An Indian diary - part 2

James Murray

Read part 1 of An Indian Diary here

Day Two

The day begins at 7:30, or to judge by the body clocks of the assorted bleary-eyed European journalists, three in the morning.

Breakfast is a sumptuous affair, but rather overshadowed by the headline on the front of The Times of India, which reports that police suspect Pakistan's Inter-Services Intelligence agency are behind a hand grenade blast at a cinema in Hyderabad over the weekend.

I have spoken repeatedly with Indian IT execs about the country's geopolitical instability and have always felt a bit churlish suggesting it could discourage investment when the list of genuinely stable countries starts and ends with Switzerland.

But this story underlines that some of my questions were justified and any firm carrying out risk assessment for Indian operations can hardly miss the fact that relations with Pakistan remain on the frosty side of glacial and that the Indian authorities are waging a low-level civil war with Kashmiri militant groups.

Polarisation

The polarisation of modern India, already evident in the drive from the airport, becomes even more apparent by daylight as we drive through Hyderabad towards Satyam's headquarters. Crowded, dilapidated streets are interspersed by half-finished buildings accompanied by billboards promising that they will become executive flats with their own servants' quarters.

Then, as we approach the edge of town, tent villages begin to emerge. Our driver insists the tents belong to itinerant workers who move around to find jobs on the construction sites and roads that are being built, but many of the encampments look pretty permanent.

Just a few minutes further along the main road we pass through the Satyam gates and are greeted by the most incongruous sight of the trip so far. Gone are the tents and dust, replaced by a generic US software campus boasting emerald green grass, sparkling fountains, uniformed security guards and modern, glass-fronted buildings.

If the scale of the infrastructure problems witnessed since we left the airport raised doubts about why any UK firm would send critical business functions to India, the contrast between the street outside and the Satyam campus make it all clear.

It is a state-of-the-art facility, staffed by some of the most ambitious executives I have ever met and it is situated in a country where the cost of living is so low that you can recruit qualified IT engineers for as little as $6,000 (£3,200) a year.

The next few hours underlines the scale of the company's ambition as Satyam's top brass present their plans for the future. Every circumstance appears to be accounted for as chairman B Ramalinga Raju outlines how the firm intends to climb the value chain and offer more high-end business consultancy and transformation services. A new business school will give Indian executives the skills to deliver these higher-value services, an international recruitment drive will bring in more Western staff, while expansion into Western markets will give Satyam more on-site staff to carry out complex business transformation projects.

Meanwhile, investment in facilities in other areas of India, and elsewhere in the world, will counter the IT wage inflation currently being experienced in some Indian cities. And a greater focus on providing career paths for staff should reduce the problem of employee churn.

Infrastructure investments

Even the endemic infrastructure problems are not as bad as they seem, according to Raju. He argues that while China has invested in the hard infrastructure of roads and skyscrapers, India has focused on the soft infrastructure of education and nurturing a more Western-style business culture. It is this, he claims, that has given India its massive educated, English-speaking workforce, which has in turn attracted the Western firms, which has made it easier to attract the foreign capital needed to build the hard infrastructure.

He points to the new airport and ring road as evidence Hyderabad is changing, and also mentions the Indian government's massive investment in new power plants, which is expected to make the rolling blackouts that have affected some cities a thing of the past.

The pitch is extremely impressive and it seems I'm not the only one who thinks so: we are shown a list of global Satyam customers all of which are household names and all of which we are not allowed to report.

Suffice to say I could send the PR departments of some of the world's largest financial institutions into crisis mode if I was the kind of journalist who failed to respect non-disclosure agreements.

It is this client list that is arguably the most reassuring aspect of the whole presentation, and something every UK company talking to an Indian service provider should ask to see. Because despite repeated anecdotes about offshore outsourcing projects failing, it is clear that if an outsourcer can keep multinational customers happy and on its books then, on some level, it must be working effectively.

The appeal of the country is underlined further when we drive to the offices of the state government of Andhra Pradesh and meet the secretary for IT and communications. She quickly makes it plain that the government will bend over backwards further than a Jamaican limbo champion in order to attract investment to the region.

The list of perks is extensive: tax breaks are available until 2015 (and with almost a nudge and a wink we are told they can be extended), stamp duty and other real estate costs are exempted, rebates are available on some utility bills and government support can be expected in securing land. It reads like a modern corporate wish list and it also explains why the government faces pressure from India's political left to try to wring a little more out of the Western firms that are already enjoying such significant cost benefits from being in the country.

Crossroads

Back in my air-conditioned hotel room after dinner it is easy to see why so many firms are moving work to the subcontinent, but I can't help thinking the Indian IT industry is at something of a crossroads.

Currently the case for moving low-value IT and business process work to the country is compelling and proven. The costs are lower and the professionalism and reliability of the service providers is almost beyond reproach.

However, the industry is also reaching a point where if it can't start to provide higher-value services, its fall from grace could be as rapid as its ascent. Other lower-cost countries will emerge offering similar services and boasting equally accommodating tax (or is that taxless) regimes. Meanwhile, the emergence of an Indian middle class means salaries are rising and the Indian firms will soon face a situation where the cost-based sales pitch will no longer work.

Satyam and its peers have realised this and are desperately trying to become broad business consultancies capable of matching IBM Global Services, EDS, Accenture et al as firms' trusted advisors. But if they thought it was difficult to get Western firms to hand them their application maintenance work it will be even harder to win their trust as business consultants. Making this transition, while having to tackle both India's infrastructure problems and the condescending, if not racist, attitude of some Western customers, will prove the sternest test yet of India's new-found status as an IT superpower.

Part three >