Sunday, February 29, 2004

GSM crosses the 1 billion mark 

CommWeb is reporting that there are now over 1 billion GSM users in the world today. I guess this is a major victory for the European standard. Now that Cingular has bought AT&T and since I am guessing T-Mobile is begging to be bought, perhaps the American market too will be dominated by GSM despite Verizon and Sprint using CDMA. Remains to be seen whether GSM or CDMA will eventually dominate markets like India, where CDMA-based Reliance has emerged as the largest player.

"There are now more GSM mobile handsets in daily use than the total number of personal computers and televisions combined," the GSM Association said in announcing the bank's study. "Driven by GSM, the number of mobile subscribers exceeded the number of fixed telephone lines for the first time in 2003. In the last 12 months alone, GSM added nearly 198 million new users."

Living in India dot com 

This is a long, long overdue post/plug. Some of you will remember India Economy Watch, the blog jointly run by Edward, Kaushik, Vivek etc, of which I was a part as well. Well, we decided to migrate everything to a new site called Living in India. There is a special section in there called "Economy Matters" which will continue to host the sort of content IEW used to host. Living in India, however, is a more broad spectrum blogzine which includes contributions from a whole host of bloggers, including me. The other blogzines under the same umbrella are Living in China and Living in Latin America. I have also added a link to LII from the menu bar on the right. Enjoy the read.

KAW on outsourcing 

If you aren't bored to death by my going on about outsourcing, here's an interesting article on the subject that appeared in Knowledge @ Wharton.

Politics apart, the reality is that outsourcing is as old as the corporation. One business arranges with another to make a widget or provide a certain service that it cannot do itself, or does not wish to do, so that it can focus on the parts of the business it does best. The sourcing arrangement is normally seamless, and it matters little to end-use customers who have been paid to perform the outsourced work.

“It’s the classic ‘makes vs. buy’ question,” says Morris Cohen, professor of manufacturing and logistics at Wharton. “Do I make something internally or buy it in the marketplace, and how do I add value most effectively? This is a problem that’s been studied in economics and management for decades. This is not a new issue, and it’s not one that will ever go away.” What has changed, Cohen says, is that more companies are engaged in more outsourcing than before -- and they are doing it in novel ways. “The idea of moving things offshore and outside the boundary of the firm -- more of that has been happening around processes you would never have thought possible.

Furthest along the sourcing spectrum, BCG says, are those companies – thus far few in number – that recognize they must capture global advantage. These firms recognize that if they manage their business across multiple low-cost countries, they can achieve more growth at all levels -- local, regional and global. For example, Toyota outsources vehicle sub-assemblies from many Asian countries, allowing it to keep costs low and achieve just-in-time delivery. Capturing global advantage --achieving the lowest costs while making use of the best people and practices -- is the holy grail of leveraging low-cost countries. It is hard to achieve but it is also difficult for competitors to replicate.

Prahalad on the Bottom of the Pyramid 

C.K.Prahalad's bottom of the pyramid strategy is one that we keep in mind while implementing the RISC project. In fact, we have refined it to some degree in that we are now clear that our target market is the top 10% of the bottom of the pyramid -- the layer sophisticated enough to readily use the services we aim to provide. Prahalad, in the meanwhile, has compiled his thoughts on the subject in a new book called The Fortune at the Bottom of the Pyramid:Eradicating Poverty Through Profits, published by the Wharton School press. Given the quality of his papers on the subject, the book is probably a must-read. For those who came in late to the BOP concept, KAW has a decent review of the book and the concept. Examples used include Hindustan Lever's soap and salt strategy in rural India and CEMEX's Patrimonio Hoy program.

At the core of Prahalad’s argument for targeting the world’s poorest as a potential market is the sheer size of that market – an estimated 4 billion people constituting two-thirds of the world’s population. More importantly, the market will grow to an estimated 6 billion people within 40 years because the bulk of the world’s population growth is occurring among the poor.

Despite the fact that these people subsist on annual per capita incomes of less than $1,500, this “bottom of the pyramid” represents a multi-trillion-dollar market. Taken together, nine developing nations – China, India, Brazil, Mexico, Russia, Indonesia, Turkey, South Africa and Thailand – have a combined GDP that is larger, in purchasing power parity, than the combined GDPs of Japan, Germany, France, the UK and Italy. The bottom of the pyramid, Prahalad says, is “the biggest potential market opportunity in the history of commerce.”

One of the biggest reasons that multinationals have avoided the bottom of the pyramid is that marketing to the poorest isn’t easy. They usually lack regular cash flow, have little access to credit and live in rural villages or urban slums that make traditional methods of advertising and distribution difficult, if not impossible. Most of the people at the bottom of the pyramid are part of an informal economy in which they do not hold legal title or deed to their assets. Thus, effective strategies for reaching these people will require remarkably different approaches, several of which are described in case studies in the book.

An Indian perspective on the BPO backlash 

Most Indians seem a little befuddled by the U.S. reaction to outsourcing and the protectionist sentiment echoed by the Democratic candidates and even the Republican establishment (witness the way Greg Mankiw was shouted down). In my mind, this U.S. reaction is inevitable. The folks losing jobs this time around are not rust-belt blue collar workers, but politically sophisticated white-collar workers (though I am not sure how many, given that the call centre jobs are merely posh blue collar jobs in the U.S. and require very little skilled labour). Overnight, these former defenders of free-trade (while the economic boom lasted and technology had beaten the laws of economics) have all now turned protectionist. Today, I found a very pithy cartoon in the Hindu that pretty much captures the befuddlement Indians feel at the U.S. reaction. Worth a look.

You might need to save it and view it if it's not too clear. The accompanying article is a decent read too, if you have time to spare.

Saturday, February 28, 2004

Brand new mini-cities 

One of the first things that strike you when you enter India is the decrepit state of infrastructure in most of the big cities. It starts right at the horrific airports, through the anarchic, pot-holed roads, dilapidated public transport, the incredible levels of pollution and stays with you until one actually gets used to it all (yes, one does and quite easily too). This at a time when these cities are not competing with each other anymore, but with international cities (Shanghai, Singapore, Dubai etc) as India globalizes rapidly. So, you really have to wonder what thought urban planners are putting into dealing with the nightmares that Indian cities are fast becoming.

McKinsey estimates the state government of Maharashtra will have to invest something in the region of $40-$50 billion to get Bombay up to Shanghai standards. Something tells me that's not going to happen at a time when the Maharashtra treasury is reputed to be bankrupt.

Given these circumstances, I have for some time advocated the building of entirely new cities where one could build world-class infrastructure from scratch, which might be a more effective use of money than trying out band-aid solutions (unless all of that money can actually be raised) on megalopolises like Bombay. These new cities do not have to be mega-affairs, but instead consist of an eco-system built around certain industries, say high-technology, and which provide world-class facilities and infra-structure to all its residents.

As it turns out, the private sector seems to be thinking along the same lines. Atanu sent me a link to Magarpatta City on the outskirts of Pune. I was more impressed by Mahindra City (built by the Mahindra conglomerate) off Madras, which is an attempt to build an eco-system (over 1400 acres of land) around the Information Technology and BPO businesses. Whatever one sees online looks impressive, but if you still have doubts, check out Infosys's decision to build the world's largest software development centre at Mahindra City. Spread over 130 acres, the Infosys centre will house 25,000 software professionals.

On the positive side, I think Bangalore will probably have world-class infrastructure in about 5 years from now, once all that building (that makes living there impossible right now) is over and done with. To the credit of the planners, the development of the ring roads are a step to encourage more investment along the periphery of the city than in the heart. All of this stuff does make this a particularly exciting time to be in India. Though Bangalore doesn't boast quite as many cranes as Shanghai, one can still sense something radical happening.

Leopold of Congo 

When I read history as interpreted by apologists for colonialism like Niall Ferguson, I always wonder whether they have forgotten about King Leopold's personal fiefdom, the the Congo Free State. Of course, Mobutu Sese Seko arguably ran the country into the ground in a worse fashion than Leopold, but that doesnt discount the severe damage perpetrated by Leopold and his flunkies (after all, the Congo had exactly 17 college graduates at the time the Belgians handed over power, and the 17 included the soon-to-be-assasinated Patrice Lumumba). The legacy of his violence continues to this day in that most forgotten of wars -- one where 4 million people have died in the last 5 years.

For those in the U.K., BBC Four is showing a documentary called "White King, Red Rubber, Black Death" on that catalogs in detail the horrors that Leopold and his cronies unleashed in Africa.

He turned his "Congo Free State" into a massive labour camp, made a fortune for himself from the harvest of its wild rubber, and contributed in a large way to the death of perhaps 10 million innocent people (ed:how many people know about this statistic compared with knowledge about the Holocaust?).

"Legalized robbery enforced by violence", as Leopold's reign was described at the time, has remained, more or less, the template by which Congo's rulers have governed ever since. Meanwhile Congo's soldiers have never moved away from the role allocated to them by Leopold - as a force to coerce, torment and rape an unarmed civilian population.

The film opens with the shocking images of some of Leopold's victims - children and adults whose right hands had been hacked off by his agents. They needed these to prove to their superiors that they had not been "wasting" their bullets on animals. This rule was seldom observed as soldiers kept shooting monkeys and then later chopping off human hands to provide their alibis.

In the film's most powerful sequences we see reconstructions of the terror caused by Leopold's enforcers and agents. We see a village burnt without warning and its people rounded up; its men sent off into the forests, and its women tied up as hostages and helpless targets of abuse until their husbands return with enough wild rubber to satisfy the agent. This, we are told, was the "moment of truth" for the whole community. If the men did not bring back enough and the agent lost his commission, he would order the deaths of everyone.

The story of DR Congo makes for very compelling and sad reading -- how one of the potentially richest (natural resources) and largest (the size of western Europe) countries in the world ended up becoming one of the, if not the, poorest country on earth. If you are interested in reading more about the historical horrors of the Congo, I would strongly recommend King Leopold's Ghost by Adam Hochschild and and In the footsteps of Mr.Kurtz by Michela Wrong. The latter documents the 32-year disaster that was Mobutu's presidency. Talking about Mr.Kurtz, one mustn't forget Joseph Conrad either, who set his apocalyptic Heart of Darkness in Leopold's Congo Free State as well.

Friday, February 27, 2004

Announce -- Quiz in New York region 

This is for all my old comrades from the quizzing scene, especially the ones in and around the East Coast. There is a quiz happening on the 13th of March at Rutgers University in New Brunswick under the auspices of Asha for Education, a non-profit that funds basic education in India. I attended the last edition of the quiz and highly recommend it (we came in 2nd). This year, the quiz comprises of a young adults quiz and an adults quiz and are being conducted by Ranjit Thomas (who won last year) and Abraham Thomas (my team-mate last year and no relation of Ranjit). There is very decent prize money and given the quality of quizmasters, it will probably be an excellent quiz. Now, for old times' sakes, go participate.

More details can be found here.

The Economist gets economical -- a sign of the Times? 

I bought the last edition (the India special) of the Economist at a news-stand in Cochin, India. I was prepared for a whopper bill (by Indian standards anyway). After all, the last time the Economist did an India special, they increased the price to Rs.200 ($4.40) from the usual news-stand price of Rs.120 ($2.60) (of course, both these prices are much lower than U.S. rates). Instead, I discovered that the price had dropped to Rs.60 ($1.30). In addition, the number of copies on sale was much higher than the two-three I normally used to find in Cochin. What gives?

A little investigation and I discovered that the marketing of the Economist had been taken over by Bennett, Coleman & Company (yes, the Times of India) from India Book House who marketed it earlier. The Times, with it proven marketing savvy, seems determined to make the Economist mainstream fare in India. The annual subscription rates have now dropped to Rs 2,100 per year (meaning $46.60 or $0.90 per issue -- Rs 40 approx). Around a year and a half ago, India accounted for about 11% of its total sales for Asia. Given the current economic growth in India, the Economist has clearly targeted India as a market in which it can grow really quick. I think at Rs 40, they have the price point right and I think the Times's marketing clout will do the rest. Good for India which gets high quality journalism and analysis. Good for the Economist, that could badly use a non-western perspective every now and then.

Thursday, February 26, 2004

Krugman on trade 

I merely needed to wonder out loud what Krugman had been writing about the outsourcing debate and he obliges immediately. In today's New York Times, Krugman addresses some of the issues swirling around the trade debate. I think he comes across as a little wishy-washy since the imperative in the op-ed seems to be a defence of John Kerry, rather than a defence of free trade.

Let me spare you the usual economist's sermon on the virtues of free trade, except to say this: although old fallacies about international trade have been making a comeback lately (yes, Senator Charles Schumer, that means you), it is as true as ever that the U.S. economy would be poorer and less productive if we turned our back on world markets. Furthermore, if the United States were to turn protectionist, other countries would follow. The result would be a less hopeful, more dangerous world.

Yet it's bad economics to pretend that free trade is good for everyone, all the time. "Trade often produces losers as well as winners," declares the best-selling textbook in international economics (by Maurice Obstfeld and yours truly). The accelerated pace of globalization means more losers as well as more winners; workers' fears that they will lose their jobs to Chinese factories and Indian call centers aren't irrational.

Addressing those fears isn't protectionist. On the contrary, it's an essential part of any realistic political strategy in support of world trade. That's why the Nelson Report, a strongly free-trade newsletter on international affairs, recently had kind words for John Kerry. It suggested that he is basically a free trader who understands that "without some kind of political safety valve, Congress may yet be stampeded into protectionism, which benefits no one."

The point is that free trade is politically viable only if it's backed by effective job creation measures and a strong domestic social safety net. And that suggests that free traders should be more worried by the prospect that the policies of the current administration will continue than by the possibility of a Democratic replacement.

Put it this way: there's a reason why the two U.S. presidents who did the most to promote growth in world trade were Franklin Roosevelt and Harry Truman, while the two most protectionist presidents of the last 70 years have been Ronald Reagan and, yes, George W. Bush.

Not quite what you would have expected from Paul Krugman, yes? However, I do happen to think Krugman's right about Kerry. As I had mentioned earlier, I think Kerry's being forced into a leftish position (contrary to his voting record) by the compulsions of electoral politics.

The Return is a billionaire 

Just read that the final episode of LOTR -- the Return of the King -- has now officially crossed the billion dollar mark internationally in box-office take. In doing so, ROTK became the second movie, after that other one about a sinking ship that didn't have hyperdrive, to cross the billion dollar figure. CNN has more.

The conclusion to director Peter Jackson's fantasy trilogy, based on the books of J.R.R. Tolkien, now ranks as the second-highest-grossing film of all time after the 1997 sea-going romance "Titanic," which cruised to $1.8 billion in global receipts. But "Return of the King" crossed the 10-figure threshold in less time, getting there in fewer than 10 weeks from its December 17 opening, compared with the "Titanic," which hit the billion-dollar mark as it entered its 11th week of release. Through Sunday, "Return of the King" had accumulated a worldwide total of $1,005,380,412 in ticket sales, New Line said.

All three Rings films have now racked up combined receipts totaling nearly $2.8 billion globally. The first film in the series, "The Fellowship of the Ring," ended up with $865 million worldwide after its 2001 release, while "The Two Towers pulled in $921 million a year later. The three films were all shot together in New Zealand for about $100 million each.

Now on to Sunday, when hopefully, ROTK will sweep the Oscars. And perhaps on Monday, I will finally get to see it :)

The great outsourcing debate 

In the time I have been away from this blog, I have been quite amused by how much the outsourcing story has hogged the headlines. Business Week put it on the cover, Time put it on its cover, The Economist put it on the cover (and included an excellent survey of India) and Wired did an excellent cover on the phenomenon, though the same can barely be said about the content. Of course, these are just the cover stories in the past few weeks or so. This issue has been brewing for sometime now.

I would presume that part of the reason for all this interest is John Edwards's presence in the fight for the Democratic nomination for president. His presence and his seemingly single-point agenda (bash free-trade) seems to have dragged John Kerry to the left on the issue as well (and you thought Howard Dean was the problem). Given all the coverage the Democratic nomination battle got, it's hardly surprising that an issue that dominated their campaign also dominated the media space.

In between all of that, there were some voices of reason too. Prominent among them was the excellent, excellent op-ed written by Jagdish Bhagwati in the New York Times. He argued that your job really wasn't moving to Bangalore.

Unfortunately, the issue is further confused by claims that American jobs are being "transferred" abroad. This is usually not the case. When I came to my university 25 years ago, I got a secretary. Today, the new hires get a computer instead. In India, where a secretary costs a small fraction of what one would in New York City but a computer costs more, any Indian professor who asked for a new laptop would probably get a secretary instead. It is simply a matter of economic reality in both places. The hiring of the secretary in India should not be seen as "transferring" a job out of New York.

The fact is, when jobs disappear in America it is usually because technical change has destroyed them, not because they have gone anywhere. In the end, Americans' increasing dependence on an ever-widening array of technology will create a flood of high-paying jobs requiring hands-on technicians, not disembodied voices from the other side of the world.

Bhagwati wrote this column, I presume, to coincide with the release of his upcoming book In Defense of Globalization. If the reviews are anything to go by ("This is the book that everyone has been waiting for. Bhagwati thoughtfully considers the arguments of the anti-Globalization movement and shows the peril they pose to world development." George Akerlof, Nobel laureate in Economics), this book is a must-read.

Then there was an op-ed written by Tom Friedman in the NYT today. For once, he even made sense and didnt sound like an imbecile.

"How can it be good for America to have all these Indians doing our white-collar jobs?" I asked 24/7's founder, S. Nagarajan. Well, he answered patiently, "look around this office." All the computers are from Compaq. The basic software is from Microsoft. The phones are from Lucent. The air-conditioning is by Carrier, and even the bottled water is by Coke, because when it comes to drinking water in India, people want a trusted brand. On top of all this, says Mr. Nagarajan, 90 percent of the shares in 24/7 are owned by U.S. investors. This explains why, although the U.S. has lost some service jobs to India, total exports from U.S. companies to India have grown from $2.5 billion in 1990 to $4.1 billion in 2002. What goes around comes around, and also benefits Americans.

Talking of the NYT op-eds, I was wondering.....has Paul Krugman written anything about this issue at all? I haven't really been reading the NYT regularly, so I wonder if I have missed something by Krugman.

The Return of the Blog 

Lots of you have written to ask what happened of the blog. As I had mentioned in a post over a month ago, I was getting the feeling that my blogging was getting in the way of some of the reading I really needed to get done. I had expected to get back to blogging sooner though. However, since I lack the discipline of a Rajesh, I figured it would be easier for me to actually stop blogging for a while, catch up on all the reading I needed to do (most of it connected to my doctoral dissertation), so I could resume blogging without a guilty conscience. Now that I have convinced myself that I am back on track, I have started to write again and hopefully, this time it will continue without too many interruptions.

Thanks once again to all those who wrote in and please feel free to send in more articles and the like that I could potentially post on the blog.

Monday, February 16, 2004

Lucy's in the sky and is a diamond 

Found this lovely story on astronomers finding a crystallised white dwarf that's in fact a diamond of 10 billion trillion trillion carats. And De Beers managed to convince you about the scarcity bit? Needless to say, the star has been named "Lucy" for obvious reasons.

The huge cosmic diamond - technically known as BPM 37093 - is actually a crystallised white dwarf. A white dwarf is the hot core of a star, left over after the star uses up its nuclear fuel and dies. It is made mostly of carbon. For more than four decades, astronomers have thought that the interiors of white dwarfs crystallised, but obtaining direct evidence became possible only recently.

The white dwarf is not only radiant but also rings like a gigantic gong, undergoing constant pulsations. "By measuring those pulsations, we were able to study the hidden interior of the white dwarf, just like seismograph measurements of earthquakes allow geologists to study the interior of the Earth. We figured out that the carbon interior of this white dwarf has solidified to form the galaxy's largest diamond," says Metcalfe.

Astronomers expect our Sun will become a white dwarf when it dies 5 billion years from now. Some two billion years after that, the Sun's ember core will crystallise as well, leaving a giant diamond in the centre of our Solar System.