India: More Than Just Call Centers

Boston Consulting Group's Harold Sirkin sees outfits like Ranbaxy, Infosys, and Tata Motors as symbolizing India's growing commercial might

Perceptions are everything—or so they say. To many Americans, India is just a giant hub for telemarketing and customer-service call centers. But it would be wrong to assume that India's future rests in call centers.

Instead, India's growing prowess in engineering and information technology should grab our attention—which is exactly what it did in November, when hundreds of my colleagues from 37 countries met in India for Boston Consulting Group's 2006 worldwide partners meeting. BCG's partners are hard-nosed veterans, not novices who can easily be fooled and impressed. We visited numerous companies, and at every stop we got the clear message that to equate India with call centers is to miss the real story.

For one, India's information-technology sector is expanding at an amazing pace. According to India's National Assn. of Software & Service Companies (Nasscom), the IT industry is seeing double-digit growth and earned some U.S. $35 billion in fiscal year 2006, up from U.S. $21.6 billion just two years earlier.

Domestic Demand Rising

And Indian education is growing to keep up with demand. While authorities differ on whether India is producing more engineering graduates than the U.S. and Western Europe, there is no doubt that the country's engineering workforce is growing rapidly. In 2005, 441,000 Indians graduated with engineering and information technology degrees from three- and four-year colleges. That number is expected to jump to 536,000 in 2007 and to more than 600,000 by 2010. With more than half the country's population under the age of 25, the number will only continue to increase.

The demand is not just coming from the West. While U.S. and European multinationals employ many of these graduates, it would be wrong to see India merely as a supplier of America's and Europe's talent needs. Indian companies—armed with ambitious leaders, a highly educated, low-cost workforce, and modern facilities and systems—now employ 1.3 million engineering and technology professionals.

These companies are not only cornering the domestic market but rapidly expanding overseas and going head-to-head with U.S. and European multinationals. A recent BCG survey of top companies in rapidly developing economies identified dozens of potentially world-class Indian competitors in industries such as pharmaceuticals, chemicals, autos, consumer electronics, IT, and telecommunications.

Leading the Charge

Consider a few examples: Ranbaxy Pharmaceuticals (RBXLY) is already one of the top 10 generic pharmaceutical companies in the world. With manufacturing operations in eight countries and sales in 126, the company had global revenues of more than $1.1 billion in 2005. Surprisingly, 76% of the company's sales came from overseas markets, including 28% from the U.S. alone. Part of Ranbaxy's success comes from the low cost of research and development in India, which is approximately one-fifth the cost in the West.

Bangalore-based Infosys Technologies (INFZF), one of India's best-known IT companies, posted revenues of $2.15 billion for the fiscal year ended in March. Infosys provides high-end consulting and IT services, including systems integration, application development and manufacturing, and product engineering. With 58,000 employees worldwide, it ranked ninth in Wired's "Wired 40" list in 2005 and eighth on Business 2.0's list of the world's fastest-growing tech companies, ahead of U.S. icons eBay (EBAY) and Apple (AAPL).

While Tata Motors Ltd., which is India's largest automobile company, could have focused solely on the huge domestic market for commercial and passenger automobiles, it has instead focused on becoming a global competitor. It is now the world's fifth-largest medium- and heavy-commercial-vehicle manufacturer, due partly to some aggressive acquisitions. Tata bought Daewoo Commercial Vehicles, Korea's No.2 truck maker, in 2004 and also now owns 21% of Hispano Carrocera, a Spanish bus and coach manufacturer. Today, Tata has assembly operations in Bangladesh, Kenya, Malaysia, Senegal, Spain, Ukraine, and Russia, and sells its products in Africa, Asia, Australia, Europe, and the Middle East.

Research Hub

Larsen & Toubro Ltd. is a technology-focused engineering and construction giant. The company's overseas earnings have jumped to 18% of its total profits, making L&T one of the top five "fabrication" companies in the world. A recent joint-venture agreement with Kuwait-based Bader Al Mulla & Brothers will take L&T into yet another lucrative field: oil and gas construction.

The leading chassis-component manufacturer and the second-largest forging company in the world, Bharat Forge, has grown its international presence through joint ventures and acquisitions. The company now has manufacturing facilities in nine locations in six countries, including Western Europe and North America. The Pune manufacturer has also entered several new markets, including China, where it signed a joint-venture agreement with FAW Group a year ago.

India has more than call centers to thank for its booming economy. Western politicians and executives who see India as a giant outsourcing call center serving the needs of Western companies are missing the point. Bangalore is rapidly becoming a world-class R&D and technology hub. Today it is home to IBM's (IBM) Global Business Solution Center, a new Microsoft (MSFT) research lab, and many, many others. India is a serious competitor on the global stage. Those who underestimate its capabilities do so at their own peril.