INB311Asian Business Environments: India and ChinaDr. LairsonDigital Business11/18/14

Explain the business strategy known as “fast follower.” How does it work? What are the pros and cons? What kinds of industries? What kinds of firm capabilities?

Noshir Kaka, "Strengthening India's Offshoring Industry," McKinsey, 2009indiaoff.pdf

India’s Offshoring industry is globally dominant at the low end but faces new challenges that will require considerable change and development to maintain global market share or even avoid large losses.

beyond the current crisis the industry faces a changing global environment that will probably cut into the country’s worldwide market share.

McKinsey analysis suggests that there is little immediate risk to India’s dominance of the market for offshore technology and business services. But the country’s share could sink to 40 percent by 2020, from just over 50 per- cent at the end of 2008, primarily as a result of increased competition from other countries, talent and infrastructure constraints, and an unhelpful regulatory environment. But changes in the global market could also give India opportunities, especially if its companies become more innovative and rely less on low labor costs.

Because of massive market expansion, Indian firms can do nothing and still grow but will likely lose global market share as a result.

McKinsey expects the global market for offshore business and technology services to grow to about $500 billion by 2020, from the current $80 billion a year. Even with this more than six fold growth, the industry will serve less than a third of the potential market, which McKinsey estimates at $1.65 trillion to $1.80 trillion in 2020.

Much of the industry’s expansion will come from nontraditional customers. Increased demand from emerging markets (primarily China and India, but also Brazil and Russia) could add $450 billion to $500 billion to the global market by 2020. Individuals and small and midsize enterprises will find it easier to use offshore services as communications technologies advance, costs go down, and business models evolve, adding $240 billion to $260 bil- lion to the market. Finally, new kinds of customers—particularly in

the public sector (including state-owned enterprises), as well as health care providers—will likely turn to outsourced business and technology services, expanding the global market by an additional $210 billion to $260 billion.

India will be hard pressed to maintain its 51 per- cent market share, which we expect will drop to around 40 percent by 2020 unless Indian providers become more innovative and global.

What are the reasons for India’s potential weaknesses in this industry?

Talent will be a severe problem: India produces no more than 3 million university graduates a year—too few to maintain its market share.

An inadequate physical infrastructurewill also hinder the industry’s expansion. Transportation systems and power and water supplies are already strained in the country’s leading cities, including offshoring hubs such as Hyderabad and Chennai.

infrastructure deficiencies and talent shortages have prevented the industry from moving aggressively into smaller cities.

China, Egypt, many Eastern European countries, and dozens of others are fighting aggressivelyto build their domestic business and technology services industries, offering tax benefits and improved infrastructure as incentives.

a lack of clarity surrounding the continuation of fiscal incentivesthe government has used to spur industry development. Meanwhile, the industry continues to be regulated by the Shops and Establishments Act and other laws not tailored to the service sector’s requirements. Adding to the burden, these laws are applied inconsistently from state to state.

Weak capacity for innovation: India’s companies captured more than half of the global business and technology services market, but the country still accounts for less than 1 percent of the patents issued around the world annually. To address the opportunities in new geographic and industry markets and to serve individuals and small and midsize enterprises, business and technology services companies must create innovative products that address the needs of these new customers.

Noshir Kaka DirectorManaging director of McKinsey’s India offices. Leads our client service and knowledge

development on business technology—driving the growth of India’s vibrant IT and outsourcing industries.

Expertise Sourcing , Business Technology, Service Operations About Noshir Noshir Kaka is managing director of McKinsey’s India offices and global leader of our

Outsourcing and Offshoring Practice. He joined McKinsey in 1994, soon after the firm opened in India. Since then, he has helped build McKinsey into India’s preeminent consulting firm, playing an active role in the country's transformation and development, helping Indian companies win on the world stage, and growing the next generation of Indian leaders.

Noshir has worked across South Asia, the the United Kingdom, and the United States. He has helped major companies, public-sector institutions, and nonprofits develop strategies for growth, reshape their organisations, build their people’s capability, and improve operational performance.

Noshir contributes actively to the growth of India’s vibrant IT and business-process outsourcing (BPO) industries. Across the outsourcing landscape, he has helped over 100 global corporations develop and deliver their strategic plans and has served over a dozen governments to create valuable jobs and investments from the sector. Noshir has also helped several leading business houses in India professionalise and globalise their companies.

Underpinning his client work, Noshir has led several major knowledge initiatives, including the McKinsey-National Association of Software and Services Companies (NASSCOM) reports on trends and future potential in India’s IT and BPO sectors, and McKinsey’s 360° initiative, a comprehensive benchmarking of service operations across IT, operations, and R&D. He speaks frequently at key industry forums, including those of the Confederation of Indian Industry and NASSCOM, and has served on the juries of several business media awards.

Noshir is passionate about developing tomorrow’s leaders—in McKinsey, its clients, and beyond. He was actively involved in the creation of the Indian School of Business, a joint initiative between McKinsey, Kellogg School of Management, London Business School, and the Wharton School to build a world-class business school in the Indian subcontinent. He is also a member of the Young Presidents’ Organisation.

Published work “Online and upcoming: The Internet’s impact on aspiring countries,” McKinsey, December 2012 “Strengthening India’s offshoring industry,” McKinsey Quarterly, August 2009 “Perspective 2020: Transform business, transform India” (PDF–285 KB), NASSCOM, April 2009 “Extending India’s leadership of the global IT and BPO industries” (PDF–145 KB), McKinsey

and NASSCOM, 2005 Education

Jamnalal Bajaj Institute of Management Studies, Mumbai MSc in financeUniversity of Bombay BComm

Are Indian firms able to adapt and gain from transformative technologies in the near future?

https://www.youtube.com/watch?v=1Orb6rwb3HM

EIU, "Clinical Research: Spotlight India," September 2013indiaresearch.pdf

What is an offshore clinical trial?

Globalization of clinical research has been evident with the shift of clinical activities into Asia Pacific (APAC). Asia is not just a market and manufacturing powerhouse for the pharmaceutical industry, but is also evolving to become a major destination for drug development and clinical research. Emerging markets especially Asia, are increasingly becoming the choice off-shore destination for biopharmaceutical companies conducting clinical research. Of the markets, Asia is the leading location selected by biopharmaceutical companies to offshore clinical trials

Conducive clinical environment. Asia inherently possesses a large treatment-naive population ideal for recruitment of trial subjects. Government bodies are pushing out incentives and tax exemption to promote R&D activities in the region, and streamlining regulatory procedures ease the initiation of trials in these countries. Quality of Clinical research Associates (CRAs) and quality of trials conducted in the Asia are continuously improving with the adoption of GCP guidelines integrated with international standards, offering a favourable environment for clinical trials to be conducted in Asia.

Cost advantage. Budget constraints and limited patent period also compel pharmaceuticals to explore more profit- driven strategy to increase productivity and maximize profit margins, by reducing the time taken to market drug and by controlling headcount costs. Asia offers cost competiveness, where cost of R&D can be 30-45% cheaper than in developed markets such as US and Europe.

A study conducted by Clearstate in 2013 observed that among the listed attributes in the Industry Standard Research (ISR), low cost, therapeutic expertise, project manager quality, staff quality, local market/regulatory knowledge and data quality metrics were important attributes for pharmaceutical companies when outsourcing clinical trial services.

India’s large patient population, diverse pool of medical conditions including communicable and lifestyle diseases and the rising disease burden, set the stage for the ease of conducting clinical trials in India. Cost advantage, coupled with the availability of medical and technical expertise and talents, also contribute to the opportunity for a growing CRO industry. India’s unique position with its developed IT expertise and capabilities enhances its value proposition as an ideal off- shore destination for clinical IT services like data management. With a healthy clinical research environment, the potential of India being a clinical research hub in the APAC region should be promising.

Reforms in the Indian regulations have been on-going since 2005, and have led to

a continuously evolving regulatory landscape. In recent times, there seems to be a firmer commitment and affirmation by the Indian regulators to resolve the issues that have since plagued the clinical research space. Mandatory trial registration of clinical trials and inspection of trials sites were implemented, though still with limitations in curbing the ethical irregularities, due to inadequacy of the drug regulators in India. Stricter laws and punishments were also laid down to hold investigators and sponsors responsible for trial subjects.

In February this year, the regulators have made reforms to tighten control over integrity of trials conducted in India, placing liability on sponsors to compensate for injuries or deaths that occur in the process of a clinical trial, and the authorization of local licensing authority and the Central Drugs Standard Control Organization (CDSCO) to conduct

Max Bearak, "Global Digital News Brands See Growth Opportunity in India"Digitalmedia.docx newspapers

India offers a significant opportunity to convert high newspaper readership into digital media.

Evaluate the content and appeal of:

http://scroll.in/

http://qz.com/india/

While digital revenues may be growing steadily in India, and the cost per impression for advertisers here is one of the lowest in the world, revenue is comparatively low as advertisers spend very little on digital media ad space.

Nikhil Pahwa, founder of Medianama.com, a website that monitors and analyzes digital media in India, said, “India is a market that delivers very high consumption and usage, but struggles when it comes to being commercially viable.”

What is “Native advertising”?

Both Huffington Post and Quartz India point toward native advertising as perhaps the most practical way of making money in the industry. Native advertising, which is sponsored content made to look like an article, could even be attractive to Indian readers who are used to having to click through ad after ad simply to reach articles on Indian news websites. Quartz India has already inked a deal with General Electric to be a launch partner, and Mr. Patil believes that this year’s sudden

maturation in the digital media market will prompt a tide of revenue to help all news sites.

What is the pattern of business success and failure in US digital media? Can this be used to predict India?

Max Beark, "The New Bazaar: In India, Online Stores Catch on With Buyers," NYT, 7/29/2014 Indiaonlinebazaar.docx

http://www.snapdeal.com/

http://www.flipkart.com/

Their previous venture — a physical coupon booklet into which they had sunk their combined savings — flopped in just months. And online retailing was still a largely unproven endeavor in 2010, particularly in India, a country where most people don’t have bank accounts, let alone credit cards to make purchases on the Internet. When an angel investor offered $200,000 as seed money, they took only half and aimed for just 100 transactions a day.

Snapdeal is now on track to handle more than $1 billion in sales this year for over 30,000 merchants across more than 500 categories of goods and services.

The rise of Indian e-commerce — which has started to gain traction only in recent years — has captured the attention of international investors.

This year, Snapdeal has raised $233 million, with about half coming from the American Internet company eBay. Mr. Bahl said Snapdeal was considering an initial public offering in a year or two.

At least half a dozen other leading Indian shopping sites have announced major fund-raising deals in recent months. On Tuesday, Flipkart, India’s largest e-commerce company, said that it had raised $1 billion from investors, including American firms like Tiger Global and Accel Partners. The amount represents the largest ever for an Indian Internet company, and globally, it matches Facebook’s fund-raising round in February 2011 and ranks only second to Uber’s $1.2 billion bonanza this June, according to Thomson Reuters.

Why has ecommerce in India grown so much at this time?

The investment surge reflects the changing landscape in India. Internet access has rapidly expanded, mostly through mobile devices, and Indians are now increasingly shifting daily activity online, like reading the newspaper, doing bank transactions and buying goods and services, from shoes to refrigerators (with installation included).

E-commerce is growing at a compound annual rate of 34 percent, according to the Internet and Mobile Association of India, an industry trade group.

But online shopping remains a largely untapped market. While estimates of the total worth of India’s online retail industry vary greatly, most analysts figure that it accounts for less than 1 percent of the country’s $500 billion retail market, which is still mostly cash-driven.

Comparatively, China’s e-commerce sales are expected to top $180 billion this year, accounting for roughly 9 percent of the country’s retail spending,

What are the main barriers to ecommerce in India?

By and large, India remains a bastion of the “kirana,” or neighborhood general store, as well as the roving hawkers, whose nasal cries carry the names of their wares through narrow lanes and up to the top floors of apartment buildings.

These entrenched habits, combined with the newness of the Internet and credit cards, have led to a trust gap between online retailers and their customers. To bridge it, the biggest names in e-commerce, including Snapdeal and Flipkart, allow customers to pay cash upon delivery for their purchases and let consumers return items at the very last second, even when the delivery person arrives at their door.

To address the widespread perception that the state’s postal service is unreliable, e-commerce players like Snapdeal, Flipkart and Jabong have developed their own delivery logistics companies. Snapdeal and others have built fulfillment centers and hired delivery workers to help ensure packages arrive in a timely fashion.

The logistic network, in part, has helped Snapdeal court small business owners to its marketplace.

Momentum is now on the industry’s side. Mr. Bahl said that the company barely needed to recruit merchants any more, with 80 percent requesting to join Snapdeal. “Virality amongst small business owners is very acute,” Mr. Bahl said. “If one sees success, then word spreads really, really fast.”

Once merchants join the site, Snapdeal works with them to develop their listings and bolster sales. When Rakesh Sareen, 29, started selling his line of traditional women’s clothing made of locally sourced materials, Snapdeal, as part of its services, promoted the introduction and covered the cost of a photo shoot and online catalog.

Looming large over the industry is last year’s entrance in India of Amazon. Huge American online retailers like Amazon and eBay own marketplace platforms here, which, like Snapdeal and Flipkart, connect merchants with consumers. But the country’s regulations prevent Amazon and other overseas players from selling directly to consumers from their own inventory as they do elsewhere. Currently, foreign investment in multibrand retail is limited to 51 percent.

Will the rules be changed by the new Modi government to increase competition from foreign firms?

Flipkart

India’s largest e-commerce firm, Flipkart, confirmed on Tuesday that it had raised $1 billion in its latest round of fundraising, making it by far the largest venture investment

ever received by an Indian Internet company. Globally, the amount raised would rank second only to Uber’s recent $1.2 billion windfall.

Flipkart is an online marketplace that offers products in over 70 categories of goods and services, from electronics to books. The site says it has over 4 million daily visits and 22 million registered users, in a country where roughly a quarter of a billion people are online.

Estimates of the total worth of India’s online retail industry vary greatly, but most acknowledge that it makes up for less than 1 percent of the country’s $500 billion retail market, which is mostly cash-driven. Comparatively, China’s e-commerce sales are expected to top $180 billion this year, and one company alone, the Alibaba Group, is expected to go public this August with an estimated value of $200 billion.

Amazon.com is investing US$2 billion more in India, which is witnessing an online retail boom.

The online retailer has been expanding in India, and earlier this week said it was setting up five new fulfillment centers in the country, which will double its total storage capacity to over half a million square feet (over 46,500 square meters).

India's online retail spending is forecast to reach $16 billion by 2018, an eightfold increase from 2013, according to Forrester Research.

Michael De La Merced, "China's Online Goliaths Prepare Public Offerings in the US," NYT, 3/14/2014Alibabaweibo.docx

How can we compare the Chinese and Indian economy and digital commerce? Does the Chinese pattern of the last 10 years suggest what can happen to India?

1) Chinese firms have received significant support and protection from the Chinese government.

2) Major Chinese digital firms:

Market Cap

Alibaba $284 billionWeibo/Sina $ 8 billion (combined)Baidu $85 billionTencent $154 billionTaobao part of Alibaba

Largely unchallenged by foreign competitors, the Chinese companies have come to dominate what is seen as the next frontier of the Internet. E-commerce has become especially important, as Chinese consumers increasingly flock to online marketplaces rather than traditional physical retailers.

There are now Chinese analogues to Amazon, Google, Facebook, Twitter, eBay and PayPal. American and Chinese firms operate across a vast gulf, each eyeing global domination — and each essentially pretending the other doesn’t exist.

Will Alibaba buy EBay?

Xiaomi

One major advantage China has is the mixture of software and hardware firms. Manufacturing is powerful in China, and this has led to spinoffs and spinouts of existing manufacturing firms into new markets

Founded in 2010 with major institutional investor support from Temasek Holdings, IDG Capital and Qualcom.

With much fanfare, Xiaomi launched in India in July. It did so in partnership with Flipkart, a leading local e-commerce firm. Xiaomi’s handsets are now also available in most of South-East Asia and the firm plans to sell in Brazil next. Though it does not officially sell its phones in America, GPS patterns suggest that around 1m of its snazzy handsets have been detected in the country. As foreigners find it hard to pronounce its name, Xiaomi has even grabbed the website mi.com, perhaps to rebrand itself overseas as “Mi”.

Xiaomi as slow, fast follower. What does this mean?

Xiaomi’s India unit—called just Mi, which the company is using as an easier-to-pronounce brand outside of China—is run by Hugo Barra, the former Google executive in charge of Android who raised many industry eyebrows when he defected to Xiaomi last year. The Brazilian-born Barra has also been Xiaomi’s point person for  complaints that it has copied the iPhone’s design and doesn’t adequately protect customer data. He spoke with Quartz about his admiration for Apple, Xiaomi’s plans to become an e-commerce giant, and why India is the company’s biggest focus outside of mainland China.

We are China’s third largest e-commerce company. We sell our own products from our own website.

Are you going to one day make Xiaomi products in India?

We will, for sure, write software here. We certainly are also considering the possibility of manufacturing through partners. We don’t make products ourselves. We use Foxconn and others to do the manufacturing for us. We are here for the long run and it might make a lot of sense to be able to make [devices] here.

Is it true that when the lifecycle of a Xiaomi product begins, you sell it at cost and make money as the cost of components come down?

We sometimes sell it at cost, sometimes a bit above cost and sometimes a bit below cost. We don’t make that many products. If you look at our portfolio, it’s very small. And we really build products that we think can sell for a long time.

What new things are you planning to do in India?

We want to build an Internet platform that is delivered through these devices. We plan to partner with a whole lot of companies and build layers of services into the operating system. Take for instance the process of topping up your phone account or checking the balance. It’s incredibly cumbersome with a majority of the operators. Why isn’t it just integrated into the operating system? Why can’t you just go to the dialer on a phone and just use a tab there to recharge? You shouldn’t need a whole app or a web platform for this. We are going to do a whole lot of these, many of which involves working with startups.

Since you moved here, what has been your assessment of India’s tech ecosystem? NOTICE THE TERMINOLOGY!!!!!!!!

I think India is right in the middle of a tech renaissance, where it is definitely transitioning from being an IT outsourcing, business process automation, back-end type of work to a source of innovation.

Where our office is in Bangalore, we are right next to InMobi and a bunch of other exciting companies. It feels like Silicon Valley. Bangalore feels like Silicon Valley in many ways already. India today has the same number of Internet users as China had, say, in 2007-08.

The amazing thing about India is that India has scale, both as a consumer market and as a source of talent. You have amazing engineering schools. We also have an influx of people coming back. One of my friends from Google is coming back. Flipkart is in fact hiring most of them. It is on a mission to hire from around the world all the Indian engineers who wants to come back and they are very successful at it.

One of the things I’m trying to do here is to build bridges with the local startup scene with a couple of things in mind. One of the things is to find companies that are building stuff that we can integrate into our system. We also believe that being part of the ecosystem, being a local, means we should try and help develop it. So we firmly intend to make small, seed investments in companies, alongside, of course, bigger investments. That is a small contribution, but that is also a good way to build friends. We love to have as many friends as we can.

But as a consequence, are you for instance considering moving some of the servers to India?

So we are in the process of moving most of our servers dealing with our international users to Singapore, which is, from a network perspective, an ideal hub, because Singapore has good connections both to the US as well as to Asia. We use AWS (Amazon Web Service) and they have their data centre in Singapore. We will eventually move most of our backend to Singapore with one goal in mind—performance optimization.

WHAT DOES THIS SAY ABOUT THE INDIAN ECOSYSTEM?

India looking at ways to restrict import of Chinese goodsDilasha Seth, ET Bureau | Nov 17, 2014, 02.30PM IST

 

NEW DELHI: Xiaomi mobile phones may be climbing up the popularity charts in India, but the government is looking at ways to restrict such imports and several other consumer goods from China through standards and safeguards as it has not been able to extract a concrete plan from the country to address the heavily imbalanced trade.

According to officials, the government is also looking to substitute essential imports like power and telecom equipment imported from China over the next decade

through goods produced at home to spur domestic manufacturing as well as address security concerns over imported instruments.

IS THIS HOW XIAOMI GOT TO BE STRONG – WITH PROTECTION BY THE CHINESE GOVERNMENT IN MANUFACTURING?