Maran magic: Global IT,
telecom cos on Mission India

Setting the stage for a massive foreign investment inflow, IT and telecom giants, including Intel, AMD-SemIndia, Microsoft, Nokia, LG, Samsung, Ericsson and Cisco, have committed investments of more than $7 billion over the next 3-5 years

By Our Correspondent

Here are some stats to get your adrenalin pumping, and your heart-rate dropping, both at the same time: while India adds close to three million new mobile users every month—thanks to the cheapest call rates in the world—only six out of 100 people actually own a mobile phone; furthermore, while computer penetration in the country is 0.9 per cent, against the Asian average of six per cent, the PC penetration hovers around the 3.5 million mark; and the number of telephone subscribers has crossed the 100 million mark. The optimism lies in the fact that the penetration of phones in Tier 2 and Tier 3 cities indicates that a distinct appetite for PCs remains unattended.

Fortunately, and paradoxically, this unevenness of statistics has given fertile space to IT and telecom players to grow in the Indian market. And the watchers with the most acuity are hyper-sized foreign firms, who have lately been literally shovelling in bundles of investments for what they see as gargantuan future dividends, second only to the bottomless pit of returns
that is China.

The investment commitments to India made by the world's four largest technologycompanies—Cisco, Advanced Micro Devices (AMD), Intel, and Microsoft—in the past one month add up to nearly $7 billion, about a third more than the $5.3 billion the country attracted in 2004. Besides billion-dollar investment plans, these companies are also creating significant employment opportunities. Similarly, top mobile phone-makers Nokia, Motorola, LG
and Samsung are also in the process of executing their mega-investment plans in India.

India has become important because it is at an interesting ‘inflection point’ in terms of technology. With networking just taking off in the subcontinent, enterprises here can circumvent the difficult technology lifecycles of now-mature markets like the US and Europe.

Cisco is bullish on India: in its largest investment outside the US, it will spend $1.1 billion in India over the following three years, with the money mostly invested in the development of network infrastructure and related technologies. According to Cisco president and CEO John Chambers, his firm will hire more engineers in India than in the US for its research and development work over the investment period.

“We will invest $50 million to set up a second research and development centre in Bangalore and triple its workforce here to more than 4,000 by 2008,” he says. Chambers pointed out that the new research and development centre would be the second major Cisco R&D site after the US. “In terms of R&D efforts, India will grow faster in absolute numbers compared to the US,” he says.

In the investment race, AMD stole the march by signing a deal with the consortium SemIndia to supply technology for a proposed $3 billion chip-making factory in India. AMD is launching its Personal Internet Communicator (PIC) here—a limited-functionality managed device
for providing Internet connectivity—as part of a plan to make 50 per cent of the world's population ‘connected’ by 2015.

“Our aim is to provide five million new connections every week. But we cannot do it alone. So, we are getting into various partnerships worldwidein order to make this possible,” AMD chief Hector Ruiz says, adding that manufacturing in India will give the company an inordinate cost advantage.
Indian demand for microchips is seen at $30 billion a year by 2015, as escalating penetration levels, rising incomes and soaring aspirations fuel demand for electronic products such as televisions, mobile handsets and washing machines.

Intel also came forward with more than $1 billion worth of investment plans to spread and strengthen its operations in India, including inputs into local technology companies. “Our more than $1 billion, multiyear investment roadmap includes plans to pump in more than $800 million over the next five years to increase business here, with a focus on expanding the research and development centre in Bangalore, besides marketing, education and community programmes,” says Intel chairperson Craig Barrett.

The Intel chief also announced a $250 million venture capital fund to invest in Indian firms that can benefit from the rapid growth in the domestic IT market.

“These investments will concentrate on Indian hardware and software companies to nurture technology development for local use,” Barrett says, and adds that the ‘investment roadmap’ will also select technology-oriented service companies that target overseas markets. “The whole objective is to grow our local operations, boost venture capital investments and work closely with government, industry, and educators,” he says. Pointedly, however, he remains non-committal on Intel's plans for a chip manufacturing plant in India.

According to industry experts, deficient ports and roads, a lack of continuous power, and the all-pervasive microdust particles preclude India from having a chip-making facility. Nonethe less, the California-based company will increase its development activities and will increase recruitment at the Intel India Development Centre in Bangalore by 2010.

While for one with personal wealth in excess of $40 billion and counting this might look like
chickenfeed, Microsoft head honcho Bill Gates has promised to invest $1.7 billion over the next four years in India. Uncannily, like Cisco chief Chambers, Gates says that for Microsoft, the growth in employment in India would exceed that in the US.

“That's why we will be adding 3,000 people to the existing strength of 4,000 in the next few years, as we depend on India for manpower,” says Gates. “Our focus would be on research to help the spread of low-cost computing in India, where high entry-level costs limit the usage of computers among its billion-plus people. Low-cost computers will lead the way to make breakthroughs.”
Microsoft will spend about $800 million on upgrading its R&D centres, creating a new facility in Bangalore, building a global software delivery unit, and expanding to 33 more cities with 700 retail outlets.

The South Korean electronics major, Samsung, has decided to inject a more modest $15 million in setting up a mobile handset plant at Manesar at Gurgaon in Haryana. The plant will initially cater to domestic needs and, in time, the export market.

“We have already invested $5 million and will spend $10 million by June to begin the production facility,” says Samsung India director (telecom) H C Ryu. “The initial capital of $10 million for the facility is being brought in by the parent company.” The company will annually build one million handsets with a staff of 200, and later raise capacity to 20 million by 2010. It also wants to export to West and Southwest Asia.

In telecom, meanwhile, four deals worth $951 million were struck in the first half of this year. One of the largest ever deals in this burgeoning sector was with the world's top mobile operator Vodafone acquiring 10 per cent in Bharti Tele-Venture for Rs 6,656 crore (roughly $1.47 billion).
There was plenty of activity in the manufacturing space too, with global telecom majors such as Ericsson, Elcoteq, LG, Siemens, and Nokia announcing their plans for telecom manufacturing here. Earlier this year, Nokia announced its decision to establish a mobile-handset manufacturing unit in Chennai with proposed investments of $200 million.

Motorola Inc, the world's second-largest mobile phone-maker, is set to begin assembling handsets in India, and is even considering manufacturing them. LG Electronics, aiming to sell phones priced in the low- to mid-range, has invested $60 million in its Pune plant to make 20 million GSM and CDMA phones a year by 2010.

Ericsson inaugurated its telecom manufacturing facility in Jaipur with an investment of $50 million, and earmarked double that amount as the first phase of investment in Chennai in services, operations and R&D.

The whole exercise of making ‘India the telecom and IT equipment manufacturing hub’ started with information technology and telecommunications minister Dayanidhi Maran's announcement, immediately after he took over the ministry in May 2004, of achieving a target of 250 million telephone connections by 2007 and taking teledensity to about 22. Among other companies, Maran sees planned investment in these sectors as “an indicator of the value that Microsoft attaches to its development and R&D activities in the country”.

Perhaps the sun has begun to shine down on India, and we can still beat China in the mobile phone and telecom race. But, however significant the foreign investments in rupee terms, we still have a long way to go to keep upping the ante—and our history of bureaucratic shenanigans is against us.