"There is a cost basis that is attractive about India, but that's not going to last forever. The important thing is the local talent we've recruited in Bangalore and other sites"

When Edward J. Zander took over as the Chairman and CEO at Motorola in January last year, he was the first outsider to do so in 75 years. Between 1929 and 2004, America's best-known telecom company had been ruled by the founding Galvin family. The switch from family to a professional has more than worked for the Chicago, Illinois-based company. Its stock is up, the bottomline is growing, and new, better-looking handsets are bringing consumers back to the Motorola brand. In India recently, Zander, who's also been the President of Sun Microsystems and a private equity investor, spoke to BT's Priya Srinivasan on his vision for Motorola and what the business of technology and telecom has come to mean in the globalised world. Also present during the interview was Motorola's Chief Technology Officer, Padmasree Warrior. Excerpts:

India presents itself to you in important avatars today-as a market and as an outsourcing base. Which one are you more excited about?

To me, it's India as a market. I am a contrarian about the word outsourcing. I think in this day and age, with the importance on research and development, you simply go where the smart people are. India has an incredible base of talent and so do other emerging areas of the world like China. We tend to now look at where some of the new areas for engineering and research are emerging and go there. Yeah, there is a cost basis that is attractive about India, but that's not going to last forever. The real important thing today is that the bright people we have recruited in Bangalore and some of the other development sites-the fact that they are working on next-generation technology. So that's attractive whether or not we sold a dollar worth of products in here, we still want the talent. But, of course, the other thing is the market for mobility, and as India continues to increase and grow the GDP, more and more people want to get connected in the big cities and rural areas and the opportunity for infrastructure and devices is just great. So we have to be here equally. Some engineer here might invent something for Motorola that could be our next big thing.

Market-wise, you have had a good run in India. I understand that over 2003-04, you actually saw a 36 per cent growth here. Was it as good in 2004-05? Besides, equipment sales have been the big winner for you in India. Going forward what will it be: equipment or handsets?

Yes, we have had good growth again in 2005. Frankly, we have a lot more work to do on the overall growth of Motorola in India. Specially in the handset area as well as in the markets connected to home and safety. But by and large, the area where we need a much better showing is in handsets and we've made a commitment early this year to make India one of our major geographical focus areas and that includes people management. We've made changes and attracted new people, new products and shoring up our relationships with the major players and getting bigger in retail with direct selling. We have a lot of work to do. We are the No. 2 handset maker in world by far but we are not in India. So when you see your numbers across the world-No. 1 in North America, No. 1 in Latin America, No. 2 in Europe and when you get to India, you are behind a lot of people. That doesn't compute, so we have to fix that and we are going to do that next year.

So handsets take priority this year...

No, no, infrastructure too. There is a lot going on in GSM, CDMA, next generation wireless and WiMax technologies. Some of the customers we are talking to over today and the next few days are asking about nextgen WiMax and what's going to happen. Then there is broadband in the home. We have some understanding of the home market, but the big number has to come from handsets. That market share is totally out of whack. We have competitors with unrealistic market shares who we have to go fix.

What sort of market do you anticipate in India for Motorola in a) the handset business and b) infrastructure business? Can we put some numbers to these markets?

I never forecast numbers. I just let them (the numbers) do the talking. We stated, well maybe I am being unrealistic, but we'd like to be number one in everything we do, handsets included, though that's going to take us some time in India. But you wake up every day thinking let's go get the guy in front of us and then get the guy in front of him. So we think we have a very attractive product line that's working well in other parts of the world. We need to introduce low-end products for the Indian market, flesh out our portfolio. The only thing we have to fix is our retail presence, but we know what to do, since we've done it before in China, Europe and Latin America.

At the moment 7 per cent of your sales comes from the APAC region, which excludes China and Japan. So who accounts for that 7 per cent in the region?

It's India right now.

"We have a lot of engineering here in India that our competitors don't and that is a big advantage since we are creating intellectual capacity"

Padmasree Warrior: India in the broad perspective. At 7 per cent, it's not big today. What we are focused on is trying to develop the handsets for this market. We are looking at low-cost handsets for people who just want to make a phone call, and also looking at iconic devices in GSM and CDMA. By doing that, we are trying to close the gap and we have a lot of engineering here that our competitors don't and that's a big advantage since we are creating intellectual capacity here.

So you do see clear synergies between R&D and the market in any given location?

Warrior: Oh, absolutely, although the way we approach our R&D investments is not necessarily only going to where the market is; we go where the talent is. For instance, 40 per cent of the software in our global handsets comes out of our software centres in India. That's a huge leverage from the IP point of view.

Zander: I don't want to pick numbers since we have always been wrong on numbers as an industry, but India is one of the top 4-5 targeted geographies. Look at what we did in China in 1986 and look at where it is today. India to us represents the same opportunity. We've targeted inside the company (India) as a strategic opportunity along with Latin America and Eastern Europe and China as the four really emerging growth opportunities.

What are some of the key trends that you think are distinctive about the APAC market in the telecom business?

In the US and developed markets, it's more about iconic devices and turning over installed bases with new features. Here, a lot of people want to make a phone call and send messages. In Japan, they love gaming. Korea is into all kinds of gadgets.

Warrior: There is a core set of applications that we see will be common across (the markets), and one of them is seamless mobility, which is what we see happening globally. What that means is as a user when you commute around, you want continuous communications, no dropped calls, the device should be able to switch networks, have access to mail...that will be a major disruption of applications across the board.

When you approach markets like India and China, which are a sea change from the developed markets in terms of the kind of price points you can sell at, how does that impact your sales and how do you resolve the contradiction of high growth at much lower price points?

You have to discipline your company to make money at all price points. A lot of other industries did it, we have to do it, we are doing it. I am not saying it's not a challenge, but you have to discipline yourself not to go after business you are not going to make money on. In some cases in South East Asia, we actually passed on business opportunities because we didn't have the product. We have designed from ground up products for the lower end, not just cut prices.

Warrior: If you mean disruptive innovation, one of the technologies that Motorola recently acquired is something called mesh-networking. It's essentially a self-deployed network where it doesn't use a base station and you have multiple access points that act as routers so you can deploy a network within a limited region. So, we are looking at applying that technology to a product that we already have in the market called Canopy, which is a fixed wireless access system. These are innovative things we do to lower costs, but also to get to coverage in rural pockets.

"The whole misnomer about outsourcing being cheap...that may just backfire. What's cheap today may not be cheap tomorrow, so you better have a strategy"

You are much larger than competitor Ericsson (revenues of $33 billion or Rs 1,45,200 crore versus Ericsson's $18 billion or Rs 79,200 crore) but at the net profit level the two of you are on par (around $2.75 billion or Rs 12,100 crore). This indicates that your margins are severely under pressure. Is that cause for concern?

No and yes. Ericsson has done a really good job in the infrastructure business worldwide. We are better than a lot of guys, but you're right. You always look at No. 1 to be No. 1. There is one company in handsets that makes more money (than Motorola), and there are a lot of them behind me that make lesser money. I care about them, but I care more about No. 1. We are not dropping price. Usually the ones that drop price are the ones in trouble. I maintain that some of the US accounts are so competitive because people are trying to buy into those lucrative markets and weak companies drop prices and do unnatural things to win business (in markets like the us and Europe). You have to train your company to discipline itself to deliver value. Go after businesses and products that can deliver that.

In the US, my politicians tell me it's outsourcing since they don't like it. But half my business is outside the US and if you are going to do business in places like India and China and Brazil you have to invest in those local geographies. It just happens that aside of manufacturing, there is good intellectual capital in terms of people. I am not going to deny that a software engineer in India costs less than one in the US, but will that continue forever? If you look at Bangalore, the rate of cost of an engineer has increased over the past year and five years from now it could be very different. But is there talent in Bangalore? Yes. I want those PhDs and Masters degrees holders working on Motorola technologies and if I get a cost break that's even better.

You have to really invest in the country. You may not invest in manufacturing. In some countries we are in, we invest in education and government-related programmes to help in a number of different ways. In some cases, it's research, in some (other) cases, it's manufacturing.

You mean it's tied in some way-if you want to access the market, the underlying clause is that you invest in the economy in some way...

I think if you want to be very big in a country, you have to be a strategic partner in that country. I don't want to be thought of in India as a us Motorola company, just because my headquarters is in Illinois. I want to be a partner in India, I want to work with companies in India, I want to work with the government on some of their e-initiatives, I want to work with education, and, by the way, if manufacturing here is better and cheaper, then I would want to be there too. This whole misnomer about outsourcing as being cheap...that may just backfire. What's cheap today may not be cheap tomorrow, so you better have a strategy. You better think it through; what's your strategy 10 years from now, 15 years from now, as opposed to 'let's put up a plant today because it's cheaper for two years'.

Unlike IT services, where home-grown companies have really challenged the status quo in the global market, we don't have home-grown multinational telcos. But we are seeing what Huawei is doing in India with R&D and planned manufacturing. What sort of competition do these firms mean for you?

Of course, there are all sorts of competitors. The thing that I am over with, but the press isn't, is that the world is globalised now. It's a fundamental difference from what it was 30 years ago or 20 years ago when, if you lived in the US, all your competitors were from the US. Today it's different. The world and talent are globalised, and if you want to sell into anywhere in the world you may face local competition. I think China will generate competitors, India may generate competitors, Russia could-a lot of smart people are starting companies, that's great. We don't think of ourselves as a us company in Motorola, we believe in deploying our resources globally. If I took you to China, you wouldn't imagine Motorola is based in the US. We are a brand name there, and it's all run by Chinese. You would think we were Chinese. In India, we have to create the same environment, customers should feel that we are a citizen of India.