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While many US tech companies are stuck in the slow-demand doldrums, India's Infosys Technologies is soaring. Revenues were up 42% last quarter.
The reason: Infosys [Get Quote] and its Indian brethren are rewriting the rules of global competition in the software and tech-services industries with their use of highly skilled but low-cost Indian talent.
As a member of a group of 10 Indian business leaders, Infosys Chief Executive Nandan M Nilekani accompanied Indian Prime Minister Manmohan Singh during his state visit with President George W Bush on July 18. Those business leaders make up the Indian contingent of a 20-person CEO Forum that has been set up to promote commerce and understanding between the two countries. Nilekani stopped at BusinessWeek's New York offices recently and spoke with writers and editors, including Senior Writer Steve Hamm. Edited excerpts of the interview follow:
What was the significance of the group of Indian CEOs traveling with Prime Minister Singh to Washington?
From an India point of view, it's the recognition that economic diplomacy is part of the whole thing. This is the first time that a bunch of CEOs have traveled as part of the prime minister's delegation to any country. It shows how far India has come in terms of recognizing the role of business and entrepreneurs.
They treated us like part of the team. It shows how much more relaxed people are about business and government. The mindsets have changed dramatically.
How is India's role changing in the world economy?
Look at the last 10 years. A lot of American companies came to India to increase their markets, but they ended up doing outsourcing instead. The markets hadn't yet opened up. General Electric came in '89, and they were ahead of their time. But they found this huge storehouse of human capital and the whole outsourcing story happened.
Now, because the economy has opened up, and there's more wealth, it's also becoming a huge market. To give you a recent example: When the Paris Air Show was held, all the Indian carriers put together ordered 200 planes. This is mind-boggling to anybody from India. We don't know where they'll land. They'll probably just circle in the air. (Laughs)
The point is, who would have thought this country would become such a huge market? Suddenly, people are beginning to realize there's a huge market opening up.
What's the political dimension?
One of the big agendas in the US is the spreading of democratic values. India is a player in that game. It has shown you can run a practicing democracy in an underdeveloped part of the world.
You can have free and fair elections. You can have different races and religious groups coexisting more or less peacefully. As spreading democratic values becomes a high US priority, India's a partner in that game. You have a role model in that part of the world who shows it's doable.
There was a lot of concern last year about a backlash against India over outsourcing. You just spent three days in Washington, D.C. Is that still part of the discussion?
In the run-up to the [Presidential] elections, it was an issue. But last week it wasn't on anybody's radar screen. Maybe I was meeting a bunch of free-traders. When I look back, it peaked in the primaries. [Senator John] Edwards was coming from the left. [John] Kerry had to react to it. But after the primaries, it cooled off. A lot of it was posturing.
Do you expect any particular category of American worker to be harmed as a result of more outsourcing of manufacturing and service jobs?
If you have a more interconnected world, if you have more of the world economy being services, and if more of the services can be delivered remotely over a wire, it has its ramifications. We can't wish that away.
But the strength of the US has been its extraordinary focus on productivity. And, ultimately, productivity is doing more things with less people. Here, you have an economy that makes and destroys millions of jobs a year.
Outsourcing is more visible. A guy in Detroit loses his job, and somebody in India gets it. When you put a face to it, it's more emotional.
If the entry-level service jobs are going to India, how do you get a training ground for US citizens to develop higher-level skills here?
It's a valid question. I don't have a clear answer. Maybe you should ask: Is it stuff you retain at the firm level or is it stuff you retain at the country level?
If I'm a global company, as long as I retain the intellectual property in my firm, then it doesn't matter so much if it's in Des Moines or Delhi.
Look at what's happening on the business-process outsourcing level today -- a lot of it is really captive units. It's offshoring but not outsourcing. JP Morgan or Goldman Sachs will have their own employees there. It's in the firm, but across the border.
The reality is that in the next 20 years, if India continues to grow at 6%, it will be one of the big drivers of global economic growth. It's all related.
Can you picture the future of the US economy? How might it change as a result of the rise of India and China.
There's a potential to unleash a huge productivity surge in the way companies are run. Partly, it's because digitization and the advent of IP technology have made everything so simple. And then there's the labor pool, and so on. Also, you're designing things to make them more customer-facing and customer-empowering.
There's also a huge amount of process efficiencies that aren't in large corporations yet. It hasn't been looked at. So in a few years you'll see most companies unleashing this massive productivity surge. When the dust settles, the firms will look very differently. They'll be global. Then it becomes a faith issue. Is it good or bad? Either you believe productivity improvements will ultimately be good for everybody, or you believe the whole thing is going to fall apart. Obviously, India and China will become a much bigger part of global GDP. In 1830, India and China were probably half the world GDP. We both missed the industrial boat. And we're seeing a new boat, the information-led boat. Some of it is just catch-up.
What kind of corporate models are being created in India? How will they change the game elsewhere in the world?
Clearly, the kind of things you can do will scale up and become more sophisticated. Instead of 100,000 guys doing IT, you'll have 500,000 guys doing it. That's the scale part. You'll also do programming, consulting, and design. You'll have a breadth of services.
The question is about innovation. At the end of the day, the US is the world's most dynamic innovation engine. You have the whole innovation ecosystem. You have the world's great universities. You have the venture capital, the capital markets.
You have the fantastically bright people. It's the adaptability of the society that's its strength. It's absorbing the changes. For other countries, creating the innovation engine is a much longer play. It's happening. But it will take a while.
We're one of the agents of the change -- the productivity surge. It's the big enchilada. Part of it is technology. Part of it is process globalization, so you leverage global resources and redesign things. Part of it is much more customer involvement -- which the Web has enabled.
The other thing is that once you're trying to use technology and process globalization, you start to take a hard look at how you run your company inside. You find fat and non-valuation. You clean it up. You do all of these things simultaneously, and the productivity boost will be spectacular.
Do you see India causing this disruption of global business models?
In the IT stuff, the disruption is happening to our competitors. In the other stuff, it's happening, but not at the level it's happening in IT. As these large global corporations embark on this large productivity surge caused by these four or five factors, since we've done this in our business, we're uniquely positioned to partner with them in driving that productivity surge.
That's the impact we can have. In a sense, we're a paradigm of the global company you want to be. We're the model of what we're preaching to others.
You were asked in the past, what can America do to get back these jobs it's losing to India. You said nothing, we can do it better and cheaper, right?
It's the wrong question. By the same argument you should not allow Bank of America to buy Fleet Bank, because it's eliminating 15,000 jobs. You should stop automatic checkout counters because it's taking away jobs.
The reality is that technology productivity has created more job-loss than anything else. We don't stop it. We accept that as part of evolution. Now you should think of this as one more dimension of how the world is going to change. I don't think it's stoppable.
You said India is becoming a big market, yet Infosys itself doesn't do much business in India. Is that going to change?
We're the dominant player in the banking industry. We're looking at other sectors. Right now, the big markets in India will be driven by consumption stuff -- cell phones and planes. We don't really have [a] play in that. Indian companies have a lot of employees, so eventually we'll have a role in making them more efficient.
The same stuff and know-how that's allowing Indian firms to make the rest of the world become more competitive is going to start playing out in India. It's happening.
Today we have an airline called Jet Airways [Get Quote]. I've met some executives from the Western airlines who say Jet Airways has the best customer services of anybody. I was pleasantly shocked to hear that. We're going to see more and more of that.
Telecom is the big success story. We have tremendous growth and the lowest prices in the world.
There's a delay between technology and social adaption. We're seeing that lag period. But in the next 10 to 20 years, technology will play as important a role in domestic productivity growth and social change as it has played in the West.
Things are happening much faster in China, where they build infrastructure so rapidly.
It's going to happen, but not the way it happens in China. In China, a bunch of guys get in a room and decide to build a 16-lane highway from Shanghai to Beijing, and it's going to happen.
There's no way that will happen in India. It's too chaotic and argumentative. But what's going to happen is these 200 planes will be ordered, they won't land. They'll be circling. Everybody will get [very angry]. Finally, there will be such public outcry that the airports will get built. It's a different model. But it's a model.
In India, we have a 6% growth rate. That's going to happen. The question is how to we take it to 8% or 9%. The right things are better infrastructure, common economic market, reducing hurdles to business.
The real question is: Will the government stuff happen to take it from 6% to 9%? You need that because you have 10 million people coming to the workforce every year. If you don't grow fast enough, will you have social forces that stalemate everything? That's the worry.
ALSO SEE: China and India: Visual Overview
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