Global Economics

India's Industrial Tech Revolution


The country is about to enter a technology golden age as an exploding industrial sector steps up IT investment to sustain global competitiveness

The launch of the $2,500 Nano car by the Tata Group (TTM) earlier this year marks a turning point in India's economic history and opens a new chapter for its tech market. This momentous event showcased India, already crowned "the back office of the world," as the emerging "factory of the world," a title thus far monopolized by China.

Unshackled from five decades of socialist inertia, India's industrial sector is now firing on all cylinders, growing at 12.5% in 2006-07. The sector is expected to absorb a big chunk of the 140 million Indians entering the employment world in the next 10 years. India's huge domestic market and its talented workforce are a big draw for manufacturing multinationals like ABB Group, General Motors (GM), and Posco (PKX), which are joining local industrial conglomerates like Reliance and TVS Group in ratcheting up their production capacity in India.

As Indian industry expands and plugs into global supply and consumer networks, it will have a deep impact on the global tech sector at the corporate, socioeconomic, and geopolitical levels. Here are five projections on how the "Made in India" success story will shake up the global tech economy in the coming decade:

1. India enters the golden age of IT as its manufacturing base goes high tech. Until recently, the Indian IT market was known as an export base for high-quality software and services consumed by overseas clients in U.S. and Europe, which accounted for nearly 90% of the revenues of Wipro (WIT) and Infosys (INFY).

But things are changing, as India is evolving from a smart IT producer to a smart IT user. Following in the footsteps of pioneering IT users in financial services like ICICI and telecom firms like Bharti, Indian industrial powerhouses like Tata Steel are stepping up IT investments to buttress their growth in both domestic and international markets. The result? In 2006, Indian companies increased their IT spending 68% over 2005—the fastest increase among Asian or Western countries.

The economist Carlota Perez, who studied technology cycles of the past three centuries, believes that a society enters the golden age of technology once technology innovations begin to permeate deeper into various strata of its economy. As India steps into the golden age of IT, Indian manufacturers will harness cutting-edge technologies to drive next-generation IT-enabled business practices.

For instance, Hindustan Aeronautics, which signed a deal with Boeing (BA) to bring $1 billion of aerospace manufacturing work to India, would use product life-cycle management and radio-frequency ID technology to cut supply chain costs and speed time-to-market. Globally minded companies like Bharat Forge would redesign their IT systems so they can easily integrate foreign acquisitions.

2. Indian and MNC tech vendors square off in India's industrial IT market. To offset the impact of the U.S. downturn, Indian IT service vendors like Wipro and Infosys that currently generate only about 10% of their revenues from domestic clients will rush to meet the growing tech appetite of industrial firms in their own backyard (BusinessWeek.com, 2/11/08). But success isn't guaranteed, as their multinational rivals IBM (IBM), Accenture (CAN), and Capgemini, which enjoy strong brand equity among Indian C-level execs, are strengthening their foothold in the Indian domestic IT market.

But Indian and multinational IT service companies won't be the only ones chasing industrial clients in India. They will be competing with their erstwhile partners SAP (SAP) and Oracle (ORCL). Both are quietly entering the services space, seeking to tailor their software applications to specific manufacturing clients. As the boundaries between IT software and services blur, expect SAP and Oracle to buy second-tier Indian IT consulting firms to shore up their industrial service credentials.

3. VC money will flow into flourishing industrial IT ecosystems. The staging ground for India's manufacturing revolution will be the 300 Special Economic Zones (SEZs) and the 118 new manufacturing "clusters" springing up all across India (BusinessWeek.com, 10/9/07). As happened in Hsinchu in Taiwan and in the Silicon Valley in the U.S., these industrial hubs will naturally evolve into tech clusters that attract entrepreneurial graduates who will get venture capital funding from companies such as Intel (INTC) and Cisco (CSCO) to develop new technologies for a readily available market.

To avoid redundancy, these regional tech clusters will specialize and map their core competencies to the manufacturing skills of their geographies, giving rise to a nanomaterial cluster serving Tamil Nadu's textile industry, a mechatronics IT ecosystem at the heart of Noida's auto manufacturing hub, or a wireless-sensor technology cluster amid Punjab's agribusiness hubs (to boost farm productivity).

4. India's tech-savvy industrial workforce will combine brains and brawn, The industrial revolutions in Europe and the U.S. were powered by brawny workers. But India's digital manufacturers will need a brainy labor pool able to exploit advanced technologies to manage and optimize their value networks. The result? Expect a surge of applications to not only elite engineering colleges but also to second-tier vocational training schools located close to India's burgeoning manufacturing hubs. Sensing an opportunity, IT training experts like NIIT will tailor their curriculum to meet the needs of the entire manufacturing value chain. Think software engineering courses for auto mechanics who need to repair BMW's (BMWG) electronics-loaded cars.

This trend could have a negative consequence for India's IT services sector, whose white-collar workers may opt to trade their volatile and stressful job environment for the stable and well-paid "blue tech collar" employment opportunities arising in the industrial sector. Expect Genpact's (G) business-processing outsourcing experts to convert into GE-India's (GE) Six-Sigma trainers while product lifestyle management consultants at Mahindra & Mahindra Infotech join their parent company's industrial research and development staff.

5. India will be wooed by Western and Eastern industrial superpowers. The U.S. will play a big role in shoring up India's industrial tech capabilities, the same way it helped Germany and Japan build out their manufacturing base after World War II. American tech vendors like Cisco and IBM and industrial giants like Cummins (CMI) and Boeing are already transferring to India the cutting-edge manufacturing technologies and business processes. Expect U.S. government agencies like the National Institute of Standards and Technology to partner soon with the Confederation of Indian Industry to formalize tech transfer programs that will IT-enable midsize Indian manufacturers to boost their productivity.

Besides the U.S., industrial heavyweights Germany and Japan will also participate in a big way in India's industrial tech upgrade. But the biggest assistance could well come from China, India's erstwhile economic rival. Facing a steadily aging manufacturing workforce, more Chinese companies will emulate Haier and Lenovo in moving their production to India. As this trend accelerates, "Chindian" innovation networks fostering joint R&D of manufacturing technologies would finally blossom.

After five decades of oppression, the Indian industrial genie is finally out of the bottle. The ripple effects of India's industrial revolution will be felt deeply across the global tech economy. Buckle up and enjoy the ride…in a Nano!


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