IBM in Software services - Key Points

Key points to remember about the entry and growth of IBM in Software services:

1. In 2002 IBM acquired PricewaterHouseCoopers. This gave it access to PWC's 30000 consultants and not it could bid as aggressively for consulting projects as an Accenture could. Before this IBM was absent from the high end consulting business.

2. As part of its overall strategy, IBM also shed its commodity PC business by selling it to Chinese PC maker Lenovo in early 2005.

3. IBM lacked a low cost base for executing services work.The big India push of the past three years — which includes the takeover of the BPO company Daksh eServices for $160 million and ramping up its delivery centres in Bangalore — is meant to remove the second weakness.

A small point here — the India strategy is part of IBM’s overall plan to create four delivery hubs in the BRIC (Brazil, Russia, India, China) countries to bring down cost of operations. However, as we will see, India is way, way ahead of the other three.

4. Brazil - To leverage the latin american markets and as well as a nearshore option for US customers.
Russia - Nearshoring destination for European clients. Its big advantage in Russia is a large per capita pool of engineers — 3,500 for every 1 million people.
Then there’s China. Compared to India, IBM has just 7,000 people in China doing offshore, but the country has a huge domestic market over which IBM has established a stronghold over a 15-year period.

5. In 2005, the BRIC countries collectively ploughed in $3.8 billion in revenues and employed close to 60,000 people.

6. IBM bet on three key trends taking off — Linux, on-demand computing and, finally, emerging markets not just as a low-cost base, but also as a market

Questions Marks that remain on whether IBM will achieve the target:

1. The PWC acquisition has not really brought the kind of consulting business that IBM was expecting.
2. IBM still has a lot of flab in its european and american establishents. It need to cut atleast half of the 260,000 american workforce, but the question is how fast can its India division take the load of a 130000 head count.

A couple of influential IBM watchers feel that for India to make a significant difference to IBM’s bottomline and topline, Big Blue needs to make at least one more spectacular acquisition, perhaps of one of the top five Indian services firms. That remains to be seen in the future!!

Star TV - The new star of broadcasting

Star TVs presence in India and vital stats:


What star would do next:

1. Promote regional content. From being a primarily HIndi channel it needs to create more regional content.

2. The second is launching new channels. Star One was launched in 2004 with the intention of keeping the audience for high-end Hindi entertainment within the Star fold. The same year, Star Utsav went on air to get people to convert to cable TV in the interiors

3. The third is the international market where Star, strangely, has been left behind by Zee. In March 2005, Zee got a juicy chunk of its income from distributing its channels in Europe and the US.

4. And the fourth: Star is doing all sorts of things to squeeze more from advertising. There is the bet on new categories such as retail, real estate and branded jewellery. The other, says Kevin Vaz, executive vice-president (ad sales), is to expand time bands.Star Plus has already extended the definition of prime time from 9-10 p.m. to about 8-12 p.m. now. Also, Star One has plugged the leakage of revenues from small advertisers. “It was launched for the advertiser who can’t afford a high TRP product (Star Plus),” says Vaz.

5. Last but not the least Star has its cash reserves and, therefore, its ability to outspend competition

Source - BusinessWorld

Why should you not set up Chip Fabrication Unit in India

1.Already there is huge global overcapacity in chip manufacturing. There is no way that we can compete with China. Besides, you can simply pick up what you want from Japan, South Korea and China. Setting up a fab means an investment of $2-3 billion. It is a highly capital intensive business.
2. The cost advantage that we have is in the cheap labor costs. But due to poor infra structure, the transportation and shipment costs are very high in India so that advantage is lost on us.
3. Each chip needs a customer. So, logically, you need to tie-up with the Nokias and IBMs of the world before building a fab. It’s like buying a Boeing 747-400. Unless you are full up on travellers, you will incur losses.
4. A quote from Vinod Dham - Better known as Father of the Pentium processor-

"When I was with Intel at Albuquerque in 1989 in a fab plant the size of a football field that was set up with an investment of $1 billion. We were working on the 486 chip, but it was not ready. Each day we lost $25 million. So, to ensure that the operators got practice, we used memory chips. All that was used to make key chains and earrings. We simply cannot afford something like that in India."

Well you see these are reasons enough not to set up a Chip fabrication plan in India.

Source - BusinessWorld

The Mukesh Ambani Group's SEZ Gambit

Mukesh Ambani group has set its sights on creating world class business and residential cities in the form of 4 intergrated SEZ. One of the flagship SEZ is being set up in Navi Mumbai - Maha Mumbai region which when complete will be comparabe with China’s Shenzhen. The investment in this project could well be more than the Rs 73,000-crore annual revenues of his flagship petrochemicals company, if one goes by the Rs 25,000-crore investment, both in the form of debt and equity, planned over a decade in just Navi and Maha Mumbai.

Salient Features of the SEZ plan:

No of Hubs - 4
Size - > 25000 acres each
Investment By Reliance - USD 50 bn in Navi and Maha Miumbai
Outside Investment (from business enterprises, the hotel industry, retail, healthcare etc ) - USD 50 bn
Deadline - 10 yrs for Navi and Maha Mumbai
Targeted users will include manufacturing industries as well as services like warehousing, BPO and biotechnology.

The group's estimate that the investemt of $5 bn will attract 10 times investment in the form of FDI is considered conservative since similar Chinese SEZs attracted FDI to the tume of 40 times the investment.

The proposed Sewri trans-harbour sea link is vital to fuel the growth of the Mukesh Ambani group’s Navi Mumbai SEZ — it will cut down the commute time from South Mumbai to Sewri from a couple of hours to just around 40 minutes

Roadblocks and Pit falls:

1. Unlike in China, the land acquisition in India is slow and lengthy process and land ownership is fragmented. In China all land is owned by the state.
2. How quickly the SEZ projects take off also depends on the government’s ability to execute infrastructure upgrade and attract foreign investment. A key driver of growth of Suzhou, another Chinese SEZ, has been its road and rail infrastructure, apart from access to airports and seaports along the southern coast. But, in India, much remains to be done in this regard.
With Ambani's prior experience in developing the 7400 acres Jamnagar refinery and the 140 acre Dhirubhai Ambani knowledge city, it seems that this venture in going to be another feather in Ambani group's cap.

Source - Businessworld