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Solution Set

End Term Examination

Fourth Semester (MBA) May-June2009

Paper Code: MS232

Paper Id-39232

Time: 3 Hours Maximum Marks: 60

Q.1 Explain any four of the following:

(a) Co-option

(b) Three Cs in the partner selection process

(c) Enterprise resource planning in Indian industry.

ERP stands for its acronym as Enterprise Resource Planning. The main objective is Enterprise-wide resource, which aims to integrate entire business system, all departments, and allfunctionalities of the organization. Generally all departments in the organization have differentcomputer systems and this was a bit difficult task for the company to do the business but with theemergence of this software application, businesses have simplified to a very large extent. Thishas helped businesses to prosper in every respect thus making the entire corporate sector tosimplify in all respect. The integration of all the functions of the company is due to implementationof erp software solution.

In most cases it has been seen that an ERP India implementation takes three to six months forany organization but sometimes it also depends on the size of the organization. Suppose if abusiness organization has to implement only Accounting module, which is itself, an expensiveapplication software system may take less time to implement. Sometimes it depends on the sizeof the module to be implemented. When ERP system is implemented, it is required to change theways you do your business if you want erp to work in right way. Similarly the employee of thecompany also needs to change their way of working and follow according to the erp functioning.

ERP India is one such huge system that almost all kinds of business specialized in any industrywants to implement in their organization. They want to implement this in order to smoothen theirbusiness functionality and thus create prosperity for their business. You also need to understandfor what purpose you need this system and also consider how you will use it to improve yourbusiness system. In an organization, finance has its own set of numbers, sales has its ownversion and all other have their own revenue figures and it is responsibility of the authority toanalyze all these figures. An ERP business system creates a single version of all these which anyuser in the organization can use to understand it fully.

Before ERP came into being, MRPs were found in the market to solve businesses. ManufacturingManagement Systems were put into process in industries to solve business functionalities atevery step. During the time, a lot of research and development was going on and then thissystem converted into Material Requirement Planning system. This system was an advanced


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version of manufacturing management system that came as a business solution. Over the timethere took numerous changes in the manufacturing industry in the sales, production departmentand others which led to the evolvement of Manufacturing Resource Planning and then later oncame to be known as Enterprise Resource Planning. Till date, Enterprise Resource Planning isfunctional in all kinds of industries with the businesses requirement analysis, planning anddemand. This system was designed with intent to plan the proper use of enterprise, resource andplanning widely.

(d) Strategic rationale of building strategic alliances

(e) Competitiveness and its levels

Unit-I

Q.2 Explain an integrated framework for competitiveness and define

competitiveness enhancement and sustenance process.

Q.3 Evaluate the macro-competitiveness using 10Ps framework to identifyand monitor major drivers of competitiveness.

Ans: A conceptual framework for global competitivenessThe function of a framework is to enable the strategist to structure a problem through a fewkey situational variables or factor. His task subsequently is to identify the hierarchy,priorities, and interactions between the variables. Compared to a model, the variables in aframework are imprecise and loosely-bounded. Unlike a model, no ceteris paribus conditionsare assumed and the user has the flexibility of testing his decisions on the relationships undervarying contexts.The 10-P framework for globalization symbolize the aspirations and needs of employees andorganizations in the new competitive settings. It comes a long way from the initial impetusprovided to the subject by Michael Porter in his book Competitive Strategy (1980), and goesbeyond his purely industrial organization perspective. The 10-Ps framework integrates theoryof strategic management and practice of business policy and provides a structure for thepracticing manager to evaluate competitiveness at regular intervals.

True to the vision of a world class organization, the central fulcrum in the framework is apeople-orientation-both inside and outside the corporation. This approach presents a humaneperspective to issues at hand and differentiates between a satisficing approach and anexcellent approach. It realizes and reflects that modern economies and corporations thrivemainly on innovation in all respects of value-augmentation-creative thinking at the design

stage, ensuring production at highest efficiency and minimum costs, and satisfying thecustomer in a most effective manner.The rest of the 9Ps are levered in a highly interactive mode with people and amongstthemselves. A change in any of the Ps affects performance of the other levers and thereforethe final outcome for the organization. The 9-Ps are: Purpose, perspective, Positioning, Plans(& Policies), Partnerships, Products, Productivity, Politics, and Performance.

Figure-1


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People: Organization is people

An organization is created by the people, it exists for the people, and continuously drawssanction from the people.The people focus implies that the primary purpose of an organization can never be to provideemployment at the expense of customers or society in general- a drill routinely exercised in

third world countries, and especially in India by many public sector and governmentorganizations during the height of regulated economic regimentation.

Purpose

Any human activity must have a purpose. Organizations define their purpose differently.Organizational purpose as used in strategy making sense is interchangeable with mission,vision, mission, core competence, strategic intent, and basic values.Business growth is a conscious management decision process and can be nurtured through astatement of purpose on which decisions are pivoted. Growth after a certain level are elusiveintangible and difficult to come by unless sustained by professional management andentrepreneurial, dynamism, and sense of direction.

Perspective

The nature of reality rests on the perceptions of the manager. Making a strategic choice andsubsequently managing its outcome depends largely on the outlook of decision maker. Forinstance, making a choice between economics and consumerism implying consumption ofgoods and services and economics of production through increased savings and investmentsin permanent assets is a matter of alternative perspective, although from a mathematical pointof view they should mean the same. Perception of opportunities and threats and their type inturn, is largely affected by the assumptions made by the manager about the world aroundhim.In facing global competitive challenges, it is important that the firm possesses a globalperspective, even though it might be competing and managing locally. A global outlookkeeps the manager informed and prepared for any eventuality and not get surprised withtechnological innovations or managerial onslaughts.

Positioning

An important dimension in achieving world class competitiveness relates to the positioningof the firm. This dimension has high interface with organizational purpose, planning andperspective resulting in definitional confusion. Positioning of the firm is distinct frompositioning of products in marketing. The term has remained mostly confined to abstractstrategic management literature despite its obvious critically to practice.An important dimension in strategy is to understand where am I, why I here, where do Iwant to be, and how do I reach there. In other words, the strategic manager has to ascertainthe existing position and future positioning of the firm.

Partnerships

The partnership approach suggests a sense of belief and trust in other persons capability andskills. It opens the doors for people to look beyond the usual routined responses, and createan environment where people voluntarily come up with innovative solutions for seeminglyintractable problems. Wal Mart, the no. 1 retail business in USA, emphasizes on the key


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organizational value of treating each employee as an associate. Each associate is encouragedto act independently by taking initiatives as partners.

The Partnership Perspective

Insert Figure

Productivity

A countrys prosperity is indicated by the amount of value-added goods that areproduced/made available for consumption. Labor productivity is generally the acceptedmeasure of value addition with the assumption that the same individual would have differentcapacities in different technological environments and organizational contexts. Thus, capitaland other factor inputs are assumed to be reflected in the final output of the worker. Increasein productivity through better management and organization boosts the aggregate supplywithout increase in inputs, thereby helping control inflation (it reduces the demand supplygap). By several estimates, USA has the highest labor productivity in the world. Germanyand Japan are reported to be lagging behind by as much as 20 percent for the manufacturing

sector in terms of value added per hour worked (converted at purchasing power parity).Japanese manufacturer have higher productivity in automobiles, chemicals and plastics,metal products and electronic equipment.Innovation based productivityTime and space as a key resources

Product

A product is a package of information which the customer interprets in his mind while goingthrough the process of consumption. Therefore, the concept of any product must start withthe customer mind, and end with his total satisfaction. In this definition all products areultimately services converted into information. For world class performance, simplymanufacturing products to the customers define the quality parameters. All across the value-addition chain, the relationship between suppliers and consumers (even within the shop-floordepartments) goes beyond the usual contractual responsibilities. Maximum contribution canbe extracted only through strategic partnering which in turn suggests an acceptance of mutualinterdependence between the management and the employees, the suppliers and customers,and the organization and the society at large. Beyond quality, products must offer customersa satisfaction to a level where they become the best salesmen for the company forever. Whileconsuming a product the customer draws relationships of the actual information (Perceivedthrough consumption) with his apriori expectations, especially with the price that he has paid.Customers cannot therefore be treated as guinea pigs or test drivers.Serving the customer beyond product-consumption.Product-partnership interface through team approach.

Plans (and Policies)

Plans are maps which the organization creates for guiding its members towards attainmentof:


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Objectives (which must be consistent with its mission-a hazy, vague idea of what it

wants to be finally.

The position it wants amongst the competitors (which in turn must be consistent with

the values held by the main decision makers); and

Responsibilities towards society at large.

One of the primary issues that any plan must address to is the type of tools, training, andincentives that would be needed by the organizational team members.The plan serves the background on which team work flourishes. World class companiesdetermine as much as 80 percent of a products quality and costs during the productdevelopment stage. The high emphasis on planning saves rejections, wastages, costs, andmost important, permanent loss of customers. Coca cola has largest distribution networkin the world. The company illustrates the fine interface between product quality andplanning.

Politics

The orthodox organizational behavior school holds that politics is an attempt to bypass

the official channel or to influence outcomes for personal gains (Impliedly, at the cost oforganizational efficiency). Hence, this school holds that, politics being a negative power-bearing agent, should be discouraged. This cannot be true in a larger perspective. Politicalbehavior, in the positive sense of the word, is a highly democratic and peaceful form ofconflict resolution process especially useful in high-uncertainty environments. It signifieswillingness to admit that others also have their own needs and aspirants, which may be ina consonance with my or organizational goals.Insert figure

Performance

Improving performance outcomes is the core of all strategic management theories.Achievement of goals and objectives is the basis of all strategic planning. It is importantto realize that different stakeholders will possess different measures of performance.In one respect performance is the dependent variable whose outcome rests on theinterface of all the rest of 9Ps. But, performance in business settings is never an isolatedoutcome. It gets affected, and in turn affects, all other variables.World class companies organize themselves and perform in a manner that accumulationof wealth is an automatic consequence of policies and plans. For world classperformance, an organization has to be clear about its strategic objectives. Someimportant yardsticks with which performance can be objectively measured are:

Market Share

Time taken to develop and introduce new products Technological Competitiveness

Employee motivation and skills

Throughput value-addition

Conclusion

The ten Ps are not only dynamic, inter-related, but also overlapping. The task of thestrategic manager is to strike a fit between the various soft and hard components


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appropriate to the organizational values and need of the times. At this stage, he has tohimself become a specialist-entrepreneurial-visionary-general manager.

Unit-II

Q.4 Technological capabilities determine global competitiveness. Explain

with the help of a relevant example in Indian context.Ans

INTRODUCTION

The name of the game in global competitiveness is technological capability. This relatesto the agility, and competencies that firms and other productive enterprises in aneconomy apply in accessing, adopting, adapting and deploying technical knowledge togain competitive advantage. Firms and entities compete on the basis of their ability tolearn and deploy technical knowledge to meet ever-changing and stringent customerdemands.Technological capability is built from four broad sources: the existing knowledge base ofproductive entities; the acquisition of technology from outside the organization; theirintensity of effort to develop technology in house; and the institutions, and systems thatexist in the environment within which the productive entities operate. Firms and otherproductive entities currently face the quick sand of a pervasive state of flux. Technologyis changing so rapidly that firms have to be constantly innovating in order to remaincompetitive. In fact, it is those firms that can become learning organizations that can staycompetitive. Knowledge-base has to be constantly updated. Technology effort has to beconstantly intensified for firms to maintain their competitive position and minimize therisk of obsolescence.The global competitiveness of African countries has been impacted by five fundamentaldevelopments. These are: the creation of a comprehensive, rules-based internationaltrading system under the World Trade Organization; globalization; changes in thestrategic operations of multinational corporations; less developed countries commitmentto Structural Adjustment Programs; and the emergence of knowledge as a basis for globalcompetitiveness. These developments have changed the way firms and other productiveentities compete, and raised certain critical challenges for African countries.The title of this paper deals with three key issues: the technological capability of Africancountries; the competitiveness of African countries; and the challenges that face Africancountries in the twenty first century. However, it is the relationship among these issuesthat is critical for Africas sustainable development.

The rest of this paper is meant to explain the three issues and to explore theirinterrelationship in order to suggest how African countries could better prepare for thecompetitive challenges of the new millenium. Section one

Q.5 Explain two Power roles of innovation.


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The Strategic Power of InnovationInnovation has been overlooked and neglected for years by many companies as a keycomponent of business strategy. For too long, the primary thrust of strategic thinking andplanning has centered on how best to become low-cost producers. Of course, reducing costsand increasing operating efficiencies are important pieces of any smart business puzzle. But

innovation brings with it more potential power to reach strategic and financial goals. The roleof innovation in setting and bolstering strategy has not been well understood or accepted inthe past. However, signs of support for innovation are definitely being seen in corporations.CEOs are turning to innovation as a growth mode for adding incremental revenues andprofits to their income statement. But, many still dont think about innovation as a corebusiness strategy.Every CEO should seriously consider innovation as a competitive weapon for shapingbusiness strategies. For many years, CEOs and strategic planners have used Michael Portersmodel for setting competitive strategy. When many companies evaluate their corecompetencies, they tend to assess their sources of competitive advantage according to someof the following areas

Manufacturing economies

R&D Technology

Channel clout

Brand name equity

Distribution leverage

Price competitiveness

The smart executive of the future should assess one more source of competitiveadvantage-that is, the companys potential for achieving competitive innovation.

The Two Power Roles of Innovation

Senior executives should think of innovation as a valuable corporate asset rather than acost or a risk. If you truly perceive innovation as a source of competitive advantage, itwill more likely be viewed as a long-term investment rather than a short term cost. Thislong-term investment perspective sets up the right mindset for innovation to workeffectively. Without it, innovation is perceived as a high risk. And as a consequence, yourmanagers will take the low risk approach of merely cutting costs or focusing on lineextensions and product improvements.Broadly speaking, there are two key power roles that innovation can play: (1)Competitive advantage protection (CAP), which stems from competitive innovation, and(2) shareholder, employee, and customer (SEC) satisfaction. The first, competitiveadvantage protection, provides a company with a long-term competitive insurancepolicy. Most importantly, it allows a company to play an offensive game in the marketplace rather than a reactionary game of always trying to catch up to competition.

Competitive Advantage Protection

A strategic approach for preempting, protecting against, or jumping ahead of competition.Competitive advantage protection enables a company to accelerate growth, experienceincremental margin enhancement, and build additional core competency, which bolsterscompetitive advantage.


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Exhibit 1 graphically depicts the role that competitive advantage protection can play inshaping business strategy. In each quadrant, competitive advantage protection can play asignificant role in enhancing competitive advantage. Each of the quadrants is describedhere:

Radical Leapfrogging: with this strategy, competitive advantage protection isaimed at achieving new products that will leapfrog competition. The end outputsof this strategy usually are products or services that convey totally new consumerperceived benefits. They are radically different from anything currently offered inthe market. Consumers or end-users will clearly perceive the functional,emotional, psychological, or performance benefits of these new products as betteror greater than those offered by any competitive products.

Benefits Differentiation: competitive innovation can play a major role in adding

new benefits, the existing or newly developed products will provide a new sourcefor competitive advantage. The degree of uniqueness and benefit differentiationwill most likely determine the duration and strength of the competitive advantage.

Market Share Simulation: there are many different approaches for simulatingmarket share, ranging from advertising and promotions to distribution channeldiversification and pricing. However, competitive innovation can also be used tobuild market share by launching line extensions, flankers, and new-and-improvedproducts. This approach offers end-users new reasons to purchase your productsline rather than your competitions.

Cost/Value Enhancement: value-engineering or cost-reduced new products and

processes can also be achieved through competitive innovation. Sometimes thelower cost benefit can be passed on directly to consumers, resulting in a pricereduction. Alternatively, the cost savings can be applied internally to boost grossprofit margins. These incremental margin dollars can then be used to build

awareness or stimulate trial through increased marketing.

Exihibit-1

Shareholder, Employee, Customer Satisfaction

The second power role, shareholder, employee, customer (SEC) satisfaction, provides ameans for increasing the satisfaction level of companies three key constituencies. Ifsatisfaction can be increased for these constituencies with increased profitability, itsfairly safe to assume that the senior management will be rewarded handsomely.Executive should adopt a new mindset regarding these three constituencies. Thisshareholder-employee-customer triumvirate should represent the collective group that

executives are trying to best serve. The leader of an organization becomes a servantwhose primary job is to satisfy the needs, expectations, and desires of this collectivegroup. The three constituencies fall on a continuum, from externally to internallyfocused, as shown in Exhibit 2

So, we can see the role of two power role of innovation

Unit-III


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Q.6 Discuss the impact of G-20 summit in London on investment markets

and on overall economy across the globe.

Global plan for recovery and reform (02/04/2009)

The official communique issued at the close of the G20 London Summit.

1. We, the Leaders of the Group of Twenty, met in London on 2 April 2009.

2. We face the greatest challenge to the world economy in modern times; a crisis whichhas deepened since we last met, which affects the lives of women, men, and children in

every country, and which all countries must join together to resolve. A global crisisrequires a global solution.

3. We start from the belief that prosperity is indivisible; that growth, to be sustained, hasto be shared; and that our global plan for recovery must have at its heart the needs andjobs of hard-working families, not just in developed countries but in emerging marketsand the poorest countries of the world too; and must reflect the interests, not just oftodays population, but of future generations too. We believe that the only surefoundation for sustainable globalisation and rising prosperity for all is an open worldeconomy based on market principles, effective regulation, and strong global institutions.

4. We have today therefore pledged to do whatever is necessary to:

restore confidence, growth, and jobs;

repair the financial system to restore lending;

strengthen financial regulation to rebuild trust;

fund and reform our international financial institutions to overcome this crisis and

prevent future ones; promote global trade and investment and reject protectionism, to underpin

prosperity; and build an inclusive, green, and sustainable recovery.

By acting together to fulfil these pledges we will bring the world economy out ofrecession and prevent a crisis like this from recurring in the future.

5. The agreements we have reached today, to treble resources available to the IMF to$750 billion, to support a new SDR allocation of $250 billion, to support at least $100billion of additional lending by the MDBs, to ensure $250 billion of support for tradefinance, and to use the additional resources from agreed IMF gold sales for concessionalfinance for the poorest countries, constitute an additional $1.1 trillion programme of


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support to restore credit, growth and jobs in the world economy. Together with themeasures we have each taken nationally, this constitutes a global plan for recovery on anunprecedented scale.

Restoring growth and jobs

6. We are undertaking an unprecedented and concerted fiscal expansion, which will saveor create millions of jobs which would otherwise have been destroyed, and that will, bythe end of next year, amount to $5 trillion, raise output by 4 per cent, and accelerate thetransition to a green economy. We are committed to deliver the scale of sustained fiscaleffort necessary to restore growth.

7. Our central banks have also taken exceptional action. Interest rates have been cut

aggressively in most countries, and our central banks have pledged to maintainexpansionary policies for as long as needed and to use the full range of monetary policyinstruments, including unconventional instruments, consistent with price stability.

8. Our actions to restore growth cannot be effective until we restore domestic lending andinternational capital flows. We have provided significant and comprehensive support toour banking systems to provide liquidity, recapitalise financial institutions, and addressdecisively the problem of impaired assets. We are committed to take all necessaryactions to restore the normal flow of credit through the financial system and ensure thesoundness of systemically important institutions, implementing our policies in line withthe agreed G20 framework for restoring lending and repairing the financial sector.

9. Taken together, these actions will constitute the largest fiscal and monetary stimulusand the most comprehensive support programme for the financial sector in modern times.Acting together strengthens the impact and the exceptional policy actions announced sofar must be implemented without delay. Today, we have further agreed over $1 trillion ofadditional resources for the world economy through our international financialinstitutions and trade finance.

10. Last month the IMF estimated that world growth in real terms would resume and riseto over 2 percent by the end of 2010. We are confident that the actions we have agreedtoday, and our unshakeable commitment to work together to restore growth and jobs,

while preserving long-term fiscal sustainability, will accelerate the return to trend growth.We commit today to taking whatever action is necessary to secure that outcome, and wecall on the IMF to assess regularly the actions taken and the global actions required.

11. We are resolved to ensure long-term fiscal sustainability and price stability and willput in place credible exit strategies from the measures that need to be taken now tosupport the financial sector and restore global demand. We are convinced that by


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implementing our agreed policies we will limit the longer-term costs to our economies,thereby reducing the scale of the fiscal consolidation necessary over the longer term.

12. We will conduct all our economic policies cooperatively and responsibly with regardto the impact on other countries and will refrain from competitive devaluation of our

currencies and promote a stable and well-functioning international monetary system. Wewill support, now and in the future, to candid, even-handed, and independent IMFsurveillance of our economies and financial sectors, of the impact of our policies onothers, and of risks facing the global economy.

Strengthening financial supervision and regulation

13. Major failures in the financial sector and in financial regulation and supervision werefundamental causes of the crisis. Confidence will not be restored until we rebuild trust inour financial system. We will take action to build a stronger, more globally consistent,supervisory and regulatory framework for the future financial sector, which will support

sustainable global growth and serve the needs of business and citizens.

14. We each agree to ensure our domestic regulatory systems are strong. But we alsoagree to establish the much greater consistency and systematic cooperation betweencountries, and the framework of internationally agreed high standards, that a globalfinancial system requires. Strengthened regulation and supervision must promotepropriety, integrity and transparency; guard against risk across the financial system;dampen rather than amplify the financial and economic cycle; reduce reliance oninappropriately risky sources of financing; and discourage excessive risk-taking.Regulators and supervisors must protect consumers and investors, support marketdiscipline, avoid adverse impacts on other countries, reduce the scope for regulatory

arbitrage, support competition and dynamism, and keep pace with innovation in themarketplace.

15. To this end we are implementing the Action Plan agreed at our last meeting, as set outin the attached progress report. We have today also issued a Declaration, Strengtheningthe Financial System. In particular we agree:

to establish a new Financial Stability Board (FSB) with a strengthened mandate,

as a successor to the Financial Stability Forum (FSF), including all G20 countries,FSF members, Spain, and the European Commission;

that the FSB should collaborate with the IMF to provide early warning of

macroeconomic and financial risks and the actions needed to address them; to reshape our regulatory systems so that our authorities are able to identify and

take account of macro-prudential risks; to extend regulation and oversight to all systemically important financial

institutions, instruments and markets. This will include, for the first time,systemically important hedge funds;


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to endorse and implement the FSFs tough new principles on pay and

compensation and to support sustainable compensation schemes and the corporatesocial responsibility of all firms;

to take action, once recovery is assured, to improve the quality, quantity, and

international consistency of capital in the banking system. In future, regulation

must prevent excessive leverage and require buffers of resources to be built up ingood times; to take action against non-cooperative jurisdictions, including tax havens. We

stand ready to deploy sanctions to protect our public finances and financialsystems. The era of banking secrecy is over. We note that the OECD has todaypublished a list of countries assessed by the Global Forum against theinternational standard for exchange of tax information;

to call on the accounting standard setters to work urgently with supervisors and

regulators to improve standards on valuation and provisioning and achieve asingle set of high-quality global accounting standards; and

to extend regulatory oversight and registration to Credit Rating Agencies to

ensure they meet the international code of good practice, particularly to preventunacceptable conflicts of interest.

16. We instruct our Finance Ministers to complete the implementation of these decisionsin line with the timetable set out in the Action Plan. We have asked the FSB and the IMFto monitor progress, working with the Financial Action Taskforce and other relevantbodies, and to provide a report to the next meeting of our Finance Ministers in Scotlandin November.

Strengthening our global financial institutions

17. Emerging markets and developing countries, which have been the engine of recentworld growth, are also now facing challenges which are adding to the current downturnin the global economy. It is imperative for global confidence and economic recovery thatcapital continues to flow to them. This will require a substantial strengthening of theinternational financial institutions, particularly the IMF. We have therefore agreed todayto make available an additional $850 billion of resources through the global financialinstitutions to support growth in emerging market and developing countries by helping tofinance counter-cyclical spending, bank recapitalisation, infrastructure, trade finance,balance of payments support, debt rollover, and social support. To this end:

we have agreed to increase the resources available to the IMF through immediate

financing from members of $250 billion, subsequently incorporated into anexpanded and more flexible New Arrangements to Borrow, increased by up to$500 billion, and to consider market borrowing if necessary; and

we support a substantial increase in lending of at least $100 billion by the

Multilateral Development Banks (MDBs), including to low income countries, andensure that all MDBs, including have the appropriate capital.


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regard and look forward to further discussion of this charter for sustainable economicactivity.

Resisting protectionism and promoting global trade and investment

22. World trade growth has underpinned rising prosperity for half a century. But it isnow falling for the first time in 25 years. Falling demand is exacerbated by growingprotectionist pressures and a withdrawal of trade credit. Reinvigorating world trade andinvestment is essential for restoring global growth. We will not repeat the historicmistakes of protectionism of previous eras. To this end:

we reaffirm the commitment made in Washington: to refrain from raising new

barriers to investment or to trade in goods and services, imposing new exportrestrictions, or implementing World Trade Organisation (WTO) inconsistent

measures to stimulate exports. In addition we will rectify promptly any suchmeasures. We extend this pledge to the end of 2010;

we will minimise any negative impact on trade and investment of our domestic

policy actions including fiscal policy and action in support of the financial sector.We will not retreat into financial protectionism, particularly measures thatconstrain worldwide capital flows, especially to developing countries;

we will notify promptly the WTO of any such measures and we call on the WTO,

together with other international bodies, within their respective mandates, tomonitor and report publicly on our adherence to these undertakings on a quarterlybasis;

we will take, at the same time, whatever steps we can to promote and facilitate

trade and investment; and we will ensure availability of at least $250 billion over the next two years to

support trade finance through our export credit and investment agencies andthrough the MDBs. We also ask our regulators to make use of availableflexibility in capital requirements for trade finance.

23. We remain committed to reaching an ambitious and balanced conclusion to the DohaDevelopment Round, which is urgently needed. This could boost the global economy byat least $150 billion per annum. To achieve this we are committed to building on theprogress already made, including with regard to modalities.

24. We will give renewed focus and political attention to this critical issue in the comingperiod and will use our continuing work and all international meetings that are relevant todrive progress.

Ensuring a fair and sustainable recovery for all


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25. We are determined not only to restore growth but to lay the foundation for a fair andsustainable world economy. We recognise that the current crisis has a disproportionateimpact on the vulnerable in the poorest countries and recognise our collectiveresponsibility to mitigate the social impact of the crisis to minimise long-lasting damageto global potential. To this end:

we reaffirm our historic commitment to meeting the Millennium Development

Goals and to achieving our respective ODA pledges, including commitments onAid for Trade, debt relief, and the Gleneagles commitments, especially to sub-Saharan Africa;

the actions and decisions we have taken today will provide $50 billion to supportsocial protection, boost trade and safeguard development in low income countries,as part of the significant increase in crisis support for these and other developingcountries and emerging markets;

we are making available resources for social protection for the poorest countries,

including through investing in long-term food security and through voluntary

bilateral contributions to the World Banks Vulnerability Framework, includingthe Infrastructure Crisis Facility, and the Rapid Social Response Fund; we have committed, consistent with the new income model, that additional

resources from agreed sales of IMF gold will be used, together with surplusincome, to provide $6 billion additional concessional and flexible finance for thepoorest countries over the next 2 to 3 years. We call on the IMF to come forwardwith concrete proposals at the Spring Meetings;

we have agreed to review the flexibility of the Debt Sustainability Framework and

call on the IMF and World Bank to report to the IMFC and DevelopmentCommittee at the Annual Meetings; and

we call on the UN, working with other global institutions, to establish an effective

mechanism to monitor the impact of the crisis on the poorest and most vulnerable.

26. We recognise the human dimension to the crisis. We commit to support thoseaffected by the crisis by creating employment opportunities and through income supportmeasures. We will build a fair and family-friendly labour market for both women andmen. We therefore welcome the reports of the London Jobs Conference and the RomeSocial Summit and the key principles they proposed. We will support employment bystimulating growth, investing in education and training, and through active labour marketpolicies, focusing on the most vulnerable. We call upon the ILO, working with otherrelevant organisations, to assess the actions taken and those required for the future.

27. We agreed to make the best possible use of investment funded by fiscal stimulusprogrammes towards the goal of building a resilient, sustainable, and green recovery. Wewill make the transition towards clean, innovative, resource efficient, low carbontechnologies and infrastructure. We encourage the MDBs to contribute fully to theachievement of this objective. We will identify and work together on further measures tobuild sustainable economies.


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28. We reaffirm our commitment to address the threat of irreversible climate change,based on the principle of common but differentiated responsibilities, and to reachagreement at the UN Climate Change conference in Copenhagen in December 2009.

Delivering our commitments

29. We have committed ourselves to work together with urgency and determination totranslate these words into action. We agreed to meet again before the end of this year toreview progress on our commitments.

Q.7 Critically review the internationalization process of telecom firms on

Indian origin and identify bottlenecks in their journey towards global

competitiveness.

National barriers to global competitiveness: the

case of the IT industry in India.

The IT industry, particularly IT enabled services (ITES), in India has shown remarkable

growth over the past decade and continues to show resilience even in the face of a global

downturn in the sector. While India has not been able to match China in manufacturing

prowess, it

may have found its competitive advantage in the area of knowledge-based services to which

its factor endowments are uniquely suited. Yet, the tremendous potential and promise of this

sector in spurring economic growth and national competitiveness may not be realized, if the

numerous obstacles to the sector's growth are not removed. This paper traces the evolution

of the IT industry in India, its positives and negatives and its potential to contribute to

India's global competitiveness. Structural barriers in the national environment to the growthof this industry are identified and discussed. Conclusions and policy implications are

presented.

INTRODUCTION


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Why are some national environments more conducive to firm growth and prosperity than

others Why are some national environments more conducive to firm growth and prosperity

than others? (Porter, 1990). Nations, like firms, are unique bundles of heterogeneous

resources and capabilities. They seek to capitalize on these resources and capabilities in

order to build and maintain core competencies in certain industry sectors, which can provide

a unique identity to the country and lead to sustainable competitive advantage, if those

resources and capabilities cannot be easily imitated. In the more open global trading

environment of the 21st century, nations are under pressure to develop and market their

"national brands" in order to "position" themselves favorably in the mental maps of

demanding global consumers. A nation's positive image in any particular industry may

impact the ability of its firms to compete in global markets. Spillover effects may also benefit

firms in other industries thereby enhancing the competitive advantage of national firms in

general (Kotler et al, 1997).

Consumers have positive or negative stereotypes associated with products / brands

originating from different countries (Jackson, Biswas and Lumb, 1995). For instance, Japan

has positioned itself in the minds of consumers as a nimble, global market leader in

consumer electronics, automobiles, watches and so on. Japan's products have served as good

brand ambassadors for the country and today the "Made in Japan" brand is associated with

superior quality at a competitive price. By contrast, India has operated for decades as aclosed, private investment unfriendly socialist economy recognized more in the global media

for its poverty and squalor than for its achievements in science and technology. Foreign

investors perceive India as a difficult environment to do business. This may be changing, as a

World Bank 2001 report points out, "Indian technological sophistication, though still

narrowly defined, has begun to alter international perceptions of the country. Instead of

viewing India as a country burdened by decades of heavy-handed government regulation of

the economy, foreigners now view the country somewhat more favorably, though not as yet

as a country where future growth will approximate that of China ..." (Miller, 2001). China, its

neighbor and closest competitor, in a matter of less than two decades has established itself as

a manufacturing powerhouse in global markets, offering an unmatched price-quality value

proposition. While India has not been able to match China's manufacturing capability, it may

have found its source of competitive advantage in its knowledge-based industries, which

capitalize on the country's rich source of human capital.


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Seeking to explain "competitiveness" at the national level, Porter (1990) argues that there is a

critical link between the national environment and firm level competitive advantage and that

the answer to national competitiveness may not rest on the economy as a whole, but in

specific industries. This paper, therefore will consider India's IT / software industry and its

potential to contribute to the country's national competitiveness. It will analyze the growth of

the IT / software industry in India by tracing its evolution, the part played by a growing and

vibrant private sector in IT/software services and software industry associations, such as the

National Association of Software and Service Companies (NASSCOM), and the role of the

government in facilitating the sector's growth. The question facing the country is what the

Indian government at the central and local levels and domestic firms can do to leverage this

industry's success to enhance national competitiveness in global markets. While the

prospects and potential for this sector are high, the paper highlights the many barriers that

have to be dealt with before the IT industry and the country realize their full potential.

India's political leaders have expressed their strategic intent to use the IT industry to create

the next information technology superpower. Jack Welch responding to the paradox of

change and development in India remarked, "India is a developing country with developed

country R&D infrastructure." The disconnect between the Indian political elite's talk of India

becoming the next "information technology superpower" and skeptical outsiders such as Jack

Welch of General Electric could not be more stark. In a talk to Indian businesspeople, JackWelch recognized India's "intellectual capital" and its sophisticated R&D infrastructure,

while pointing out the old economic concerns such as lack of power generation capacity and a

communications infra-structure that could hamper growth (Gardner, 2000). Welch's

warning that India could fail to capitalize on the information technology revolution, in spite

of its prowess in software skills and R&D capability should serve as a reality check for a

country that is betting on IT to power its way into the new global economy.

India is still a developing country mired in developmental problems of poverty and illiteracy,

yet has a nuclear arsenal and the world's second largest pool of skilled software talent after

the United States. India's achievements in science and technology, and the "emerging

knowledge-based" industries have drawn the world's attention to this developing nation of a

billion people that has had difficulty keeping pace with the growth rates of the "tiger" and

"dragon" economies of the ASEAN region, or that of China, its giant neighbor to the North.


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National competitiveness has long been an elusive goal for India; it has been a forgotten

investment continent, perhaps due to its economic insularity stemming from its autarkic

policies. The past decade however has been one of sea change for India. A balance of

payments crisis in 1991 catalyzed it into breaking out of its insular mold, forcing it to change

course from insularity to economic liberalization. India is at last on the verge of freeing the

tremendous potential of its human capital that has been an inherent, but untapped part of

this sub-continent. While India could not match China in manufacturing prowess, its

economic growth or its ability to attract foreign direct investment, it has discovered an

untapped resource in its skilled human resource advantage, capable of powering the

information technology revolution sweeping across the world. How the country uses this rich

source of economic advantage will determine its economic fortunes at the beginning of this

new century.

Kapur and Ramamurti (2001) analyze the Indian IT sector's competitiveness drawing upon

the framework provided by Porter's diamond of competitive advantage. They point out that

India has become competitive in software because of its advantage in IT related, knowledge-

based resources. It has plenty of the requisite factor conditions in terms of human capital,

low wages, and English language capability. Since barriers to entry are relatively low for

firms in the software / IT sector, there is healthy domestic rivalry to hone the players for

demanding global markets. Related and supporting industries, such as the educationalinstitutions that turn out world class technical talent, improving communications and duty-

free access to component parts help the growth of this fledgling industry. Weak domestic

demand is not a key problem, since strong U.S. demand comprised of demanding customers

fills the gap. In this paper, we will focus on the positives and negatives by considering the

elements in Porter's diamond that are weak or missing and hence could serve as major

hindrances to the growth of this sector.

GROWTH AND EVOLUTION OF IT IN INDIA

The software and information technology industry in India is without question one of the

most dynamic sectors in India's economy. The industry has been growing at 50 percent

annually since 1991. Worldwide, the sector is worth $850 billion with a projected growth of

50-60 percent per year. Software services exports have been growing at 29 percent in rupee

terms even during the downturn in the global IT industry in 2001. The growth engine seems


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to be the IT enabled services (ITES), which grew at 69 percent this year compared to IT

services, which grew at 22 percent (Deccan Herald, July 22, 2001). The sector consists of

about 1000 companies employing 280,000 software engineers and, by 2008, is expected to

employ four million people. The industry has grown at an annual rate of over 45 percent for

the past three years and is expected to account for 7 percent of GDP by 2008 (Nasscom-

McKinsey 2002 Report). The Indian IT sector's growth since 1990 has been primarily export

driven. Exports for this sector in 1999 totaled $4 billion and is projected to grow to $50

billion by the year 2008. According to NASSCOM 62 percent of the exports go to the United

States, 23 percent to Europe, 4.0 percent to South East Asia, 3.5 percent to Japan and the

rest to West Asia, Australia, New Zealand and the rest of the world (www.nasscom.org).

In light of the recent global downturn in the IT sector, the Nasscom-McKinsey 2002 Report

notes three fundamental shifts in the IT industry: 1) shift in near term demand from new

application development to maintenance and product enhancement, 2) significant increase

in offshoring, and 3) competition from emerging locations, particularly China. IT enabled

services (ITES) include services such as customer care, web sales and web marketing, billing

services and accounting transactions. Recent projections for the growth of the ITES sector

were scaled up from $17 billion in the Nasscom-McKinsey 1999 survey to $20 billion (The

Economic Times, May 14, 2002). Multinationals, particularly from the U.S. have been

shopping India as a low cost outsource base for their labor-intensive IT related back officework and did so prior to the year 2000 for on-site work related to Y2k issues. The Europeans

have done the same for euro conversion. India's advantage in IT related high technology,

innovation and knowledge base, its large market, its well-developed R&D infrastructure, its

large pool of cost competitive technical talent and the sophistication of Indian IT vendors

make it a desirable destination for IT firms from developed countries.

The growth and evolution of the IT sector has been incremental and organic in nature, but if

it maintains its momentum and succeeds in realizing its projected potential its impact on the

economy and politics of India would be dramatic. But, frankly this is a big "if." The IT sector

in India came into the global limelight by the on-site Y2K services performed by an army of

Indian software engineers sent by Indian companies to write software code or to plug Y2K

problems for foreign companies. While margins from on-site work were necessarily low due

to the high cost of transferring personnel to overseas location, it gave India much needed


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visibility and an opportunity to showcase its IT capabilities on the global stage. Capitalizing

on the credibility built through Y2K work, Indian software companies have been steadily

migrating up the value chain to provide more lucrative offshore services, i.e. work done in

India. Indian firms now are developing proprietary software technology for e-commerce

applications and other web based services for overseas clients. In the process they are

proving that they are adept at scalability, while maintaining their competitive advantage in

cost and quality (Merchant, 2000).

The offshore model (operations in India) is more profitable and also helps India build its

local infrastructure to support a strong and growing IT sector. It includes IT enabled services,

such as medical transcription, call centers, legal database work, logistics management and

web-content development, which are labor intensive and require IT skilled personnel. (In

fact, your medical records for visits to your local (US) physician may be transcribed in India).

United States (200 out of the Fortune 500), and European firms now outsource this type of

work to India to take advantage of the low cost labor and the time-zone difference in India,

which allows the U.S. or European firm to work on a 24-hour basis. As Indian firms move up

the value ladder they are offering higher value added services such as IT consultancy

services. Many Indian IT firms have set up overseas offices to offer customized IT

consultancy services and more lucrative e-commerce work to clients and to gain increased

visibility. And often they have the goal of ultimately developing branded software productsdesigned for exports, but this goal may not be realized in the immediate future given the fact

that marketing branded software in competitive overseas markets is heavily capital intensive

(Taylor, 1999). The IT industry in India is labor intensive and is well suited to its competitive

advantage. However, this may be changing as India's attraction becomes more skills-based

rather than cost-based, as leading players in the IT industry, such as Wipro, seek a U.S.

listing, set up overseas offices and make foreign acquisitions. Three broad characteristics are

said to define the new growth phase among the top players in India's IT industry: a foreign

stock market listing, a global base of customers, and a multinational workforce (Merchant,

2001). The industry may be able to move up to branded product development if it maintains

its current upward momentum.

The Indian IT industry as it matures and migrates up the value ladder is gaining depth and

sophistication in its portfolio of capabilities. This is reflected in the fact that cost is no longer
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the sole competitive tool for these companies. Their depth and diversification is beginning to

allow them to compete on quality, speed, reliability and innovation. Many Indian software

companies are ISO 9001 certified and are able to offer world class services at competitive

prices. As these companies moved from value-based Y2K activities to value-added e-

commerce work their revenues are on the increase and the basis of competition is speed of

delivery and faster cycle time, which supports a premium pricing strategy. The Indian IT

industry also shows signs of consolidation and growth through overseas acquisitions, both

clear signs of maturity in the industry.

FACILITATING CONDITIONS

Domestic demand for software and for PC's

A recent analysis of the IT / software industry in India points out several areas of emerging

opportunity in the domestic software market, such as the energy sector which is in the

process of being privatized, services such as insurance, banking and financial services that

see IT as a way to cost efficiency through cross-selling services, and e-governance drives by

state and central governments that are interested in the spread of best practices and local

language applications (Deccan Herald, July 22, 2002).

On the Indian domestic front, the hardware market is growing as domestic PC sales and sales

of servers, printers and notebook computers are on the increase. PC penetration in India is

currently quite low at 3.6 per 1000 compared with the U.S. at 363 per 1000.

However, the buying power of India's for-midable 250 million middle class is substantial.

Firms such as Hewlett Packard and IBM have entered the market focusing on this segment.

As the interest in home Internet use increases and the popularity of alternative channels of

Internet access grows, such as "cybercafes" in Indian cities, the potential for rapid growth in

urban areas is real. Clearly, the key drivers of PC growth in India are the Internet users; they

wish to enhance their computer skills and to use it as a tool in children's studies. While PC

prices are still relatively high, (it is estimated that a PC costs 24 months of per capita income

in India vis-a-vis 4 months in China!) Indian households remain the fastest growing market

for the PC manufacturers. The increase in corporate users and the government's stated desire

to move to incorporate computers in facilitating governance are also important factors in

increasing demand in the hardware market.


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Role of state governments

Attracted by the infinite possibilities of growth and job-creation offered by this sector, Indian

States have been vying with each other to offer a hospitable environment for IT rums, both

foreign and domestic. E-governance has been gaining popularity in certain entrepreneurial

States in India, such as Andhra Pradesh, where the state has expressed desire and interest in

leveraging technology to spur development. The state's web site states its mission in the

following terms: "Andhra Pradesh will leverage Information Technology to attain a position

of leadership and excellence in the information age and to transform itself into a knowledge

society." (www. apinfrastructure.com). The governor of this state, dubbed the "laptop

minister" (Levander, 2000) has invested in a communications infrastructure to support e-

governance and has succeeded in attracting Microsoft's product development center and GE

Capital's international data center, which otherwise may have gone to the State of Kamataka,

India's first IT champion which now stands to lose that position as other states vie with each

other to attract foreign investors to their backyard by investing in the right infrastructure

mix. Companies such as Microsoft cite better infrastructure as the primary reason for moving

to Andhra Pradesh. Key cities such as Bangalore (Karnataka State), Hyderabad (Andhra

Pradesh) and Chennai (Tamil Nadu) in the south are referred to as the "silicon triangle" for

having the highest concentration of IT industry in the country. The reformist States in India

are proving successful in attracting foreign investors as well as World Bank monies toimprove their infrastructure.

Software associations

The National Association of Software and Service Companies (NASSCOM) plays a pivotal

role in the growth of the software / IT sector. The mission of NASSCOM is to be a one-stop

provider of comprehensive information on all aspects of the software industry in India. As a

non-profit organization, its goal is to facilitate India's emergence as a front runner in the

information technology industry. The organization actively and effectively lobbies the

government for improvements in IT infrastructure and changes in policy designed to

promote the sector's growth. Its web site nasscom.org provides a gateway to the IT policies of

the various states in India along with information on past and upcoming events in the IT

sector and industry research and news. It has a membership list that includes most of the IT

companies in India and uses this information to match Indian companies with foreign IT


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companies and vice versa. NASSCOM as an IT industry promoter is a key force for generating

credibility in India's capability to participate fully in the global IT industry.

Capital sources

A vibrant private sector to support entrepreneurial developments in the software/IT area is

growing in India, where a mixed economy has created a deep-rooted free market sector in

spite of heavy government control and ownership in certain key sectors. The expansion of

this sector is helped by infusions of knowledge and capital from returning non-resident

Indians (NRI) eager to share in the growth opportunities presented by the newly emerging IT

sector. Of late, venture capital activity has been growing in India. Foreign venture funds,

some created by wealthy Indians based in the U.S. such as The Indus Entrepreneurs (TIE)

and Chrysalis Fund have entered India seeking to invest in technology start-ups with goodprospects for growth. Newer varieties of venture capitalists are also moving into India with

foreign capital to fund Indian startups. At India, a VC founded by a Silicon Valley NRI calls

itself a "business value accelerator" that seeks to provide value beyond capital. The VC has a

joint venture with Silicon Valley based Hambrecht & Quist and a venture capital base of $50

million (The Economic Times, November 21, 2000). American firms with Indian

subsidiaries, such as GE Capital and Intel are investing in new ventures in India that have the

potential to sell their products. Intel has just announced that it will invest $100 million in its

India operations making it one of Intel's largest overseas ventures. As current restrictions on

venture capital funds are eased by the government coupled with the change in market

structure and the availability of risk capital for entrepreneurial firms this will increase

growth and new venture creation in the IT sector.

IT EDUCATION IN INDIA

New world class educational institutions are being set up in the more reformist oriented

states in India. In March 2000, Motorola signed an agreement to set up Motorola School of

Communication Technology at the Indian Institute of Information Technology (IIIT) in

Hyderabad, one of the cities in the silicon triangle and capital of the state of Andhra Pradesh.

The Motorola School of Communication Technology is designed to be a state-of-the-art

center to create new talent by providing advanced IT and telecom education. In addition, the

school will offer research and development opportunities to innovate new approaches to


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wireless communications for the Indian market. (www.ap-it.com/iitmou.html). The Indian

School of Business located in Hyderabad, brainchild of Rajat Gupta, Managing Director of

McKinsey and Co., is designed to provide business education in India in collaboration with

the Wharton School, University of Pennsylvania and the Kellogg School of Business at

Northwestern University. Both schools are supported and financed by leading companies in

India and abroad, as well as the government. As world-class educational institutions enter

and locate in India to satisfy the educational need, it will impact the number and quality of

information technology graduates. Several leading IT firms from developed countries are

outsourcing and out locating their IT requirements to India, a reverse brain drain of Indian

NRI's is spurring new entrepreneurial activity in the country and the energies of the local

entrepreneurial talent is being unleashed by the government's willingness to provide

incentives and relax regulatory controls for the IT sector. The government is serving to

facilitate the industry's growth having realized that this may be the country's best chance to

improve its economic fortunes and to achieve global integration and economic parity with the

developed world in the long term.

To summarize, the Indian IT industry's competitive advantage derives from its depth of

English speaking, well-trained human resource base, a powerful cost/quality combination

coupled with a growing ability to compete on speed of delivery. The "Made in India" brand is

gaining equity as the country scales up the value ladder to offer services that stand for highquality and good value. Added to this is the return of non-resident Indians (NRI) to India

drawn by entrepreneurial opportunities in India's growing IT sector. The brain drain, which

has usually been Westward, is now showing some reversal to India's benefit. Many of the

returning IT professionals have experience in the well-developed Western markets, such as

the U.S. and Europe and will able to take back the fruits of their experience to India. Kapur

and Ramamurti (2001) argue that if India maintains its current momentum in IT, it could

emerge in the short term as a back office of global companies, and in the medium to long

term move up to knowledge-based tradable services. Numerous obstacles, however, stand in

the face of this scenario and are discussed in the following section.

OBSTACLES TO GROWTH OF IT IN INDIA

In spite of the many successes in this area India faces numerous obstacles to growth of the IT

sector in the short to medium term. At the firm level, even star performers, such as Infosys


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sell very little packaged software. Most of its business is still in consultancy, one-time

software projects and in helping international vendors develop their own products

(Phillipson, 2002). The capability gap could hinder Indian firms' global competitiveness and

leave them vulnerable to competitors from other countries.

At the macro level, the government's plans for privatization and deregulation of key sectors,

such as banking and telecommunications are slow and halting due to a political process that

demands consensus on these issues from various groups at different levels. Many of the

telecom providers of long distance services are still state-owned and under state-controlled

international bandwidth, which is insufficient to meet the country's needs. In the domestic

arena, lack of competition in telephone service translates to lack of phone lines and high cost

of local access. The high cost of local phone calls could be a major disincentive to Internet

usage to those who have a PC and Internet access. The cost of Internet access is relatively

high since usage is still metered. Lack of bandwidth for data also influences availability, cost

and speed of access. India's total international bandwidth is only 350MB, compared with

China's 40GB and 200GB in the U.S. (www.nua.ie/surveys). Interruptions and fluctuation in

power supply compound the problem creating a major disincentive for growth of the

domestic market for Internet usage and web-based retailing. High quality, reliable, and

uninterrupted supply of power is critical to the sector's growth.

The local, domestic market for PCs is growing in India, but for B2C internet commerce to

grow in India, it requires a reliable delivery system, bandwidth for easy and fast access to

data and graphics and higher levels of credit card usage to facilitate payment. In a recent

report by the U.S. government to facilitate Internet development, five key principles were

outlined in a document titled, "A Framework for Global Electronic Commerce." They include

private sector leadership, avoidance of undue restrictions, establishment of a legal

environment based on a contractual model of law, recognition of the unique qualities of the

Internet and facilitation of global e-commerce (www.ecommerce.gov). The government of

India, recognizing the urgency of the sector's growth to India's economic development has

stated its intention to follow many of the same principles set forth above in the U.S.

government report (India Business Opportunities, 2000).

A labor skills shortage could short circuit the IT sector's growth, if the country does not take

steps to deal with the issue on an urgent basis. The local shortage of trained and experienced


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IT human resources is bidding up the cost of labor, which could erase one of India's key

advantages. India currently trains 68,000 software professionals a year and needs to have

2.2 million a year by 2008 to meet projected demand. China could emerge as a formidable

competitor in this area, since the Chinese government has announced its intent to set up 100

IT training institutes in China (Ramesh, 2001). As the global IT industry grows, there is a

shortage of trained IT human resources in the global market and developed countries, such

as Germany and Japan are increasingly turning to countries like India to recruit labor for

their domestic market. As a global market lures Indian IT skills away with higher wages and

more attractive benefits, the skill shortage in India could be exacerbated. Literacy rates of

Indian children at 45 percent are lower than many other Asian countries. India is bifurcated

between a middle class that has the resources to access technical training and a majority of

the population with little or no formal education. Servicing a "wired" economy would require

a far more educated workforce (Miller, 2001).

CONCLUSIONS AND POLICY IMPLICATIONS

If information technology is to fuel India's economic growth into the ranks of the developed

countries, there needs to be a confluence of policy changes. As the industry grows and

matures, it faces bottlenecks to growth in the form of inadequate power, weak telecom and

transport infrastructure and even an exhaustible supply of IT talent, if educational

institutions in India fail to rise to the challenge. In the critical area of power for instance,

leading Western firms that entered in the aftermath of liberalization lured by the massive

power shortages in the context of a growing economy are leaving India due to frustration

with bureaucratic roadblocks, government pricing controls which prevent them from earning

fair market returns, and disillusionment with a difficult market.

The Information-based new economy requires a free business environment, unhampered by

old economy regulations. In order to realize India's hopes for the IT sector, the government

has to free the economy and allow economic and social change to transform the business

environment. So far, the industry has succeeded against all odds. However, the growth of

India based multinationals would require a freer, more entrepreneurial climate that is

friendly to new venture creation that offers easier access to capital markets and hard

currency, sets fewer bureaucratic and regulatory roadblocks and provides better IT

infrastructure, i.e. telecom, power and transport. Moving faster on privatizing sectors, such


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as telecom and power and allowing for foreign competition would allow efficiency gains and

technology leapfrogging. Computerizing governance mechanisms would create domestic

demand for IT products and services, while increasing the efficiency and responsiveness of

government.

The McKinsey-NASSCOM report published in 2000 makes the following recommendations

for enabling the Indian IT industry's growth:

* Build a base of highly competitive "knowledge workers"

* Create a regulatory environment friendly to the IT sector

* Create India based IT multinationals

* Build a world class telecommunications infrastructure

* Build the "Made in India" brand for IT products

* Encourage entrepreneurship and new venture creation

What the government needs to do to foster growth of IT in India:

* Improve infrastructure, i.e., education, telecom, transport and postal system.

* Privatize and deregulate key sectors such as banking, telecom, and power

* Allow foreign competition in these areas formerly under State control.

* Cut bureaucracy and red tape to facilitate FDI and entry of foreign firms

* Increase government spending on infrastructure, primary education, and health

* Computerize governance mechanisms when possible

The growth of the Internet economy will have a major impact on the physical economy. Old

economy roadblocks could block India's passage to the new economy. IT has no political,

economic, or social boundaries, and if India is to support its development it has to create the

right environment for its growth. A slowdown in the Indian economy will further boost IT

investment by old economy companies interested in increasing productivity. A slowdown in

the U.S. economy could have a similar effect by opening new opportunities for Indian IT

firms with their dual advantage of a proven track record and low cost relative to the U.S. An


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interesting fact noted in the NASSCOM 2002 survey was the increase in software and service

exports to the U.S. despite a slowing of the U.S. economy.

If the IT sector in India is to grow and realize its potential, it has to be driven by a national

agenda that includes various key stakeholder groups, such as business / private sector, and

government at the central and state levels. The government needs to change its focus from a

protectionist, regulation-driven "license raj" mind-set to one of fostering national

competitiveness on a global scale. Businesses that are currently preoccupied with negotiating

bureaucracy would then have the incentive to alter their focus to competing with world-class

competition in an open economy. A strong IT industry, unfettered by domestic regulation,

may very well power the country to global competitiveness.

Q.8 How to choose an alliance structure? Explain with the help of one

successful and one unsuccessful strategic alliance.

Q.9 Strategic alliances are built on the marriage metaphor. Explain

solution setgcsa1

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