India's biggest boon turning bane?

Oct 19, 2010

In this issue:
» Obama eyeing US$ 5.8 bn deals with India
» Buffett's worst investment
» India scores high on info sharing
» US$ 12 bn FDI hits roadblock
» ...and more!!

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Cheap labour changed the face of global business landscape. Industries and services that were labour intensive almost ceased to exist where manpower was expensive. Economies like China and India found a place in the reckoning of the fastest growing ones.

But it seems that the law of economics is catching up with the developing nations as well. What were once the havens of low cost labour are now finding the labour costs pinching hard. And here we are not just referring to China that has been hit hard by labour protests. Chennai which got nicknamed 'Detroit of India' for housing manufacturing hubs of some of the biggest automakers globally is witnessing a similar trend.

36 strikes, 13 lockouts, loss of 2.1 lakh mandays are striking numbers that ailed the auto industry in south India in 2009. Although these were marginally lower than those in 2008, labour trouble is only seen increasing. While most of the dissent was for higher wages and better working conditions, labour unions have also attained prominence.

At a time when developed nations themselves are rethinking their outsourcing strategy, India's inability to retain her cost advantage could turn out to be a major disadvantage.

 Chart of the day
Retailing companies are not particularly known to be high margin businesses. In fact during times of economic downturn, they are amongst the worst affected. But a recently released report on the sector shows that there is money to be made in retailing, provided you can find your niche. As seen in the chart, retailing of items such as jewelry, watches and apparels offer the maximum return on capital. This is due to their potential to be branded. On the other hand selling commodities like books and grocery items have never been a very profitable business.

Data source: Technopak report, 2010

The US President Obama has been very vocal when it comes to opposing IT offshoring to India. But he is not expected to shy away from any opportunity to get business from India. As such, on his upcoming visit to the country, Obama is looking set to seal deals worth US$ 5.8 bn for selling military-transport aircrafts to India. The US is in fact looking to secure some other major deals from India as well. Some experts are even pegging the total deals to measure up to US$ 10 to 12 bn. This will be a good enough business that US can get from India. But it would be interesting to see Obama's body language, especially given that the commercial relationship between the two countries have become increasingly tense since Obama has come to power.

Do you think India should offer business to the US without securing the IT outsourcing deals? Let us know your views or post them on our Facebook page.

How much do you think a small bout of rage is worth? Well, chances are that you may have never done this exercise before. But there is one man out there who has been able to estimate the same. And the price that he had to pay it is close to -hold your breath -US$ 200 bn. Yes, that's correct. Had he been able to control his anger, he wouldn't have made this blunder worth Rs 9 lakh crores in Indian currency. The man we are referring to is none other than the Oracle of Omaha, Warren Buffett.

Buffett was talking to a leading business channel about his biggest investment blunder and concluded that buying Berkshire Hathaway, which at that time was mainly into textiles, was the worst investment of his life. He vividly recalled how the management's offer of buying back shares of the company from Buffett for an eighth of a dollar less than promised earlier really angered Buffett. So much so that he took complete control of the company and fired the management. And this, he believes turned out to be his biggest mistake. Berkshire Hathaway kept on sucking capital year after year and earned close to nothing. Thus, had Buffett not bought the company and instead, put the money in his insurance operations, it would have made a huge difference to the tune of US$ 200 bn to the overall operations.

When one talks about the negatives in India, there is seldom a problem that does not either start, or end, with the government. But the government does rate extremely high when it comes to openness or transparency. This is according to a new World Justice Project report. The report has concluded that India scores the highest among middle-income countries on the metric of government openness. The country has come in 9th in a global ranking on the same metric. The study has shown that Indians have better access to official information like draft legislations and budget numbers than people in many other countries. The country's 5-year old Right to Information Act has been cited by some as one reason for this favourable ranking. A good start for a country in which any allusion to the government usually brings up images of only corruption and red-tape.

Indian IT outsourcing firms, which were once revered for their high growth rates and margins, are now facing the heat. Outsourcing from the US, their biggest customer is expected to slow down significantly this year, according to Forrester Research. The firm has cut its forecast for IT market growth in the US in 2010. Growth is expected to slow down even further in 2011.

While the entire US tech market now expected to grow at 8% (revised from 10%), plain IT outsourcing is expected to grow only at a paltry 2.8%. It is estimated to lag behind all other tech purchases. IT consulting and system integration services however, is expected to grow at a higher 4.2%. Indian IT firms need to shape up quickly in order to be able to retain their advantage. Moving to faster growing, high end work seems to be their best bet to not becoming obsolete.

In what has been a very volatile session, the Indian indices have managed to move up higher in the positive territory. The BSE-Sensex was trading 92 points higher at the time of writing this. Stocks from the software and commodity sectors saw the maximum profit booking today. Sentiments across the rest of Asia was, however, upbeat with Hong Kong and China leading the pack of gainers. European markets have opened on a mixed note.

 Today's investing mantra
"It's better to hang out with people better than you. Pick out associates whose behavior is better than yours and you'll drift in that direction." - Warren Buffett

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44 Responses to "India's biggest boon turning bane?"


Oct 23, 2010

Before saling the deal for purchase of Military-transport Aircraft, India should try to safeguard Outsources of IT., to increase job opportunities and earning,


Subir Roy

Oct 23, 2010

Absolutely.It is high time we grow up as a nation from waving GDP flag in self congratulation and whining like a kid rest of the time.Our poor leaders should sincerely believe in our strength and look into eyes of adversaries
like an adult to mean business.
A recent glaring example is our refusal to congratulate the Chinese Nobel lauriete since the issue is sensitive to China.Strange !! We forget so easily of "stapled visas",forcible altering of indian maps in J&K and Arunachal,etc.Do we have any shame left?


Sumant Dhalwani

Oct 22, 2010

Obama's visit could be a leaverage for India to reverse his policy of "restricting outsourcing IT business to India".

Kindly give a wide publicity especially for those of us(Finance minister,& his panel) negotiating with their deligation.

Sumant Dhalwani.

Thanking you



Oct 21, 2010

Give , wait and receive.



Oct 20, 2010

I think India should put terms and clauses to force the US to stop arms aid to Pakistan... all those arms and weapons given by the USA to Pakista to fight against Al Qaida are actually used against India...



Oct 20, 2010

I went to a suburb in Chennai yesterday and it was very hot. An auto driver asked Rs20 to reach a place that is less than 1km. His collegue refused to it and demanded Rs.30. When there are ways to make good earnings in suburbs, there would be demands for better salaries in companies which too are 10km away from such Suburbs.


R Matta

Oct 20, 2010

We should definitely secure business in return of the deals that USA intends to sign



Oct 20, 2010

Must need to learn from China on how to deal with US as well to maintain/improve self respect. Finally these also critical in business and business is business. Political people (I don't like to call them as leaders as they are not really leaders) must look for long term goal for India and they also should think that may be their children or grand children should not beg to US or any other country. Money comes and goes if Country is strong money is not a matter. US is actually not a friendly country to INDIA, it is just a colleague country, so be think about India first on any deals and if required tie the IT business as required.



Oct 20, 2010

Its no barter system, to think of US approach while sealing a business deal for ARMS. If it is otherwise beneficial and superiod compared to other options, we should go ahead in offering business to US not withstanding their stand on Outsourcing to India.


vijay mendiratta

Oct 20, 2010

Defense imports are already tagged with a large percentage of mandatory 'exports' or equivalent.Do we really need "US Specific" measures to make it even more complicated. Remember how USSR became a conduit for India's tradational exports just because they had Rupees which could not be converted

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