture our food products, and therefore none of them contain trans fat.”

According to a spokesperson for Nestlé India spokesperson, “Nestlé packs in India carry the nutritional compass that helps consumers understand nutrition. Nestlé in India, as in other parts of the world, fully complies with legislation and regulations.”

Posted in Knowledge@Wharton Today, Law and Public Policy, Marketing | Also tagged , , , | Leave a comment

Developing Human Resources for a Globalized Economy

Posted on April 5, 2012

Building differentiators that are difficult for competition to imitate gives firms a strong competitive advantage. In an increasingly globalized world, one of the key differentiators for firms will be their “people” practices. At a recent conference in Bangalore organized by the All India Management Association in collaboration with PricewaterhouseCoopers, industry heads and human resources leaders debated on how companies can best manage HR in a globalized economy.

In his keynote address, Ravi Venkatesan, director at Infosys and former chairman of Microsoft India, pointed out that as companies expand their footprints across the globe, three factors play a critical role in their success: the commitment of the global CEO, the capabilities of the local CEO and talent management.

Venkatesan noted that in most organizations, top leadership is accountable only for the quarterly numbers; they end up paying very little attention to talent management and leadership development. “If you want to have behavioral change in an organization, you must hold the CEO accountable for talent management,” he said.

According to Ventakesan, it is imperative for CEOs to take big bets on young people. “We no longer have the luxury of time to prepare people. We need to train them in an accelerated mode and be willing to give them [additional] responsibilities.” He added that people are drawn toward strong leaders and tend to stay on in organizations where they can learn and grow.

Another key takeaway was that the responsibility for an individual’s career growth must be shared between the individual and the organization. Speakers pointed out that if this process is left only to the individual, it can result in encouraging coteries, unhealthy internal competition and unplanned expectations.

R. R. Nair, non-executive director at BASF India and formerly director of HR in various Unilever subsidiary companies, emphasized the need to focus specifically on the top talent. He suggested that companies must have the flexibility to tweak their policies to align with the personal priorities of their top talent. “Employees don’t just want a direction, but a firm itinerary and the plans of the organization need to be integrated with the priorities of their top talent.”

Aquil Busrai, CEO of Aquil Busrai Consulting and formerly executive director, HR at IBM India, pointed out that it is easy for human resources managers to become mired in tactical issues like recruitment and compensation and, as a result, fail to gain a deep understanding of the challenges affecting the business. “We interact from the periphery and are therefore treated as such,” he noted. He went as far as to suggest that the time has come for making the HR function “obsolete.” Observing that the roles of business managers and HR professionals “will get converged out of sheer necessity,” Busrai said: “The business leaders and line managers must be made responsible for all people-related issues.”

R.U. Srinivas, CEO of business process outsourcing firm Caliber Point, suggested that HR professionals think of themselves as “asset managers,” view employees as “their portfolios” and devise ways of “measuring their portfolios.” Pointing out that HR professionals typically shy away from numbers, he added: “They must not only have a strong understanding of the business and technology, but also learn to like the metric culture.”

Investment in learning and skill development was reiterated as a main area that needs continuous focus. Padmaja Alaganandan, executive director at PricewaterhouseCoopers, noted that while India’s business community’s spending on learning and development at around 3% of payroll costs is in line with that of American companies, it is way behind what the country needs. Alaganandan cited two reasons for this: One, India is on a high growth trajectory and two; the education system in the country is not aligned with industry requirements. “We need to do a lot more,” she said.

Posted in Human Resources | Also tagged | Leave a comment

Mahindra Merger Creates a Top-five Indian IT Company

Posted on March 21, 2012

Tech Mahindra, the information technology subsidiary of the Mahindra Group, will acquire the conglomerate’s other tech arm, Mahindra Satyam, in a deal that will create India’s fifth largest IT company.

Although observers had long expected the merger, which goes into effect April 1, the details were formally announced today in a press conference in Mumbai. The Mahindra group had earlier successfully bid and won Satyam Computers, which was up for grabs after the exposure of a long-running scam perpetrated by former chairman and founder B. Ramalinga Raju.

The merger creates India’s fifth largest IT firm with a turnover of ound $2.4 billion (Satyam on its own was fourth in the sector.) But in the aftermath of the scam Satyam lost business, clients and employees. “This merger will help propel the combined entity into the top tier of Indian software and services companies,” says Anand Mahindra, group vice-chairman and managing director. “It will help achieve the group’s key objective of being in a leadership role in each of our focus business areas.”

The Tech Mahindra-Mahindra Satyam merger could catalyze another round of consolidation in the industry. The recently rolled out Union Budget didn’t give the IT industry the incentives it expected. The IT sector, as a big foreign exchange earner, had in the past received tax holidays and other concessions from the government. One change that will happen sooner or later is the BT (formerly British Telecom) Group exit from Tech Mahindra. BT had joined hands with the Mahindras to set up Tech Mahindra; its main business was handling the back-end work for the U.K.-based company. The two partners started with around 40% of the equity each. The BT share fell to 23% last year. The merger will reduce it further to around 11%. Tech Mahindra has acquired a number of non-BT clients and the U.K. major has been looking for a buyer for its stake.

Meanwhile, engineering company Larsen & Toubro (L&T) is also likely to exit Mahindra Satyam. The company still has a 2% holding; it had picked up a stake when it had bid to take over the beleaguered Satyam. The Mahindras won that battle and L&T was left holding the equity, which it had no use for.

Larsen & Toubro, which has L&T Infotech in its stable, has not given up plans of inorganic growth. The top brass, led by chairman A.M. Naik, realizes that their infotech ambitions will go nowhere unless they achieve critical mass. The new target is thought to be Hexaware Technologies, an Atul Nishar-founded company. Though Nishar has denied that Hexaware is up for sale, he is known as a serial entrepreneur. He has been heading Hexaware for some time and observers say that he has begun looking for the next challenge. The L&T board met recently and approved efforts to acquire companies in the infotech domain. But it did not say anything specific about Hexaware.

The charge to consolidate is also being encouraged by a change in the rankings of Indian IT companies. Though TCS and Infosys are comfortably perched at the top, No. 3 Wipro was usurped by Cognizant in the last quarter of 2011. That lead could change, however. One way for Cognizant to maintain its ranking is by adding turnover through takeovers. Two years back, the firm acquired the UBS India Service Center for $75 million. More recently, it picked up the Indian operations of U.S.-based CoreLogic for $50 million. The company has made about 10 acquisitions since 2005.

The country’s large tech firms are keeping an eye out for opportunity. Tata Consultancy Services (TCS), the largest IT company in India, has earmarked $2 billion to fund its takeovers, though the firm prefers organic growth. Infosys has twice that amount. Wipro, too, has taken that route in the past; in 2007, it acquired Infocrossing Inc. of the U.S. for $600 million.

Posted in Knowledge@Wharton Today, Managing Technology, Strategic Management | Also tagged , | Leave a comment

Do India’s Planners Lack Innovative Thinking?

Posted on March 8, 2012

As one of the fastest growing economies in the world with an attractive domestic market and a rich demographic dividend — more than half the population is younger than the age of 25 — India is generally considered well placed to steadily move up in the global pecking order. Some studies predict that the country could become the third largest economy by 2030.

But in a recent critique of the Planning Commission’s Draft Approach to the 12th Five Year Plan (2012-2013 to 2016-2017), Rajendra K. Bera, Sunish Raj and Hiten Balsari from Bangalore-based Acadinnet Education Services refute this thinking. Bera, the lead author of the critique, is chief mentor at Acadinnet and an honorary professor at the International Institute of Information Technology in Bangalore. His earlier positions include being head of the research and development (R&D) group of IBM Software Labs in India and research scientist at the National Aerospace Laboratories.

Raj, founder and managing director of Acadinnet, was with IBM before he set up Acadinnet in 2009. Explaining the impetus for their detailed study of the Draft, he says: “We believe that higher education and creation and protection of intellectual property [IP] are critical for economic growth and are keen to know where the country is headed as far as the policies on these are concerned. We find that adequate focus is not there in the draft Approach Paper on these critical areas.”

The Draft was approved in August 2011 and the final plan is expected to be released in March of this year. The 11th Five Year Plan (2007-2008 to 2011-2012) had a target of GDP growth of about 9%. Given the slowdown over the past few quarters, the Indian economy will fall short of achieving this. In the Draft of the 12th Plan, the suggested minimum GDP target is again 9%.

In their critique the researchers note: “India has visibly weathered the global crisis of 2008-2009 and its aftershocks much better than most countries for the time being because of its limited engagement with the global economy…. Execution of the 12th Five Year Plan, in whatever form it finally appears, will face much greater uncertainty and turmoil than anyone is willing to forecast at this time.” The authors state that “barring a miracle, India has no reasonable chance of becoming a country with the third largest GDP in the world in the coming two decades.”

Their premise is based on two key aspects of the Indian economy — the education system and the intellectual property (IP) system. They point out that other important players in the region, including China, Singapore, South Korea, Taiwan and Hong Kong, have all spent years building their education and R&D institutions and IP system in a planned manner. In India, the education system has been declining rapidly over the years and there is no robust IP system in place. If India is to maintain its economic growth, these two systems must be overhauled thoroughly and quickly, the researchers add.

According to the Acadinnet team, the Planning Commission has failed to highlight the serious consequences of the country’s decline in education and IP creation. The critique also points to other areas to which the authors argue that Planning Commission has not given adequate focus. For instance, the need for job creation at the high end, such as positions for researchers, innovators and professors whose knowledge and skills now drive the global economy, and the need to retain and also attract back to the country high-caliber talent that has gone overseas.

The authors of the critique also suggest that the Planning Commission has a “blind spot” toward the information technology sector. They contend that while this industry has put India on the global map by offering high salaries for low-tech jobs, it has “systematically siphoned off the top layer of the educated young population … thus depriving all other sectors of the economy in desperate need of talent.” Instead of relying on only economists and bureaucrats, Raj says, “The Planning Commission also needs to get innovators who can advise it on innovation and IP and how these impact the economy.”

Posted in Law and Public Policy | Also tagged | Leave a comment

India Election Results Strike a Potential Blow to Future Reforms

Posted on March 7, 2012

Five Indian states have been going to the polls for the past couple of months (given the size of the country, elections these days are conducted in stages.) But the results were announced simultaneously on Tuesday, and the impact has been immediate.

The Bombay Stock Exchange Sensitive Index (Sensex) was down 190 points or 1.1% on fears that the reform process, expected to be kick-started in this year’s Union Budget (delayed to March 16 from the normal end-of-February presentation because of the elections) would be derailed. The Sensex had risen significantly in morning trades before the results started coming in; the intra-day loss was 500 points. The rupee also slipped to Rs50.36 to the dollar, a six-week low. “The markets were disappointed with the [Uttar Pradesh] Assembly election results,” according to a report by HDFC Securities. “[There were] hopes that there would be a Samajwadi Party (SP)-Congress alliance in Uttar Pradesh, which would have been helpful for the Congress to take reforms further. However, that has remained a dream.”

The elections were for the state assemblies, so the results should technically not affect the composition of the Lok Sabha, the lower house of Parliament. But the next general elections are due in 2014, and Tuesday’s results are an indication of how they will turn out.

In India’s biggest state Uttar Pradesh, which sends 80 members of Parliament (MPs) to the Lok Sabha, the SP has emerged victorious with a simple majority of 224 in the 403-member assembly. (A few results are yet to be declared.) Punjab (with 13 Lok Sabha seats) has been won by an opposition Bharatiya Janata Party (BJP) combine. Results from Uttarakhand (five seats) show the Congress and the BJP neck and neck. Goa (two seats) has gone to the BJP. Only Manipur (two seats) has wholeheartedly backed the Congress; but it is really too small to count. In Uttar Pradesh, on the other hand, the Congress and its allies now have just 37 seats, which puts them behind the regional Bahujan Samaj Party (which has been ousted from power) and the BJP.

The government at the center is dependent on its allies for support and survival. It has some very fickle bedfellows, however — Mamata Banerjee’s Trinamool Congress in West Bengal, for instance. Banerjee has already thwarted a move to open the retail sector to foreign investment. She is considered industry-unfriendly by opponents, having had a role in driving the Tatas’ Nano small car project out of Bengal when she was in the opposition in the state. She is now chief minister.

The other casualty of the assembly polls is Rahul Gandhi, scion of the Nehru family that has ruled India for a large part of the period since Independence. Even today, the power behind the prime minister’s chair is Sonia Gandhi, Rahul Gandhi’s mother and wife of former prime minister, the late Rajiv Gandhi. Rahul, a prime ministerial candidate of a party that sets great store by heredity and lineage, had assumed charge of the campaign in Uttar Pradesh. The rout of the Congress party is being regarded as his failure. “The Opposition will try and capitalize on that,” says Sumit Mitra, a journalist and political commentator. “For the Congress it is unthinkable that they abandon Rahul. In fact, anybody who can is lining up to take the blame for the fiasco.”

Decision-making in Delhi has been paralyzed anyway because of an anti-corruption agitation launched by social activist Anna Hazare. He is now taking credit for the Congress defeat. The old guard in the ruling party was never very convinced about the reforms and liberalization. Their argument now is expected to be that continuing with reforms will mean a disaster in the coming general elections. So Prime Minister Manmohan Singh, the original architect of reforms, is expected to face opposition from both within and without, or as the headlines in the Economic Times note:  ”SP lands home in Lucknow [the capital of UP]. Door shuts on reforms.”

Posted in Knowledge@Wharton Today, Law and Public Policy | Also tagged , , | Leave a comment

How India’s Liberalization Shaped a Generation of Entrepreneurs

Posted on February 15, 2012

Since India began liberalizing its economy in 1991, entrepreneurship in the country has been on the upswing. Some of the most respected companies in the business community today are considered children of liberalization. Take information technology firm Infosys: In the first decade of its existence, from 1981 to 1991, Infosys grew to less than $5 million. In the 20 years since liberalization began, the company has grown to become a $6 billion-plus entity, and one that is well established in the global arena.

N.R. Narayana Murthy, co-founder and chairman emeritus of Infosys, is categorical that the company would not have seen this kind of success had India not set forth on the liberalization path. He has often said, “If there is one great example of the success of liberalization, it is Infosys.” Indeed, at the 16th Wharton India Economic Forum held in Mumbai earlier this year, keynote speaker K.V. Kamath, chairman of ICICI Bank and Infosys noted that liberalization “has allowed a whole new generation of entrepreneurs to flower, execute their vision and add tremendous value.”

In a recent study, Kaustubh Dhargalkar, professor of business design and head of the innovation lab at the Center For Innovation and Memetics at the Mumbai-based Welingkar Institute of Management Research and Development, and his research assistant Rudra Desai, have examined the role that liberalization has played in shaping successful entrepreneurs in India. Dhargalkar’s study focuses on companies listed in Group A of the Bombay Stock Exchange (BSE) from 1995 to 2011. He says that it typically takes three to four years for policy decisions to reflect on firm performance at the ground level; Dhargalkar chose this particular category for the study because it represents the elite, high-performing and sought-after firms. “The listing of a company in this group is an indicator of the success of the company,” he notes. “These are blue chip firms.”

According to Dhargalkar’s study, the number of first generation companies listed in Group A has grown from nine in 1991 to 30 in 2011. That number does not include those start-ups that moved out of Group A for various reasons, such as being acquired by another firm. “If we were to consider the total number of first generation companies getting listed, as well as going out of, Group A on the BSE then 32 more companies would be added to the list,” the researchers write. “In simple terms, 62 different first generation companies got listed in Group A of the BSE [from] 1995 to 2011.” That’s an increase of 588%.

But even if one were only to consider the 30 companies that were listed on Group A and did not move out during the period studied, the increase in percentage terms since liberalization is still significant. In 1995, first generation companies accounted for 9.78% of the firms listed on Group A. In 2011, they constituted 15.08%. According to the study, moving forward “the gap in numbers between the first generation companies and older established companies will gradually reduce, though not get bridged…. If reforms are pushed by the government in an orderly manner, the Indian entrepreneurs would continue to create big-ticket successes.”

But given the current state of Indian politics, where the government has been reduced to a state of policy paralysis due to charges of corruption, what will be the effect on entrepreneurship? “There will be some impact,” Dhargalkar says. “But the power of entrepreneurship in India has been unleashed by the liberalization process and even if the pace of reforms is slow, entrepreneurs will find a way to move ahead.”

Dhargalkar lists four key reasons for the increased influence of first generation companies in the post-liberalization era: Technology has substantially reduced the costs associated with niche marketing; stock markets have become more efficient and transparent and made it easier for entrepreneurs to access money; the costs of starting up an enterprise have fallen because of access to angel investors and venture capitalists; and Indians have opened up to entrepreneurship.

Pointing out that entrepreneurs are important in any economy because they create employment, generate new ideas and implement new techniques in management functions, Dhargalkar notes: “Over time, entrepreneurs will increasingly contribute to India’s GDP and also have a greater impact on the socioeconomic fabric of the nation.”

Posted in Innovation and Entrepreneurship, Knowledge@Wharton Today, Law and Public Policy | Also tagged , , | Leave a comment

India’s Bid to Ramp Up Electronics Manufacturing

Posted on February 10, 2012

Can India become a global destination for electronics manufacturing? This question was center-stage at the ISA Vision Summit held in Bangalore recently by the India Semiconductor Association, which represents the country’s electronic system design and manufacturing industry. The theme of the event was “Growth Drivers for Emerging Markets: Semiconductors and Electronic Systems.”

Currently, India accounts for only around 3% of the global electronics market and around 1% of global production. But industry leaders and government officials believe that with the huge increase in domestic demand fueled by a growing middle class and rising per capita income, the opportunity is there for India to become a significant global player.

Electronics sales in India were around $40 billion in 2009, and are expected to reach $100 billion by 2014 and $400 billion by 2020. Some players are optimistic that the market may grow to even higher figures. “We believe that by 2020, the domestic demand for electronic products in India can go as high as even $1 trillion,” Pradeep N. Dhoot, group president of Videocon Industries said during a keynote address. Dhoot pointed out that unlike the rapid expansion in India, the $1.75 trillion global electronics market has been posting annual growth in the low single digits for the past few years and is expected to continue at that pace.

India’s manufacturing opportunity lies in the gap between the expected demand in the country and the rate of domestic production. Although the market for electronics in India is expected to reach $400 billion by 2020, domestic production is only projected to account for $100 billion if it continues at the current pace. “Given the right impetus, the scale and the unique requirements of the Indian market will make it very attractive for players to design and manufacture here,” noted Ajai Chowdhry, chairman HCL Infosystems.

In a bid to develop indigenous capabilities in electronics, the Indian government has recently instituted a policy that will grant preferential market access in government procurement to electronic goods manufactured in India. With large pan-India government projects such as the national optical fibre network, the national knowledge network and e-governance programs in the works, this move would open up huge opportunities for domestic production.

Decisions regarding the opening of a semiconductor fabrication plant are also expected to be finalized by the end of the year. Sachin Pilot, minister of state for communications and information technology, said that the earlier government attempts to set up such a facility did not yield the desired result. “We are more flexible this time round and are ready to meet halfway. We have decided that we will get it done,” he noted. R. Chandrashekar, secretary of the department of IT and department of telecommunications added that “significant progress has been made and we are in serious discussion with a few players.”

One of the key concerns of the industry has been that there is not enough value addition and enough intellectual property creation in the country. The preferential market access policy stipulates that there must be 25% to 40% value addition. “This means that the [intellectual property] must be in India,” Chowdhry said. “This will give the confidence to industry players to make the necessary investments. I see it as a breakthrough and transformative step.”

Similarly, the setting up of a fabrication plant is seen as an important piece of the electronics manufacturing ecosystem. ”It has to be seen in the larger context,” according to Rajendra Kumar Khare, chairman and managing director of SureWaves, a Bangalore-based company that is creating an integrated grid for multiple forms of digital media. “India has tremendous design capabilities and most global [original equipment manufacturers] have strong design centers in India. Having a [fabrication facility] will go a long way in strengthening the entire [electronics system design and manufacturing] ecosystem in the country. This, in turn, will enable India to capture a larger pie of the domestic and global market.”

Posted in Knowledge@Wharton Today, Law and Public Policy, Operations Management | Also tagged , | 1 Comment