| What
do Boeing, Airbus, Alstom, General Motors, Ferrari, and United
Utilities have in common? They all have been outsourcing their
design and engineering requirements to India. The next big opportunity
for India lies in engineering services outsourcing. According
to a study by Booz Allen Hamilton for the National Association
of Software Services & Companies (NASSCOM), global spend on
engineering services is projected to spurt to $1.1 trillion (Rs
48,40,000 crore) by 2020, from $750 billion in 2004. India is
well-positioned to increase its market share of engineering offshoring
from 12 per cent to 30 per cent by 2020. The potential engineering
market in India could exceed $60 billion (Rs 2,64,000 crore) by
2020, the study indicates.
That's one big reason the Bangalore-based QuEST is focussing
sharply on this space. The company is looking at an opportunity
of $7.5 billion (Rs 33,000 crore) worth of business to be generated
in the aerospace segment, derived from the orders to be placed
by the civil aviation sector, over the next five years. Aerospace
services contribute 35 per cent to QuEST's revenues, the remaining
coming from power generation, oil and gas, and transportation.
QuEST, which reported profits of $3.5 million (Rs 15.8 crore)
on revenues of $28 million (Rs 126 crore) last year, has big plans
for the engineering services outsourcing space. To start with,
the company, which is a subsidiary of a us company called Quest
Inc-in which private equity firm Carlyle Venture Fund holds a
24 per cent stake-is looking at raising $25-30 million through
an initial public offering in the Alternative Investment Market
(aim) of the London Stock Exchange, its founder and CEO Ajit Prabhu
told BT. Japan's Nomura Securities has been appointed the investment
banker to the issue. "Engineering services and manufacturing,
especially in the aerospace segment, is a huge opportunity for
us and we need the money to add to the infrastructure in India
and make acquisitions," says Prabhu. The company requires
$20 million (Rs 88 crore) to expand its existing centre in Bangalore,
while it says it is close to making a $10-15 million (Rs 44-66
crore) acquisition in the US. The company is in the process of
acquiring 300 acres of land in southern Indian town of Belgaum
(Karnataka) to set up a special economic zone. It will set up
a design ad manufacturing centre here at an investment of $25
million (Rs 110 crore). This unit is expected to commence operations
in early 2008, says Prabhu.
-Anusha Subramanian
Build
or Design?
Should SemIndia be making chips at all?
 |
| SemIndia’s Agarwal: New
design |
How can a company expect
to notch up revenues of Rs 100 crore even before it begins production
of any kind? Simple, it acquires a firm with manufacturing facilities.
Just 12 months ago, SemIndia announced its plans to make semiconductors
out of India. However, the status of the $3-billion (Rs 13,200-crore)
silicon wafer fabrication project is still linked to the government's
announcement of a semiconductor policy. The promoters, though, weren't
twiddling their thumbs. Last year, they acquired a major stake in
Xalted Networks, a Bangalore-based fabless semiconductor company
(such companies typically outsource fabrication work to specialised
chip fabricators), for an estimated $8 million. And it's the revenues
of this company with 100 engineers, which has since been rechristened
SemIndia Systems, that are expected to tot up close to Rs 100 crore
by the fiscal year-end.
And that is not all. "There could be more acquisitions,"
says Ajay M. Marathe, Chief Operating Officer, SemIndia USA Inc.
Marathe was president of AMD India until he joined SemIndia last
fortnight. Marathe is not alone. Joining the founding team led by
us-based Vinod Agarwal, is now B.V. Naidu, who till recently was
a director of Software Technology Parks of India (STPI) in Bangalore
and Hyderabad. Naidu will head the FAB project.
SemIndia Systems designs and develops chips, and outsources
the manufacturing to Flextronics (one of the investors in SemIndia),
which in turn makes and ships them to customers; SemIndia gets
the intellectual property rights, though. SemIndia is simultaneously
working on having its $100 million or Rs 440 crore ATMP (assembly,
test, marking and packaging) facility-put simply, it's a testing
facility-up and running by the second quarter of 2008. But the
big question is still on the chip manufacturing facility. While
the quantum of incentives in the semiconductor policy will show
the road ahead, nevertheless, at the moment, the jury is out on
whether India needs to get into manufacturing at all.
"There is a pride thing about having the manufacturing,"
says Bryan Lewis, Research vp and Chief Analyst, Gartner. He feels
the first step would be to do the homework well. "If we look
at the worldwide demand, product requirements (domestically and
worldwide) and at the customer base, I get a feeling it is emotion
that is driving the (chip making) story and not the homework,"
adds Lewis. At the moment at least, he sees global capacity utilisation
down to 80 per cent which means 20 per cent of capacity is just
sitting there. Agrees Jodi Shelton, Executive Director of the
us-based Fabless Semiconductor Association: "Access to advanced
manufacturing is essential but does India need to provide that
in order for its ecosystem to be complete? My answer is no.''
Her point is MNCs will always go to the leaders even if there
is a foundry at their backdoor and becoming a global leader in
manufacturing is a tough job. Both Lewis and Shelton, however,
agree that it would make sense for companies in India to focus
on building and leveraging their design skills. In terms of numbers,
the message from a recent report called the India Semiconductor
Association (ISA)-Ernst & Young Benchmark Study: India in
the Global Semiconductor Design Ecosystem is clear: India is well-poised
to play a leading role in the global semiconductor design ecosystem.
Today, it has the second-largest pool of engineers (after us)
employed in the semiconductor design sector, of around 75,000-just
under 5 per cent of its engineering talent.
-E. Kumar Sharma
Radio
Ga-Ga? Maybe
In a cluttered world, FM may be a
breath of fresh air.
 |
Radio City’s Purohit:
Catching
up fast |
Radio activation, promoting
a brand through radio events, is the new name of the game in the
radio industry. Radio City is the latest to join the bandwagon and
add 'activation' to its range of brand value services after Red
fm's 'Red Active' and Radio Mirchi's 'Mirchi Activation'. While
Red and Mirchi 'activations' are in-house, Radio City has entered
into an exclusive strategic alliance with the Delhi-based Vibgyor
Brand Services for all non-traditional media advertising. Vibgyor
will use Radio City for all radio promotions for its clients. "Our
internal research and feedback from our listeners showed us that
if we want to develop ourselves we have to make radio a part of
the traditional media," says Apurva Purohit, CEO, Radio City.
Activating helps not only in terms of revenues but also in terms
of on-ground presence, visibility and an opportunity to reach out
to the consumer. "We have realised that every client wants
his brand to be felt, touched, sampled and seen in order to deliver
immediate results and the nature of radio being 'immediacy', it
fulfils the role perfectly," she adds. Adds Gautam Shahane,
Head, Mirchi Activations: "Radio is local, retail, immediate
and credible medium for brands. It allows access to multiple touch
points through multiple creatives in a focussed area."
Abraham Thomas, COO, Red FM, explains: "Increasingly, clients
want on-ground to be coupled with on-air promotions. Secondly,
there is no one single-point professional agency that can execute
from start to finish. Red Active is a single-point contact for
the advertiser. We take over the entire process, right from the
brief, to providing creative solutions to implementation to measuring
response."
Thus, radio station officials claim "ownership" for
the entire campaign and that is why they are attractive to advertisers.
In fact, many of the companies do not pine that they do not see
themselves just as a radio station but as a provider of 360 degree
solutions to their clients. For instance, Mirchi Activations works
with the tagline 'Not Just Radio'. To be sure, radio has its advantages.
One of them is ad avoidance by listeners, which is virtually nil
in radio in comparison with 68 per cent in newspaper and 44 per
cent in TV. Advocates of radio also argue that it offers far tighter
targeting, which means less wastage or spillover. Yet, radio,
as a part of the media and entertainment industry, is still very
small in India. The latest tam Adex data for the year ended 2006
shows that the radio industry garnered only 3 per cent of the
total media ad market of Rs 16,300 crore-although this is a 58
per cent growth over the previous year.
-Anusha Subramanian
Knock
on Sandalwood
It's early stage, and focussed on
the internet, energy and tech.
To have 30 per cent of your
fund dedicated to the internet sector might appear excessive, keeping
in mind the low penetration levels in the country, but Silicon Valley
entrepreneur Bob Kondamoori isn't bullish on online businesses just
for the heck of it. "The retail sector is going to boom in
India and there are two ways to get into it: Either put up a shop
or go for the internet. After all, every cell phone is a fantastic
broadband device," says Kondamoori, who co-founded Sandalwood
Partners last October. Now Sandalwood has flagged off a $100 million
(Rs 440 crore) early-stage venture capital fund focussed on cross-border
investments into India and 'out of India' (that's Indian players
investing abroad). Focussed on early-stage start-up companies, the
rest of the fund is earmarked for energy (mainly renewable energy
like wind, solar and biogas) and technology (like semiconductors
and telecom-Sandalwood has invested $10 million in the SemIndia
project, adding up to a 5 per cent stake in the company, the same
as Flextronics). So, whilst the internet, energy and technology
get 30 per cent each of the fund, the balance 10 per cent will be
opportunity-led. The fund is aimed at entrepreneurs aspiring to
become global market leaders by leveraging the India advantage.
With more than third of the world's population in India and
China, Sandalwood Partners believes entrepreneurs from these two
countries will craft disruptive business plans and models that
will have a global impact for decades to come. Unsurprisingly,
Sandalwood's two offices are located in Bangalore and Hong Kong.
-E. Kumar Sharma
From
Russia With Love
India gets a titanium project; chance
to clear rouble debt.
 |
| Russian President Putin (left) with
Manmohan Singh: Trading times |
Believe it or not,
but a special economic zone (SEZ) project could help India clear
some of its historical debt with Russia. The Indian government
gets a chance to reimburse a $1-billion loan from Moscow by allowing
its Russian counterpart to set up an SEZ for titanium and related
industries in Orissa. During Russian President Vladimir Putin's
recent visit to the country, the two nations hit upon the following
formula: The technology for the $250 million (Rs 1,100 crore) titanium
SEZ will come from Giredmet, the Russian state body responsible
for equipment supply and construction; the latter will be authorised
to pick up 30,000 tonnes of titanium dioxide, adjustable against
India's outstanding debt. The aim of this transaction is clearly
to keep the amount of actual cash transferred to a minimum while
eating into the debt. This will also help the two time-tested allies
increase the volume of bilateral trade to $10 billion (Rs 44,000
crore) a year by 2010, from the current level of $2 billion (Rs
8,800 crore).
The Centre will also finance the project as part-repayment of
its debt to Russia. The proposed SEZ over 500 acres near Gopalpur
will have a total titanium dioxide capacity of 40,000 tonne. Work
for this SEZ will begin in mid-2007 and will be made fully operational
by 2009. Rahul Saraf, whose company Saraf Agencies will develop
the SEZ, as well as put up the anchor industry within the SEZ
in a joint venture with the Russian government, says: "We
got an in-principle approval in August 2006. So, I don't think
our project will be affected by Union Cabinet's recent decision
on SEZs. Otherwise, the Prime Minister would not have attended
the agreement signing in presence of the Russian President."
(In mid-January, a long-pending legislation on SEZs got delayed
with the Cabinet referring the matter to a group of ministers).
Saraf adds that the process of land acquisition has already begun.
Saraf Agencies will float a 50:50 JV with the Russian government
to put up the anchor industry over 250 acres within the SEZ. The
SEZ will be developed with a capital outlay of Rs 200 crore and
the anchor industry will require an investment of Rs 1,300 crore.
Scientists call titanium the "metal of the future."
Along Orissa's coastline resides a large source of ilmenite, equivalent
to a sixth of the world's total ilmenite resources. Ironically,
India has hardly been converting this ilmenite into titanium.
In contrast, Russia has been a market leader in titanium sponge
and pigment. Other than aircraft and aircraft spares manufacturing,
titanium is also used in industries like power, chemicals, pharmaceuticals
and jewellery. In developed countries, per capita consumption
of titanium is 4-6 kg, while in India it's only 600 gm.
-Ritwik Mukherjee
IT's
In The Picture
Media will attract $300 million of
IT spending by 2010.
Technology and media (along
with telecom) are often viewed as a single sector-remember TMT?-but
as analysts will tell you, the media & entertainment (m&e)
industry too needs its dose of technology. The sector, which is
estimated to have almost doubled to Rs 36,000 crore between 2000
and 2005, is expected to attract it spending worth $300 million
(Rs 1,320 crore) by 2010. That works out to a compounded annual
growth rate of 32 per cent over the next four years. These numbers
have been put by Delhi-based Springboard Research in a recent first-of-its-kind
report titled India's Booming Media & Entertainment Industry:
it Market Trend and Opportunities 2006-2010. The spends are likely
to be driven by the need for Indian M&E firms to reach new markets
and focus on systems that better manage and deliver their content.
This is the first of its kind report on it spends by Indian M&E
companies. "IT is viewed as a way to help M&E firms achieve
these two business goals and deliver their content more efficiently
within the Indian subcontinent," says Nilotpal Chakravarti,
Market Analyst for Springboard Research.
Of the 80 media companies interviewed across media segments
such as print, films, television, radio, online games and web
portals, the majority of them spent more than $225,000 each on
it in the past 24 months and 41 per cent of them spent more than
$700,000 implementing it solutions during the same period. "Today,
technology is used by all segments of the media and entertainment
industry. But within the film sector it is increasing. Digital
imaging is catching on in Indian film industry. Pre-visualisation
happens at the scripting stage, like it happened in Dhoom-2. Cinema
has become technology heavy," says Pankaj Kedia, Regional
Manager (South East Asia and India), Autodesk Media & Entertainment.
Autodesk's products cater to the film and advertising post-production
studios, animation studios and design visualisation companies.
Adds Amit Gupta, Director (Corporate Development) of Prime Focus,
one of Mumbai's leading post-production studios: "Technology
is key in our business."
Digitisation and streamlining content delivery and distribution
are the other focus areas for the M&E companies. Last year,
Subhash Chandra's Essel Group entered into a tie-up with Intel
Corporation to provide digital content over its Viiv platform.
Prior to that, Zee Telefilms tied up with IBM Global Services
India to digitise 60,000 hours of television programming that
it generates annually and 1,500 films from its library. "It's
the end of TV as we know it. The next wave of TV will be known
by the technology it is being delivered on," says Ashish
Kaul, Vice President (Corporate Brand Development), Essel Group.
-Anusha Subramanian
One
Resource to Another
Why are finance heads being shunted
to human resources?
 |
| Ramping up retail: New finance route |
Who's more important-the
person handling a company's cash pile, or the one in-charge of the
workforce? Till a few years ago, few would be asking this question-the
CFO was king, and hr just another secondary function. Today, however,
with a broad swathe of Indian industry witnessing a talent crunch,
the hr head's role has never been more critical. So much so, CEOs
are actually shunting their finance heads into the hr hot seat.
Recently, T.V. Mohandas Pai vacated the CFO slot at Infosys after
12 years to move as Member of the Board- hr, E&R (education
and research) & Administration. The reason given then by Narayana
Murthy, Chief Mentor, Infosys, for the shuffle was: "As we
continue to scale up, the major challenges for Infosys will be in
the HRD and E&R areas. I am glad we have Mohan handling these
critical functions." Last fortnight, another CFO moved out
(after nine years of heading the finance department) to take up
such a major challenge-Milind Sarwate, till recently CFO at Marico,
now heads the hr function at the fast-moving consumer goods major.
Vinod Kamath, who heads supply chain and it, will take over as CFO
of Marico from April 2007. "I believe that Finance and hr have
a meeting point in that they both are functions targeting effective
use of resources-one financial and the other human. To that extent,
my finance domain knowledge will contribute," says Sarwate.
Adds Vardha Pendse, Director, Cerebus Consultants, an executive
search and hr consultancy: "The hr function as a whole has
found a new meaning today. From the earlier perspective of being
looked upon as just for employee relations and personnel administration,
hr is now expected to partner the business functions on various
aspects such as sourcing of talent (drawing pre-hiring strategies),
training, capability building within an organisation and implementation
of performance management." Is your hr honcho listening?
-Anusha Subramania
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