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July 23, 2003

Engg. design cos. make a mark



Indian companies have started to make a mark in the market for outsourced engineering design services, reports Economic Times. And it is not just large companies who get to play in this $7-billion.

"Several smaller Indian software companies like Hyderabad-based Infotech Enterprises, Bangalore- based Plexion, Quest, Easitech, Geometric Software, Rolta and Axis are quietly working with global majors in the cutting edge engineering design space," the ET report says.

The sector has also been receiving the attention of private equity investors. Plexion Technologies recently received a second round of funding from J.P.Morgan, while Quest is reportedly in talks with VCs like the Carlyle Group.

Click Here to read the full report.

The case against export-led growth



Exports are good. After all, we are competing against the world's best and winning. In software services, for example.

Ajit Balakrishnan, CEO of Rediff.com, however cautions against ready acceptance of this "Export and succeed" mantra. Writing in BusinessWorld, Balakrishnan point to the boom and bust of Bombay's textile mills.

According to him, the 1850s textile boom in Bombay was built on spinning yarn from Indian cotton and exporting it to China. However, then the Japanese stepped in with superior technology and took away the Chinese market. The Indian mills were unable or unwilling to invest in new labour-saving technology and once competition stepped in, were soon unable to pay even the low wages that they were providing their workers. The result: labor trouble and eventual demise of the mills.

"Many of India’s future growth dreams are built on a strategy similar to that of the 1850s Bombay entrepreneurs. Wait till the West loses interest in some work process (garments, software code conversion, back-office accounting, call centres), relocate the process to India to be worked on by cheap Indian labour and make booming profits," Balakrishnan says.

So, if exports based on cheap labor is bad, what then is the answer?

Productivity and competitive domestic markets, Balakrishnan says quoting the World Economic Forum's Global Competitiveness Report (2002-2003 edition).

Competitive domestic markets make domestic buyers sophisticated, forcing local companies to upgrade their products and increase their productivity. “True competitiveness rests on productivity, Productivity allows a nation to support a strong currency and with it a high standard of living. Productivity is the goal, not exports per se,” management guru, Micheal Porter says in the WEF report (as quoted by Balakrishnan).

An export- led growth strategy is built on two pillars: cheap Indian labour and a constantly depreciating rupee. According to Balakrishnan, the contstant depreciating rupee has taken a toll in terms of the country's productivity. If the rupee had been stronger, more Indian businesses (and even government departments and schools) would have been able to afford tools like PCs and become more competitive, he argues. “Devaluation causes a nation to take a collective pay cut by discounting its products and services in world markets while paying more for the goods and services it purchases abroad. Exports based on low wages or cheap currency then do not support an attractive standard of living,” says Porter in the WEF report.

Click Here to read Balakrishnan's full review of the WEF report.

July 20, 2003

What are VCs doing these days?



Here's a Q&A extract from Guy Kawasaki's latest column in Forbes.com

What are VCs doing these days? Are they investing at all or just goofing off?

The top four lies of VCs are currently: "We knew this was coming." "We have lots of dry powder to invest." "We're doing more deals this year than we ever have." "We think this is a time to build great companies." Meanwhile, golf handicaps are plummeting. (If you want to check out the handicap of your favorite VC, go to http://www.ghin.com/lookup/index.html.)

Did you say goofing off or golfing off?

Mostly VCs are looking for companies with three "provens": Proven teams, proven technology and proven sales. Ideally, they'd like a team that's sold a company to Cisco for $7 billion, won a Nobel Prize with its technology, and is profitably selling $12 million worth of stuff a year. That's an early-stage deal.

Unfortunately, using these parameters, no VC would invest in anything. Oops, there goes the next Yahoo!, Google, eBay, Netscape, Apple , or Cisco. However, there are notable VC exceptions. Sequoia Capital for one. In any case, it's tough to get an investment these days.

Click Here to read the full column.

July 12, 2003

How VCs are "de-risking" their investments



Venture capital is undergoing a radical change, according to an article in Fast Company magazine. "Forget home runs -- VCs just want to hit a few singles. We're seeing the emergence of risk-averse venture capitalists. Talk about an oxymoron!" it says.

"The venture-capital paradigm that prevailed for most of modern venture capital's history is broken. The portfolio approach doesn't work today and, in my opinion, will not work for the next several years. On the whole, there will be far fewer home runs. And if you can't be sure of finding one giant winner, then you can't afford to pay for all the failures," says Daniel L. Burstein, managing partner at Millennium Technology Ventures in the article.

So, oxymoronish or not, VCs like Burstein are "de-risking" their investment bets. The objective: More moderate successes--and fewer failures of portfolio companies.

Here are a few of the ways in which VCs are going about the job of de-risking (as indicated by the Fast Company article):

* Emphasise on later stage investments--including post-public deals.

* Being "hands on" in building companies from the ground up.

* Building companies with more "sophisticated financial engineering".

* Investing in less bleeding-edge areas like security services, medical devices, and small pharmaceuticals.

* Investing in businesses that won't require multiple rounds of funding before achieving profitability.

Click Here to read the full Fast Company article.


Forbes editor defends offshore outsourcing



Michael S. Malone, the former editor-at-large of Forbes ASAP magazine, has advised Americans against making a "scapegoat" out of offshore outsourcing of services.

"Suddenly, global terrorism is taking back seat to what is being billed as a new kind of "economic terrorism," the offshore movement of U.S. high-tech jobs to India (as well as China, Thailand, Indonesia, Poland, Costa Rica and Vietnam)," has says in his column for ABCNews.com. Naturally, he follows this with (the one and only) Forrester Research group's "prediction" that 3.3 million U.S. service industry jobs--including one million IT jobs--will move to other countries over the next 15 years. "The usual cranks on the left and right are angrily posting messages calling for economic war against India and solemnly mourning the impending death of the United States. And, of course, politicians are dealing with this scandal du jour in their usual ham-fisted way," he says.

Malone cites the benefits accrued by the outsourcing of electronics hardware manufacture (to countries such as Taiwan) to bolster his case for the offshore outsourcing of services as well. "Would the United States economy have been better off if we'd thrown up tariff barriers two decades ago against offshore PC assembly or contract semiconductor fabrication? On the contrary, allowing that natural market process to occur drove down costs, which in turn opened the door to the creation of thousands of new U.S. tech companies, and millions of new domestic jobs. The key was that we kept the innovation and we maintained the world's best environment for new company creation," he adds.

Malone's final prescription for America: focus on value-addition rather than artificially saving low-end jobs--something that is going to be futile in any case.

"Will this transformation be painful? Of course it will; it always is. Many hard-working Americans (including a lot of those new Americans) will lose their jobs. But, history shows that those jobs will be eventually be lost anyway, no matter how many artificial barriers we put up to keep them. The hard fact is that we can only move on to new jobs. Whether those jobs will be better or worse depends upon the decisions we make right now. If we try to hang on to jobs that are no longer competitive on the world stage, we will lose. But if we can leverage those lost jobs into future gains in new, better jobs and talented immigrants, then we win."

Click Here to read the full column at ABCNews.com.