Chapter One
The Largest Market the World Has Ever Seen
So far as I am able to judge, nothing has been left undone, either by man or nature, to make India the most extraordinary country that the sun visits on his rounds. Nothing seems to have been forgotten, nothing overlooked. Mark Twain
The world''s largest truck manufacturer, the largest manufacturer of motorcycles in the world, the country with the most FDA-approved drug companies outside the United States, the largest number of Fortune 500 R&D centers outside the United States, the third-largest stock exchange in the world in terms of volume (Figure 1.1), the second-largest producer of sugarcane (got ethanol?), the largest producer of milk and fruits, the third-largest producer of cotton, and that''s just the beginning. Here are a few more statistics to overwhelm you, before it''s all put in context:
India is home to the world''s fifth-largest coal reserves and the third-largest bauxite reserves. It is the fourth-largest steel producer in the world, the sixth-largest aluminum producer, and the third-largest manufacturer of CDs and DVDs. Indians purchase six million cell phones per month. There are 40 million Internet users, projected to grow to 200 million by 2015. The middle class comprises more than 60 million people today and is expected to exceed 583 million people by 2025. Seven hundred million Indians own property and 100 million households have bank accounts today. Eighty million Indians hold secondary degrees and India is home to the largest number of engineering graduates in the world.
Now for the context. India is a complex and growing country and is on its way to becoming a world economic power. Despite the accomplishments listed here, most Indian business leaders and many of the more progressive politicians are painfully aware of the fact that India has a long way to go before the country can become what they would like it to be. The country is in a transition period between "Old India" and "New India." You can never be sure which you will find.
There is a common perception that India has a lopsided economy built on information technology and business process outsourcing, but that is changing rapidly as national and multinational firms scramble to meet the demands of a rapidly growing middle class. The rapid expansion of India''s manufacturing base is, in turn, creating millions of skilled and semiskilled jobs for a very young working-age population.
FIRST IMPRESSIONS CAN BE MISLEADING
When I first visited the country-in late 2001-my first impressions were mixed, starting from the moment my American doctor prescribed antimalaria medications for my trip. "You''re kidding!" I responded, when I read the prescription. "No," he replied, "I am not. Malaria is widespread on the Indian subcontinent. By the way, you''re going to need a series of vaccinations." Now I was beginning to get a bit nervous. Wasn''t I traveling to the fourth-largest economy in the world, home to some of the leading outsourcing and technology firms? Wasn''t Bangalore supposed to be like Silicon Valley? This was beginning to sound more like a safari, with mosquito netting and a rifle for tigers.
I arrived in New Delhi after spending what seemed like an eternity on a flight out of Chicago. The New Delhi airport was nondescript and long overdue for a major renovation. There seemed to be an islandlike attitude among the security staff and airport personnel that gave me the feeling that I was somewhere in the Bahamas. I finally located my car-only to find my driver fast asleep behind the steering wheel. It took me several minutes to revive him. After navigating out of the parking lot-which required numerous parked cars to be physically pushed out of the way, we made it to the highway. There I enjoyed a forty-minute ride down potholed streets while my driver played chicken with motorized scooters and the occasional cow.
The next morning I was standing at a crowded intersection in the heart of the city when I noticed a pack of monkeys moving steadily toward me. These weren''t the cute little spider monkeys that your kids would giggle at while spending a relaxed Sunday at the local zoo. These were more like baboons; in fact, it seemed to be a gang of ill-tempered baboons, and they were coming my way. I looked around to see if anything else was amiss but my fellow pedestrians seemed uninterested. Later, as I headed back to the safety of my hotel, I found myself repeating over and over, "fourth-largest economy in the world, fourth-largest economy in the world." That was 7 years ago.
By now, a local court has ordered the monkeys to leave the city-although it is still unclear if they will comply. When you fly into New Delhi you will still not be impressed by the airport; it is a mess. But by 2010 the airport will have been completely renovated, boasting a passenger capacity that will rival Chicago-O''Hare, with futuristic terminals that would make any architect proud. This is the New India, partly here, partly under construction.
AN ECONOMIC TOUR THROUGH INDIA
It is often said that the only thing Indians have in common is their national currency, the rupee, and their geographic borders, stretching approximately 2,500 miles from north to south and about the same distance from east to west (Figure 1.2). There are 28 states, four major ethnic groups, 16 official languages, hundreds of local dialects, and every religion known to man-calling the country complex would be an understatement. But if you had the luxury of time and money you might be able to get a more complete picture by taking a journey through each of India''s states. We''ve done that in this section, giving you a high-altitude statistical survey of each state and major city in the country. You may want to skim over this section unless you''re interested in a particular region or state, but a quick look at some of the numbers will give you a sense of the key roles that agriculture, manufacturing, IT, and tourism play in the Indian economy. The main theme of this chapter-why we think India is developing the world''s largest market, and why it will eventually be larger than the China market, follows this economic tour.
Jammu and Kashmir
Our economic tour of India starts in the far north of the country, in the state of Jammu and Kashmir, home to the awe-inspiring Himalayan mountain range, which includes Mt. Everest and other 7,000-meter peaks. This mountain range stands like a sentinel on India''s northern border, providing climatic influences and an abundant supply of fresh water for the country. India''s northern neighbors, Pakistan, Afghanistan, Tajikistan, and China also border this region, an area that resembles the Colorado Rockies. Muslims account for 80 percent of the state''s population, with significant minorities coming from the Hindu, Buddhist, and Sikh religions. The economy depends on farming, animal husbandry, and a nascent manufacturing and transportation sector. Kashmir is problematic in that it is a contested area between India and Pakistan and has been the victim of several border wars. A few years back many analysts believed that Kashmir would be the scene of the world''s first nuclear conflict. Tensions have eased between the two countries in recent years, but the fate of Kashmir is yet to be decided, and until a final agreement is reached between Pakistan and India it will remain a sensitive issue.
Northern India in many ways resembles the delta region of the Mississippi River valley, with a vast river system traversing the region, and like the delta it is rich in agriculture, known to many as the "Granary of India," producing 60 percent of India''s wheat and 40 percent of its rice. The problem is that between 30 to 40 percent of all of India''s produce is lost in the supply chain as a result of spoilage, loss, and so on. For those of you looking into the future, this differential represents a big economic opportunity. An interesting side note is the fact that India has a total arable land area of 162 million hectares-25 percent more arable land than China. Now can you imagine what will happen when India gets its supply-chain act together? Exports of every type of agricultural product will explode. Over time, this is going to translate into a real advantage.
Reliance Industries, India''s top conglomerate, is already working on the problem of 30 to 40 percent spoilage in India''s produce supply chain. The company has recently launched a new retail chain called Reliance Fresh supermarket stores. Recognizing the inefficiencies in the produce supply chain, Reliance decided to create a retail operation that cuts out the middleman. By negotiating long-term contracts directly with farmers and modernizing the supply chain with refrigerated warehouses, trucks, bar coding, and other supply-chain management tools, the company will be able to provide fresh produce and other farm products to India''s rapidly growing middle class at prices up to 30 percent lower than traditional markets. Averaging between 2,500 to 4,000 square feet in size, the air-conditioned Reliance Fresh stores are a radical departure from the mom-and-pop outlets or open-air stalls that currently represent the bulk of India''s retail outlets. Reliance plans to expand its supermarket chain to 70 cities within the next 24 months, with over 4,000 stores in more than 1,500 cities planned by 2012. And, the company expects to hire and train 500,000 people during the same period. That''s significant, considering the fact that India''s retail sector, currently dominated by over 15 million mom-and-pop stores, is currently valued at over $200 billion per year and growing at an annual rate of more than 25 percent.
Punjab and Uttar Pradesh
The north of India is also home to the states of Punjab and Uttar Pradesh (UP), two centers of cultural, religious, and economic power. The Himalayan foothills to the north of Punjab help define the state and the people that live there, with many of the famed Gurkha soldiers of the British army having been recruited from this area. The Gurkhas, tough characters by any standard, have most recently been deployed in Iraq. This area also has a lot of potatoes; Frito-Lay, a subsidiary of PepsiCo, recognized that fact and built a processing plant here in 1996. They entered into the first long-term contract agreements with local farmers, an approach that is being replicated by Wal-Mart as well as it moves into India''s retail arena. As you continue to travel through this region you cannot help but notice, as evidenced by ancient landmarks, that at 5,000 years old Punjab and Uttar Pradesh is also the oldest living civilization. Known to many as the Indus Valley and the birthplace of Buddhism, it is a good place to relax after you have completed your first few business deals in India.
The towns of Kullu, Manali, McLeod Ganj, and Dharamsal have become famous tourist destinations because of the influence of Tibetan exiles in setting up monasteries, temples, and schools following their relocation from Tibet in the mid-1960s. Consequently, its thriving hospitality industry and the class of hoteliers are responsible for this region having one of the highest per capita rates in the nation, a fact not overlooked by leading hotel chains like The Four Seasons and Hilton. Currently, India has an estimated shortfall of over 200,000 hotel rooms, and hotel operators like Starwood, Four Seasons, Sheraton, Hillwood, Accor, Trump, and Marriott are all rapidly developing new properties. The lack of hotel accommodations will become painfully clear to you when you try to book your reservations. Getting a room is hard enough-and the rates you will pay will make New York City look like a bargain!
Not surprisingly, this region is also India''s wealthiest, with the majority of its revenue generated from wheat, fruits, vegetables, and sugarcane. India is the second-largest producer of sugarcane in the world, and that''s important, considering the fact that sugarcane is the ideal crop for the production of ethanol, a vital element of the struggle against global warming. That point has not been overlooked by the GMR Corporation, which has built two state-of-the-art ethanol production facilities here. These two plants have a combined annual production capacity of 16 million gallons of ethanol, and the company has plans to build three more plants of similar size over the next 2 years. With its current sugarcane production levels, India will have the ability to produce over 350,000 barrels of ethanol per day, a staggering number when you consider that the United States only produces 194,000 barrels of ethanol a day. India''s proximity to Japan will also create a very attractive export market opportunity for ethanol as Japan moves aggressively to implement the Kyoto Protocol.
The first important city to consider is Ludhiana, which serves as the industrial hub of Punjab and which had a total export market that surpassed US$120 million in 2006. With continued GDP and trade growth, Ludhiana''s exports are expected to climb to over US$500 million by 2012. India is the largest producer of motorcycles in the world, and this region is the headquarters of the country''s leading motorcycle companies-Avon Bicycles, Hero cycles, and Eastman Industries. It is also the home to over 6,000 textile companies-an industry that had been shackled by poor economic policies of the past but is now poised to become a global competitor. When you consider the fact that India has a middle class that exceeds 60 million and a large, very young population that is highly fashion conscious, you begin to get a sense of the size of that country''s fashion apparel market!
This area is also considered to have the best infrastructure in India, with an extensive network of roads, rail, air, and river transportation. Good infrastructure is still a rarity in India, but that is rapidly changing, as an estimated US$60 billion dollars a year (US$180 billion dollars in local terms) of annual investments are being invested to modernize the infrastructure.
Haryana
A little further to the south is the state of Haryana, close to the capital city of New Delhi. It is an agrarian state that has developed a rapidly growing economy. Like its parent, Punjab, Haryana grows significant amounts of wheat and rice, which has made it the second-largest contributor to the country''s central pool of food grains. Dairy farming is also an essential part of the economy, as India is the largest producer of milk in the world. The problem again is the supply chain-almost none of the dairy products produced in India are pasteurized or cold stored, which leads to an incredible amount of lost revenues. Of course, if you look at the glass as being half full, it also provides a major opportunity for new business opportunities (take note Kraft Foods, Land O''Lakes, and Dannon!)
Over one thousand medium and large companies, with capital investments topping US$4.4 billion, have been established in the cities of Gurgaon, Panchkula, and Faridabad, all of which lie in close proximity to New Delhi, the capital of India. There are more than 80,000 small-scale automotive, truck, and motorcycle support industries in the state. Numerous manufacturing entities, including Maruti, Escorts, Hero Honda, Alcatel, Sony, Whirlpool India, and Bharti Telecom have made Gurgaon home. Bharti Telecom is one of the companies that is capturing the growth of the middle class. Working through three individual business units-mobile services, broadband and telephone services, and enterprise services-the company has captured a significant amount of the revenues being created from the sale of six million cell phones per month. The company, established in 1995, is a public limited company and is headquartered in New Delhi. It was founded by Sunil Mittal, the same individual who has entered into a joint venture with Wal-Mart. The mobile services business unit offers mobile services throughout India across 23 telecom circles. By 2006 the company had more than twenty million customers, a market cap of more than US$30 billion, and an annual growth rate of more than 80 percent! If that many people have cell phones, what other products and services will they need next?
(Continues...)
Excerpted from Riding the Indian Tigerby William Nobrega Ashish Sinha Copyright © 2008 by William Nobrega. Excerpted by permission.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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