India lures high-tech investment

After years of neglect, India is luring foreign high-tech businesses that had avoided setting up shop in the country because of political and infrastructure concerns.

IBM (IBM) and CompuServe (CSRV) today became the latest in a growing list to announce ventures to expand their presence in an up-and-coming market.

Tata IBM, a joint venture between India's Tata group and IBM, has launched a subsidiary to offer information technology services including networking solutions. CompuServe Network Services announced the expansion of its global network into India through a strategic partnership with Satyam Infoway, a networking company based in Chennai.

"It is one of the hot markets around the world. Customers in India are expected to spend $1 billion by the year 2000 on IT services and networking, so it is a big market to be in," said Steve Malkiewicz, an IBM spokesman.

The region has attracted other major players, including Intel. Craig Barrett, president, touted India's business opportunities while touring the region in June. He said the chip giant planned to invest millions of dollars India to boost the country's use of computers. (Intel is an investor in CNET: The Computer Network)

The PC market, which grew 28 percent in 1996, is expected to grow from its current ratio of 1 PC for every 461 people to 1 for every 205 residents by the year 2000, said Lisa Cosmas, senior analyst of Asia-Pacific research at IDC Research.

Potential or no, at least one major player has found the infrastructure in India too troublesome. Hewlett-Packard (HWP) last week announced it would abandoned plans to locate a $400 million plant in India.

The computer maker cited the lack of an international airport that is easily accessible and close to manufacturing destinations and areas where products can be shipped out within hours.

Also troubling is the countrywide monopoly on Internet services. The Hindu reported that Internet services in India cost almost four times more than in any other country, thanks to the absence of competition, according to a government study. The monopoly, unique to India, is attributed to the government's practice of licensing the right to sell Internet backbone access.

But India's opportunities and large, skilled labor pool are irresistible nectar to many high-tech companies, and India's government has been clearing the way by easing up on regulations and lowering tariffs.

The government has decreased import tariffs on assembled PCs to 20 percent from 40 percent, Cosmas said.

"India is trying to shape up its economic act. [Today's announcements ] are just a development of something that has been in the works for a while," said Cosmas, noting that these companies were poised to enter at the right time.

She explained that while India's potential is nothing new, it was largely ignored because the country was "an overregulated and a chaotic market."

John Henrickson, vice president of emerging markets at IBM, said the government has paved a smoother road for expansion by reducing taxes and import duties on software. Other incentives include the removal of previous limits--for example, eliminating a requirement that foreign companies establish a joint-venture with an Indian company before setting up shop.

But working with a local company through a joint venture is seen by some companies, like CompuServe, as an easier way to get though the glitches of operating in a developing country.

"The infrastructure is going to be a challenge," said Brian Bosch, international marketing manager for CompuServe.

He explained that many connections support 28.8-kbps modems, but that doesn't mean an end user will be able to connect at that baud rate. Noisy telephone lines and regularly scheduled power outages need to be addressed by someone who is familiar with the rules and regulations, he said.

"You have to be really aware of everything, and that is what the local partner will have a handle on," added Bosch.

CompuServe Network Services India will roll out its services countrywide beginning in September, with its launch initially focused on India's financial centers, including the cities of Mumbai (the former Bombay), Delhi, Bangalore, and Chennai (Madras). It plans to install an additional ten points of presence in India by the first quarter of 1998.

And what other companies have called barriers--a lack of highways and roads--IBM sees as growing pains, an opportunity to be a part of the growth process of an emerging economy.

"A lot of our global partners are helping build the infrastructure," Henrickson said.

IBM will put up 80 percent of the $25 million in seed money for its subsidiary, IBM Global Services India Private.

The remaining portion of the seed money will be equally divided among the Bangalore-based Tata IBM and Tata Industries, according to officials.

The subsidiary firm is conceived as a center for outsourcing of services and for education, systems integration and consulting, software development, and hardware design.