Call it another extension of economist Friedrich A. von Hayek's theory. Across most large Indian cities you are likely to come across a borough in or around the central business district that sells used, smuggled, stolen hardware or pirated software, sometimes both. There's Nehru Place in Delhi, Ritchie Street in Chennai, National Bazaar (aka Burma Bazaar) in Bangalore, and the Flora Fountain precinct in Mumbai. Hayek was a Nobel-prize-winning economist who wrote extensively on capitalism, free market, and laws and his theory being referred to here states that when rules and laws are restricting, people tend to do things to break them, and this is how the law itself evolves into something far more accommodating. If that sounds familiar-and it should-it is because India's it and Communications Minister Arun Shourie used a paraphrased version of the theory during a speech he delivered on the occasion of the first Dhirubhai Ambani Memorial Lecture in July 2003. "...by exceeding the limits in which those restrictions sought to impound them, they helped create the case for scrapping those regulations...", he said of the Ambanis. Now, the small businesses that populate the areas mentioned in the second sentence of this composition, could claim they do the same. In the process, they're helping the masses go digital.

Not convinced? Well, if you want a fashionable leather carry-bag for your laptop, chances are, you'll end up paying around Rs 3,000. At Nehru Place, India's largest computer mart, you can get a laptop for Rs 2,500. And if your computing needs can be met by a 386 desktop (remember them?), you'll have to shell out even less, Rs 1,200. How versatile are these machines? Well, a 486 can run an earlier version of Windows, support MS Word and MS Excel, and is just the thing for DOS-based applications such as Dbase III and FoxPro. For a firm that is into bulk data entry, such machines make economic sense.

Machines traded here, or at similar marts across the country, are done so on the premise that most people use computers for word processing, basic number crunching, and to send and receive e-mail. The customers are typically schools (for desktops and they buy them in bulk), wannabe code-jocks, professionals who need or need to be seen with laptops, and SoHo types. The Indian government too, has a thing for used hardware, but its predilection runs more along the lines of components than entire machines.

Where do these machines come from? "Auctions by government and embassies," says one trader. Then, there is the import, sometimes smuggled, route: some traders ship in used products from the US, China, and Taiwan. A few of the products on display are stolen. With sources as varied as these it isn't surprising that the traders extend only a counter-testing-warranty-"You can spend as much time as you want in the shop testing the machine, but that's it"-and free service for seven-days to a month. As for operating systems, there is pirated software. The going rate for Windows XP is around Rs 250, Windows Server 2003, Rs 450. Are such marts breaking the law? Yes. Are they helping bridge the digital divide? In their own way, yes.

Is post-production of motion-pics the next big business process outsourcing (BPO) opportunity out of India? Studies sponsored by India's Federation of Indian Chambers of Commerce and Industry (ficci) suggest so, and Col. M. Vijay Kumar, the Director of the Software Technology Park in Hyderabad is already positioning his city as the epicentre of this business. "Among all the destinations within India, Hyderabad perhaps boasts the eco-system most conducive for being a back-end editing and processing centre for global film makers." Kumar is right: Mumbai is expensive, and Hyderabad has just the right mix of software skills, production- and animation-expertise, and studio infrastructure. One animation company, Colour Chips, has entered into an alliance with a South Korean government agency to explore possibilities of Korean film-makers tapping low-cost technical expertise in India. And Ramoji Film City claims to have been involved in the making of seven Hollywood motion pics over the past six years by way of providing equipment, crew, sets, even post-production facilities. Execs in the post-production business in Hyderabad expect small companies that produce films for television (typical budget: $3-4 million, Rs 13.8 crore-Rs 18.4 crore) to be the first to tap the BPO opportunity. At stake: possible savings of around $1 million in each case. It's a start.

-E. Kumar Sharma

Reinventing Mr Kulkarni
A hot shot bureaucrat turns tech entrepreneur.

B2K's Vivek Kulkarni: A new beginning

It's been just two months since Vivek Kulkarni gave up his job as the it Secretary of Karnataka and donned a new role as the Chairman and CEO of a business process outsourcing (BPO), B2K Corporation, but you can tell that he's enjoying himself. Sure, his spartan office on Bangalore's Airport Road is bereft of the hangers-on or aides who would crowd his old office in Bangalore's Vasanthnagar. But look at the brighter side: he's actually started learning to play golf-something he never had the time to pursue as a bureaucrat.

But why did Kulkarni, a 1981 batch IAS officer from the Karnataka cadre, chuck his plum job and venture into the unchartered waters of tech business? "Not many people realise that I have an MBA from Wharton in Information Systems and was even on the Director's list of honour there," says the 46-year-old, at one stroke settling the question of competence. Of course, most people know that it was Kulkarni who in his previous job had helped formulate Karnataka's path-breaking BPO policy. So, taking to the industry as an entrepreneur, you could say, is simply a measure of how ardently he believes in what he wrote.

What actually concretised the germ of an idea was a trip that Kulkarni made to Detroit in September 2002 to participate in the World Kannada Conference, where the state was making a pitch to non-resident Kannadigas to invest in Karnataka. During the course of the trip, Kulkarni had some spare time and met up with his old schoolmate, Madhukar Angur, who is now a professor at the University of Michigan. "While talking casually," Kulkarni recalls, "he ventured that we should start a BPO company."

It took Kulkarni a couple of months to say yes and for the business plan to be fleshed out. His wife and mother were very encouraging. His boss, state Chief Minister S.M. Krishna, tried to dissuade him initially, but upon hearing Kulkarni's plans agreed to let him go. So, in October last year, Kulkarni left his secure IAS job and turned CEO.

Just what does B2K (business-to-knowledge) do in a market already choc-a-bloc with BPOs? Kulkarni's answer: Unlike a traditional outsourcing vendor, B2K delivers business insights using proprietary tools it owns in the area of CRM analytics. In fact, his friend and partner Angur holds a worldwide patent in business analytics and an internationally recognised authority. "So B2K is able to provide additional value where others can't," says Kulkarni.

B2K has 10 customers that came with Talisma's contact centre business that Kulkarni and Angur have acquired; the company has also added another five customers in the past two months. But you'll know which way B2K is going if Kulkarni's visits to the greens get fewer and farther in between.

-Venkatesha Babu

GOOD NEWS
India Betters Its Rating

»

» Companies in India have been allowed to raise up to $500 million through External Commercial Borrowings without prior approval.

» At Rs 1,01,569 crore, direct tax collections will top Budget estimates by a good Rs 10,000 crore.

Q&A
"People Buy Solutions, Not Software"

Red Hat's Matthew Szulik: Betting on India

Develop and deploy. Or drop dead. Several state-level initiatives in India were announced on the Free/Open Source Software (FOSS) front, but little has been heard about these since Microsoft's much publicised investment in 2002. No coincidence, then, that Matthew Szulik, global Chairman, CEO, and President of Red Hat, the most happening flavour of open source Linux worldwide, decided to do an inspection tour of the country. BT's Sudarshana Banerjee spoke to him. Excerpts:

How important is India in Red Hat's scheme of things?

The Indian market is very critical for us. Total revenues from the enterprise segment here is currently a single digit as a percentage of our global revenues. But we see a growing demand in the long-term, say the next 10-15 years. There is not as much PC penetration here as in, say, the US, which in turn means there is not as much Microsoft penetration either. TCS, Wipro, and Infosys have crucial Linux competency.

What are your key market segments?

Government is a critical vertical. Telecommunications, the move to wireless. A move from ageing UNIX systems in financial services and businesses where transaction is the business.

What are your growth projections for Red Hat?

Our marketshare is 55 to 60 per cent of the total market for Linux on the server side, which is about 34 per cent of the worldwide server shipments. I expect to grow the topline at least at the current rate in the coming fiscal.

What is the road ahead?

Three things. First, a move to Linux client. This is going to happen on a worldwide basis, but especially in Asia, where there isn't as much Microsoft penetration in strategic areas. The other is in the area of management services. Third area is growing adoption of open-source licensing. We are going to see more and more government and more and more private industries support the notion of open-source technology being placed into the public domain.

BAD NEWS
...Backlash Woes

» The US senate bans contract outsourcing of government projects by American companies to India and a few other countries.

» The annual Index of Economic Freedom gives India a low rating, putting it in the "most unfree" category.

» India remains unwilling to open either legal or retail services to foreign investment because of opposition from Sangh Parivar.

» The rumoured ban on participatory notes, thus putting a question mark on FII investment, sent the Sensex tumbling before it recovered.

» Inflation rose for the ninth consecutive week to touch an eight-month high of 6.21 per cent, and is expected to rise some more.

» Trade in wholesale debt on the NSE fell to Rs 3227 crore last month from Rs 5714 crore in Jan, 2003.