May 2, 2013 · 7:16 am

The Realities of Twitter Democracy!

In September 2011, as the then editor of Dataquest, I wrote an editorial, The Opportunities and Threats of Facebook Democracy. While Dataquest was one of the first publications to do a cover story on how social media was effectively used in the fight against corruption earlier that year (in April), and had celebrated the new power that social media had given to the common people, in this editorial, I had warned against attaching too much importance to the voice emanating from social media by the leaders and policy makers. My reason, of course, was the low penetration of social media. In a large diverse democracy, jumping into conclusion based on what a small section of people belonging to a particular socio-economic section say, was a potentially dangerous and suicidal thing to do, I argued.

The reason I called it Facebook Democracy was that a lot of the campaign by India Against Corruption was actually carried out on Facebook. It was the main mobilization platform.

Since then, Twitter has been used by politicians very effectively to drive their messages. Many politicians and political parties have taken professional help for that purpose. All of us know the power of #pappu and #feku campaigns. While penetration of Twitter is still miniscule compared to the size of  Indian electorate, some politicians have managed to have a very large fan following, going up to more than a million. And there are at least ten Indian politicians on Twitter who have more than a lakh followers. Considering that not more than 100 million Indians are online, those numbers are not unimpressive.

Unimpressive they may not be. But as it turns out, most of these followers are fake.

Social media management platform maker, Status People, actually provides a way to check your (and others’) fake followers. I actually checked out the the fake followers of the top ten Indian politicians on Twitter by number of followers and checked how many fake followers they have. 

And can you imagine what the average looks like?

It is 59%.

That is, as much as 59% of the followers of these politicians on Twitter are fake. And typically, the bigger the number of followers, the bigger is the percentage of fake followers, though there are small exceptions.

Here is the table.

Politician Twitter Handle Total Followers Fake Followers (%)
Shashi Tharoor @shashitharoor 1756468 62
Narendtra Modi @narendramodi 1560092 65
Dr Manmohan Singh @pmoindia 538323 55
Sushma Swaraj @sushmaswarajbjp 447766 52
Arvind Kejriwal @arvindkejriwal 314614 54
Omar Abdullah @abdullah_omar 274937 54
Subramanian Swamy @swamy39 165408 42
Ajay Maken @ajaymaken 151118 55
Derek O Brien @quizderek 149448 38
Varun Gandhi @varungandhi80 118728 52

The numbers are as on 1st May 2013

And here are some realities.

  • Narendra Modi, the potential PM candidate of BJP, heads the list in terms of  percentage fake followers, with 65% of his followers being fake.
  • As many as 8 of the 10 in this list have more fake followers than they have genuine followers. Derek O’ Brien and Subramanian Swamy have the lowest percentage of fake followers in this list.

What Does This Mean?

This, of course, does not suggest that politicians are doing something deliberate to create fake profiles/followers. And since there is not much to choose between different parties, it is not a political statement that one is making. In fact, many politicians themselves will be shocked to know this.

For that matter, there is not too much of a difference between politicians and other celebrities when it comes to the percentage of fake followers. I did check that for a couple of them. In case of Amitabh Bachchan, 73% Twitter followers are fake. For Shah Rukh Khan, that number is 70%.  But in case of celebrities, it is a reaching out to the fans, so it does not matter how many fans follow them.

For politicians too, it is a great platform to get their message across, engage with media and at least a certain section of people, who are using this medium. The problem begins, when, their PR managers try to make us believe that they are great leaders because of the large fan following. That is when we get it completely wrong.

In fact, fake followers is just one part. The above platform, Status People, also measures how many of the followers are inactive. For each Twitter profile, it divides the followers into three parts: fake, inactive and good. When you take just those followers that it terms are good (who are real and active), the total followers number drops drastically.  Here is the above list of politicians with their “good” followers.

Politician Twitter Handle Good % Good Followers
Shashi Tharoor @shashitharoor 10 175647
Narendtra Modi @narendramodi 10 156009
Dr Manmohan Singh @pmoindia 16 86132
Sushma Swaraj @sushmaswarajbjp 16 71643
Arvind Kejriwal @arvindkejriwal 14 44046
Omar Abdullah @abdullah_omar 13 35742
Subramanian Swamy @swamy39 21 34736
Ajay Maken @ajaymaken 12 18134
Derek O Brein @quizderek 22 32879
Varun Gandhi @varungandhi80 13 15435

The numbers are as on 1st May 2013

So, in effect, Shashi Tharoor’s active are just 1.75 lakh Twitter users, not 1.75 million.  The prime ministerial candidate Narendra Modi has just 1.5 lakh followers, not 1.5 million. Varun Gandhi just has 15,000-odd  active followers.

In short, these numbers denote their actual sphere of influence. Except for Tharoor and Modi, these numbers are in thousands; in a country of a billion. And when you combine this to the fact that Twitter reaches only a certain class of people, it follows quite logically that extrapolating the influence/opinion of Twitter to the real world is not a great idea. Not yet.

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March 30, 2013 · 2:20 pm

Reshoring of Services: Is It Just A Matter of Time?

There is a new addition to the x-shoring lexicography—reshoring. Well, I say new because, at the time of writing this, Wikipedia still does not have an entry for it. Else, the trend has been on the rise in the last couple of years. Today, it has reached a stage where one can easily call it a trend, if not the dominating trend.

Reshoring, put simply, is moving offshored operations of a company, back to the country from where it had moved, typically the home country of the company.

“In the last two years, there has been a lot of discussion and excitement around reshoring, as the trend to move manufacturing back to the U.S. is called. In parallel, a growing number of U.S. executives are repatriating their manufacturing capabilities—moving some production operations back from overseas,” noted a report recently published by the MIT Forum For Supply Chain Innovation. The report, titled U.S. Re-shoring: A Turning Point, was conducted among members of the MIT Forum for Supply Chain Innovation and members of the Supply Chain Digest community. As many as 340 participants completed the survey. Some 33.6% respondents stated that they were “considering” bringing manufacturing back to the U.S, though only 15.3% of said that they are “definitively” planning to re-shore activities to the U.S.

The tendency to reshore is not specific to companies of any particular size. Neither is it to any particular segment within manufacturing. Some of the big names that have taken to this include Apple, Caterpillar, NCR, Ford, Master Lock, and Foxconn, representing all types of manufacturing segments, from capital goods to electronics and from contract manufacturing to automotive. And yes, GE, which once led the offshoring wave, has also started reshoring. This very interesting article, The Insourcing Boom in The Atlantic, gives a nice overview of GE Appliance’s genesis of reshoring efforts.  The articles raises some interesting questions that take on the logic of offshoring head on. But I will return to that. Just to make sure, the reshoring trend is not restricted to the likes of GE, Apple and Caterpilar. Smaller companies have also found value in that. Here is a first person account from a small sports apparel company.

Estimates about the magnitude of reshoring varies. But 40,000 to 65,000 jobs in the last three years is a decent range to go by.

While it is early days yet, the opinion seems to be turning in favor of re-shoring. In a recent Economist debate, Do multinational corporations have a duty to maintain a strong presence in their home countries? as many as 54% voted for the motion. While Harry Moser, Founder, Reshoring Initiative, an initiative that aims at mobilizing opinion in favor of reshoring defended the motion, noted economist and author of the book, In Defense of Globalization, Prof Jagdish Bhagwati argued against it.

The debate about offshoring is not new. It has been there ever since offshoring begun and has never really ceased, though it comes to the forefront only during certain phases such as presidential elections.
But usually, the tone has been political. It has been emotions vs cold logic. It has been “politics” vs economics, as some practitioners of offshoring put it.

But for the first time, it seems, cold logic and economics are being used to challenge the benefits of offshoring. This article in The Atlantic, Why We Can All Stop Worrying About Offshoring and Outsourcing, puts forth some arguments, that applies to logic, something that businesses ultimately go by.

One, it argues that labor costs for many businesses may no longer be the critical or even primary factor in global location decisions. Two, it says that the old practice of designing at home and then manufacturing abroad can slow the pace of innovation and product change. And finally, it argues that companies are questioning some of the “outsourcing”  logic and bringing certain functions in-house. While that can still be done by a company owned offshore centre, many re-shoring enthusiasts still see it as a reversal.

The jury is still out on if reshoring will be an industry-wide phenomenon,  one cannot ignore the trend any more.

Will services be affected?

So far, the trend has been seen in the manufacturing industry. All the arguments and facts are about manufacturing industry. What about services—something that really affects India? So far, I haven’t read much about reshoring in services, except for some passing mention of India in some articles while talking about broader offshoring wave.

Does it mean that services offshoring is irreversible? Or does it mean that it is only a matter of time? After all, didn’t offshoring of manufacturing precede services offshoring by a few decades?

To examine if services could follow the same reshoring trend, we must see if the factors that are driving manufacturing reshoring can impact services as well.

Let us start with the the arguments put forward by The Atlantic, as listed above.

Take the first one: labor costs for many businesses may no longer be the critical or even primary factor. We can safely say that when it comes to services industry per se, it is not going to be the case in foreseeable future. So that logic does not really apply.

The second one is more pertinent. And has different dimensions. The old practice of designing at home and then manufacturing abroad can slow the pace of innovation and product change, it argues. That essentially suggests co-location of R&D, design, and manufacturing, and preferably closer to market. Which essentially means that if the demand in emerging markets go up, there is some cold logic for having manufacturing and design there. If one examines from India’s perspectives, for example, it calls for manufacturing capability in India, assuming that the design and R&D capability are well-developed. So, it brings us back to the old debate: whether China develops services capability faster or India develops manufacturing capability faster.

The third point in the article is about inhouse offshore centres. They are not new to India. Popularly called captives and now being labeled as Global Inhouse Centres (GICs), their importance is being acknowledged. One of the NASSCOM forums that actually is seeing a lot of rising interest is the NASSCOM GIC Conclave.

The MIT study identifies six top reasons for reshoring decisions. Time to market was the top reason cited by the manufacturing companies. That only partially affects services industries. The main reason for time lag is not there as there is no movement of atoms,  as in manufacturing. Movement of bits happen in almost real time. However, not co-locating different functional teams could have some impact. But that is usually addressed in a mature offshore services operations. In fact, sometimes having people in different time zones accelerates services delivery, as many companies have found out. The other reasons cited by the respondents from manufacturing industry is cost reduction (I assume supply chain costs as oil prices keep going up), product quality, more control, and IP protection. IP protection is the only reason out of this which could be as important for services as it is for manufacturing.

Reshoring Initiatives, in its website, lists the following reasons for companies to consider reshoring.

1. Reduces Total Cost of Ownership
2. Improves quality and consistency of inputs
3. Reduces pipeline and surge inventory impact on just-in-time operations
4. Clusters manufacturing near R&D facilities, enhancing innovation
5. Reduces intellectual property and regulatory compliance risk
6. Eliminates the waste and instability caused by offshoring

Except for reason 5, none of these apply too much to services.

So, in effect, it does not seem that services would be a candidate for reshoring anytime soon. The only thing that can trigger companies looking at services reshoring is lack of availability of manpower in pockets of skill areas. But those are tactical and not strategic decisions.
Google

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March 4, 2013 · 4:01 am

How Realistic is Chidambaram’s ATM Promise?

The Union Budget for 2013-14, presented by the finance minister of India, P Chidambaram, has been thoroughly analyzed by analysts, media and economists. Many have pointed out the fine prints, and there are loads and loads of analysis on what it would do to Indian economy, different sectors, and different sections of our demographics.

But in all these discussions that I have eagerly followed, I am yet to come across any comments on one of his promises: that every public sector bank branch would have an ATM by March 2014. This is what the FM said in his budget speech (see section 86)

Financial inclusion has made rapid strides. All scheduled commercial banks and all RRBs are on core banking solution (CBS) and on the electronic payment systems (NEFT and RTGS). We are working with RBI and NABARD to bring all other banks, including some cooperative banks, on CBS and e-payment systems by 31.12.2013. Public sector banks have assured me that all their branches will have an ATM in place by 31.3.2014

I know it is neither as serious a matter for economists as current account deficit nor as interesting for everyone as an all women’s bank branch. It does not impact as many people directly as the tax slabs; neither does it have enough controversy in it to deserve comments from politicians.

Yet, this part of the speech got my natural attention, when I was listening to the speech live on TV. Having been a little familiar with the current numbers—thanks to my twin interests, payment systems and data journalism (lots of my tweets are around these numbers)—I was finding the target a little too ambitious. 

So, I got into some extraction of numbers and a quick analysis of those numbers. And here is what the FM’s promise translates into. 

By the end of March 2012 (that is end of FY 12), India had 67,466 PSU bank branches. That may not be such a huge number when seen in context with Indian population. But the number of ATMs that were attached to some of these branches (called onsite ATMs in Indian banking parlance), were much less. All PSU banks together had only 34,012 onsite ATMs. That number, of course, increased to 36,767 by December 2012.

The public sector banks have, on an average, added a little more than 3500 branches per year in the last five years leading to FY 12. So, even by a conservative estimates, the PSU banks are likely to have not less than 72,000 branches by the end of March 2014—the reference date for the FM for all of those branches having an ATM.

So, going by the current numbers, 35, 233 onsite ATMs need to be added between 31 December 2012 and 31 March 2014 (15 months) for all the PSU branches to have an ATM. That is almost doubling (96% growth, to be precise) the onsite ATM base in PSU banks.

Do you think it is realistic? Especially, when you consider that between March 2007 to March 2012, they have added 23,723 onsite ATMs. And there is no major acceleration considering in the nine months after that—that is between March 2012 to December 2012—they have added only 2755 onsite ATMs.

So, there are only three possibilities. One, I am terribly wrong somewhere. Two, there is something happening inside which we don’t know. And three, the FM has just been carried away without caring too much to be realistic. After all, it is an election budget.

The first possibility is inconsequential. The second possibility calls for a celebration.

The third possibility is  a dangerous proposition. I thought whether the Budget is good or bad in a year, at least the basic arithmetics gets done to put the ends together. 

There is one more probability. Maybe, the FM was wrong but only technically. Maybe, he meant that for every branch of PSU bank, there would be an ATM. What it means is that the number of PSU branches and no of PSU ATMs would be same, irrespective of where those ATMs are located. If we go by that number, the total ATMs (both onsite and offsite put together), they have 63, 739 ATMs. That means in the next 15 months, going by the same estimated number of branches (72,000), they need to add 8261 ATMs, slightly aggressive going by the last five years’ numbers but not exactly unrealistic.

So, the FM’s speech should have read

Public sector banks have assured me that for each of the branches that they have, they will have one ATM in place by 31.3.2014

And that is no less laudable goal to have. Since the FM talked about the ATMs in the context of financial inclusion, how does it matter if the ATM is “in the branch” or anywhere else?

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December 31, 2012 · 9:42 am

IT-ITES Exports: Are the 12th Plan Projections Realistic?

The government finally placed the draft 12th five year plan before the National Development Council meeting held recently in New Delhi. For all practical purpose, it is the final document and as the Planning Commission points out in its website, the word “draft” only means it is still being copy-edited. So, expect no major change in the document in terms of facts and plans.

While going through the draft document on economic sectors, I naturally stopped at the section on information technology (IT). The specific plans and the language reflect the confidence and comfort that the government has come to find in IT to drive economic growth as well as to help in achieving socio-economic objectives.

While there are lots of plans and initiatives, I thought it is not a bad idea to examine, in particular, the projections that the document provides for achievement by the industry, in a table titled Key Targets for the Twelfth Plan for the Electronics and IT-ITeS Industry on page 268. In this post, I am focusing on just one of the segments listed therein, IT-ITES Exports.

I have picked up IT exports, of course, partly because of my interest and experience in analyzing this segment but it is also because unlike the other major segments, electronics hardware and domestic IT market, the IT exports segment is relatively large and mature and the past experience can give some indication of the future. The other two, being comparatively smaller and nascent, will depend a lot on policy decisions, that will significantly influence how they move.

According to the document, the government expects that Indian IT exports will reach $130 billion by FY 2016-17, from the present (FY 2011-12) $69 billion. That is a CAGR of 13.6%. Is that good? Is that bad? Is that just okay?

Before we examine those questions, let us be very clear about the fact that these numbers are not invented by the planning commission. It has taken those numbers from the respective ministries. And it is safe to assume that IT ministry would have consulted the industry players and industry body, NASSCOM before arriving at this figure.

Back to our original question—is a CAGR of 13.6% between 2012-17 realistic?

Let us start with the past data. Betwwen 2002-07, IT exports in India grew by a CAGR of 32.6%. In the next five years, between 2007-12, the IT exports registered a CAGR of 17.2%. Purely going by those number, a 13.6% growth does not seem too unrealistic for the period 2012-17.

But wait a minute. Before we get into present performance and any other environmental factors for the future, it is important to clarify a technical point. While the government has its own five-year plan periods, and all its numbers are synchronized to those blocks of periods, the industries do not necessarily work that way, least of it an exports industry.

Indian IT services exports industry had its distinctive growth periods. The period between 2003-04 to 2007-08, was the high growth period when, on an average, the exports grew 30% year on year, growing by a whopping 37.2% in 2004-05.  Of course, the industry was much smaller.

IT-EXPORTS3

The growth suddenly fell to 16.6% in 2008-09, when the first impacts of the US sub-prime crisis was felt. This was after a year which saw a 29.9% growth in IT exports.  The next year was worse, in the wake of a severe slowdown, and the growth plummeted to 5.6% before bouncing back to 18.7% in the subsequent year, 2010-11. It slowed down a bit in FY 12 to 16.5%.

Going by the IT industry’s growth, a better figure to take as a benchmark for comparison, is hence, the CAGR for the four-year period between 2008-12. This comes out to be 14.2%, thanks to the elimination of the year 2007-8, which, with a 30% growth skewed the entire figure for the five year period between 2007-2012.  The year 2007-08, in short, belonged to another era.

The indications so far suggest that the current year too will register a similar growth, as the last four years. The revenue of top five IT services companies have grown by just 9% in the first half of the year (see table). Though both TCS and Wipro’s revenues do include a smaller but significant domestic revenue, this gives an idea of what to expect this year. It is difficult to believe that the growth will top 12-13% in most optimistic case.

COMPANY H1 FY 13 (Revnue in $million) H1 FY 12 (Revnue in $million) GROWTH (%)
TCS 5581 4937 13
Infosys 3549 3417 4
Wipro 3056 2880 6
HCL 2193 1965 12
Mahindra Satyam 696 662 5
TOTAL 15075 13861 9

The Gartner forecasts for the global the IT-BPO outsourcing in the next few years too do not paint a very rosy picture. According to the firm, the IT-BPO outsourcing will grow on an average of 4.3-4.4% between 2012-2015 (Jan-Dec).

If the first year of the block in consideration by the 12th five year plan itself sees a growth of just about 12-13% with no great expectations about a huge turnaround in the next few months, is it realistic to expect that the exports will grow by 13.6%?

I doubt.

However, there are some possibilities.

One, let us not forget that many of these growth figures are only partially due to IT industry’s performance and actually have to do a lot with exchange rate fluctuations. By the way, the growth in rupee terms this year, may be far better, topping the 20s.

So, if the rupee gets really stronger against the dollar, the 12th Plan targets may still look achievable. But will it? That is not my area and I would not like to do any guess work there.

The other possibility is that the IT industry actually breaks new grounds and manages to tap the new opportunities such as products/engineering services and they grow significantly. But even in that case, it is difficult to believe that the growth will be impacted much in the 12th plan period.

 

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December 13, 2012 · 12:00 pm

Mr CIO: Can You Give Up the Control of Nuts & Bolts to Move to A Business Role?

Yet another report tries to demystify the new CIO. An Ernst & Young report, The DNA of the CIO: Opening the door to the C-Suite (You can download the full report here), claims it provides fresh insight into what is to be a CIO today. The report, the result of a survey among 300-odd CIOs and some 40 other CXOs to provide,  ”a perspective on how the CIO is perceived by the rest of the executive management team.”

The report builds a profile of the typical CIO (He is 43 years, male typically), gets into how his role is changing, what comes in the way of his effectiveness, and even provides a toolkit for the aspiring CIO. It even has an interesting video. 

Getting into the C-suite has been a consistent dream for the CIOs in recent times. A select few have managed to achieve it. Most others are in the aspirational mode. In my five years as the editor of Dataquest, I have been part of many formal (panel discussions, Q&As) and informal discussions with CIOs on various topics: technology, products, hiring, managing, their role, their interests. But invariably I have found the discussion steering towards the role and responsibilities of the CIO, never mind if the topic was BI or cloud or BYOD, not to talk of management issues. The exact nature of discussion would vary depending on whom you are talking. For a very small number, the aspiration is the CEO/COO position. For the rest, it is still, being regarded as part of the top management. The E&Y survey finds that only 17% the CIOs that it spoke to are part of the executive management team. That percentage would be far lower in India.

But that is not surprising. Neither is it a reflection of the CIO’s capability, considering that IT is fairly new to the enterprises as a separate function.

But there is something I find dichotomous. Almost very CIO believes that he is performing a business role and should be part of the top management/board. But when I’ve asked if he (the gender non-neutrality is because I have not asked the question to a single woman CIO yet, my apologies) would be willing to give up the control of IT infrastructure, which he anyway admits is non-strategic, I have rarely (once, to be precise) heard Yes for an answer. I must have asked this question to some 60 odd CIOs.

But will not giving up the nuts-and-bolts which eats up lots of his time, free him to focus more on working with business to assess the need of solutions that the latter needs and formulate a better IT strategy? In other words, while the demand side of IT is managed by the C-suite CIO, the pretty standard supply side is managed by someone else?

Why is the reluctance then? And if the other C-suiters believe that he is helpful only in fixing their laptops (see the E&Y video, linked above), how can they be blamed?

“Unless you can have the end-to-end control,” a few would argue, “you cannot really achieve what you want to.” The looks in their eyes give clear indication that they know I am not convinced. The truth is, most of them are themselves not convinced about this.

If they want to hold on to the servers and networking and laptops, because they think that is where they derive their power from. It gives them the control of a critical infrastructure and hence the organization is highly dependent on them.  But alas, this dependence is the reason why the CEO does not want him in strategy meetings. He should better be in the server room doing the firefighting!

Also, another thing that goes unsaid, is that the control over hardware and networking also gives them control over that budget. That is a huge part of IT spending. That makes them important in the eyes of the vendors. They get chased; get invited to parties and great locations; get featured in the media. Their classmate who joined Infosys after  college may be getting a fatter salary and a few overseas assignments; but he never gets that kind of importance that the vendors give him.

The proposition is simple. If more CIOs want to be considered moving up the value chain, they have to do that by vacating the lowest value tasks that they do. Many of them agree that IT infrastructure fire-fighting is one of the lowest value jobs that they do. So, doesn’t it make sense to just say good bye to that?

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November 29, 2012 · 12:12 pm

Why A Hasty Approach May Derail the Direct Cash Transfer Scheme Completely

The UPA government has announced the Direct Cash Transfer (DCT) scheme, with an eye on the elections. As expected, the opposition has cried foul,  terming it “bribe” to the voters.

That is politics. And not really the topic of discussion here. In fact, this piece is not even about the economics of it. Economists agree that it is more efficient to pass on the benefits to the deserving directly through cash transfer than indirectly through subsidies. In any case, the government has been talking about it for quite some time. The Budget Speech in the last two years have referred to it explicitly. Many studies internationally have shown that they have, by and large, had a positive effect.

The points that I raise here are not about the politics or economics of DCT but the implementation hurdles that remain. Because even with this limited rollout, it could be the world’s biggest such project. Rushing in to implement may create problems that could shake off people’s confidence on the scheme. This could lead the opponents to project it as a faulty idea per se.

So, here are some of the issues.

1. What about those without the bank accounts? India has less than 25% of people in rural areas, who have access to bank accounts. How will they get the benefit? Does it mean that some of them—those who have bank accounts—will get it and others will not get it? That will be as anarchical as it could be. And the backlash could be severe.

2. How will subsidies and DCT co-exist, even if for a limited period? The government says that the scheme will be fiscal-neutral as it will replace subsidies. Practically, how will that happen, especially in fuel (kerosene), food, and fertilizers? Till all the people are in a position to get the benefit of DCT (today, those who do not have Aadhaar or bank account will not be able to get it), the government cannot touch the public distribution system. Which means it cannot effectively cut  subsidies. So, the mechanism has to be in the point of contact (ration stores and the like) to ensure that some beneficiaries do not avail both the benefits, which is next to impossible, as of now. So, the government will continue to run both for the foreseeable future. And surely, it will not be fiscal neutral.

3. What are the alternate channels of supplies? While it is good to say, on paper, that by getting the money directly, the beneficiaries, can opt to buy the products from anywhere, no one is clear what is that anywhere. In many areas, no alternative supply and distribution channel exists. So, how will cash help them?

4. How do you ensure that the money is spent on those products and services for which is intended? How does the government ensure that the money is spent on the products and services that intends to subsidize? In some countries, these subsidies are conditional and are given to women. There is no such plan in India. So, in many families, where men spend a lot of earnings on alcohol and such things,  more cash means more money to get drunk. The possibility is very real in India.

The issues raised here are not meant to argue against the implementation of DCT.

But the fact remains that changing the entire subsidy regime requires a lot of thought and preparation. The government started on the right note by appointing a task force to suggest the ways and means of implementing this.

The task force, headed by Nandan Nilekani, Chairman, UIDAI, submitted a detailed report, recommending creation of what it called a Core Subsidy Management System (CSMS) to implement the new subsidy regime.  The task force foresaw the gap that exists in the payment system reach and recommended this

Since it may take a while for the payment systems in the country to gear up for direct transfer of subsidies, an intermediate step may be considered where the subsidy difference is transferred to wholesalers/retailers in the first phase, and only later on to customers.

But the government has disregarded it and has announced DCT right away. Also, there is no news on where the rollout of CSMS has reached.

With all its good intentions, the government will have only itself to blame, if the whole idea backfires.

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November 20, 2012 · 7:58 am

Why Indian Software Product Companies Need More than Ideas and Funding

There has been a lot of discussion around why India, home to some of the world’s largest IT services firms—and often dubbed as an IT superpower—has not been able to produce even one large independent IT product company.  Companies which have built some products have either remained small, closed down, sold themselves off, or have switched to services to sustain themselves.

Some of the reasons that have been offered as explanation are as follows.

Indians are not good at innovation. This is the most superficial explanation that you hear, usually from those outside the IT fraternity, with a limited understanding of this industry. This is flawed because of two reasons.

One, it makes an inherent assumption that building products require innovation while providing business solutions as services companies to enterprises do not require  innovation.

Two, by labeling Indians as not good at innovation, it fails to explian how Indians have built extremely successful product companies in the United States and how they have excelled in product management and other so called innovative functions in large non-Indian technology companies.

Indians are risk-averse. Well, there is some truth in the statement. The services business worldwide, because of various reasons, is  fragmented and that gives a chance to smaller companies to remain small and still make money. Usually, not so with product companies.

After the success of TCS, Infosys, and Wipro, many smaller companies in India positioned themselves along similar lines and started offering services using cheaper manpower. Since the demand was high, they managed to survive, without taking too much of risk. Since the major investment often were done after winning a contract, it was fairly de-risked. The presence of large number of such companies in India has given an impression that Indians do not take risks and and follow something that is tried and tested. But let us not forget that it is because a few companies took the risk initially, others could cash in on the wave.

In any case, while the statement does manage to explain, to some extent, why too many companies have not entered the product business, it still does not explain why those who have, have not been able to succeed much.

There is no ecosystem. Most of those who have tried their hands in creating products believe that India does not offer a supportive ecosystem. They are not exactly off the mark.

India does not offer any major incentive for creating IP. The demand from local market is not very strong, unlike in some other countries. Further, the services branding is so strong that few VCs/investors back a company which wants to play long term in products. If many of them do invest in some product start-ups, it is for quickly selling to large technology companies.  They are always pushing the start-ups for maximizing revenues in a short time, not always a great way to create long term value.

All these factors have created some hurdles for product companies, feel those who want to change this. I think they are right.

But to be sure, it was the same scenario when services business started. Indian government has always been late to step in, if at all. The local demand was absent. And there was little funding. In addition, there was no skilled manpower. But Indian companies started at the low end by tapping the Y2K opportunity and slowly climbed up the value chain.

So, while it is true that a supportive ecosystem would absolutely help the growth of India as a product hub, it is difficult to believe that itself would kickstart the product revolution.

Indians are not good in marketing. Many believe that Indians, in general, lack in marketing capability and products require far more marketing skills than services, which survives on cold calling and sales efforts.

I am not sure whether I agree with this statement.

Some Indian marketing ideas now serve as global case studies. Further, assuming, for a moment, it is true I believe, it is too tactical a thing to offer as a reason for  lack of product success stories from India. Indians are not exactly known for following systems, processes and standards. But Indian IT services companies lead the world in quality, standard practices, and creating systems and processes. Something like this can always be learned.

There have been laudable efforts in recent years such as NASSCOM Product Conclave and the formation of ProductNation. I am sure they cam surely address some of these gaps such as lack of ecosystem, help the companies in marketing and market the idea that India has everything to offer world class products that it has already done in a few areas such as banking. In core banking, for example, a majority of top providers are either Indian or have an Indian genesis.

I have my own reason to offer. Again, I would like to clarify that I offer it as yet another reason and would not claim to be the only/principal reason. I call it lack of user/product centricity.

If we look at history, we would find that while India was the place that was home to great ideas/abstractions/philosophies/sciences—such as concept of zero, algebra/geometry, astronomy, Ayurveda. Our neighbor China has always been known for inventions and discoveries of tangible things—such as magnet, tea, paper, silk.

Is it just co-incidence? I don’t think so. Our domination in modern days—India in services and China in products—stems from the same differences that existed a few hundred years back.

And you can tell this from your experience. During one of my flights from San Francisco to Seoul (some time around 2005-06), I met the owner of a  small Californian garment manufacturer, who had outsourced to a unit in China. He had come to India once to do preliminary survey but went back a little confused. What he told me can be a pointer to possibly what we do not have. I will not use the word “lack”. It is just a different way of looking at things.

He told me when he went to China and started talking to prospective partners, the discussion steered towards the type of garments he manufacturers, who they are meant for, quantity of manufacturing and so on. He was perfectly comfortable with those  queries.

In India, he was asked questions about how many people he would like to employ, what is the cost of production there, what is the saving that he is expecting, even before they asked him about his users/products. He did not have clear answers about many of those questions and left confused.

When I met him, he did not have any concrete plans for India but he had not given up on the idea. He had hope that he would come back one day. For some reason, he believed, Indians could do it better. The only tangible reason I could gauge from the conversation is this: if they are designing so well for Bollywood, they can do a great job!

I think we all have faced similar situation. If you talk of a new business idea, the discussion here steers more towards business models, funding, marketing challengers. Rarely do we go into things like users and and the actual products!

Frog Design, owned by Aricent, a company with Indian genesis, opened a development center in India, but decided to open its design studio in China. The reason was the same.

This is also what separates an application development for a client and a product development. While the technology and development process are similar, in a typical ADM project, the client briefs the specification. The same is the case with outsourced product development, where Indians have succeeded significantly. In a commercial product, the firm has to do its own user research to decide the features.

One may debate on whether a Steve Jobs of way of deciding for the user or a Nokia/Samsung way of detailed user research is better, but the commonality in both is that the user is foremost in the minds of the designers. Without that, creating a great product may only happen as an accident, once in a while!

Many would argue that B2B product development is different. I would disagree. While B2B means the user research cycle may be a little shorter, it  nevertheless requires the same user centricity that  any B2C product requires. You are finding about the user and designing accordingly. You are not designing to a specification.

The difference is subtle but crucial.

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