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India’s industries have global goals

/ Source: CNBC

Over the past five years, American and other foreign companies have established business ventures in India with great success.

Today, there are a handful of hugely profitable Indian corporations that are running right alongside the multinational giants. And they have everybody watching very closely.

When people think of India, they often envision images of street scenes of cows and oxen pulling wagons.

But in today’s India, young people are getting very good jobs and there is just so much more money to spend. And the mission of the 20-somethings in Bangalore is to help turn companies like Dr. Reddy’s, Wipro and Infosys into household names. You may not have heard of those highly successful pharmaceutical and software companies but Pfizer, Merck, Dell and Microsoft know them all too well. They are meeting them head-on in the marketplace. (MSNBC is a Microsoft-NBC joint venture.)

Things have gotten steadily better for Infosys — it’s the first Indian company to be listed on the Nasdaq — as aggressive economic reforms that took effect a dozen years ago have made doing business much easier.

“It took us three years to get a license to import a computer of $25,000, it took us one year to get a telephone line,” said Infosys co-founder and chairman Narayana Murthy. “In order to travel abroad we had to get permission from the Reserve Bank of India, so things were very difficult, but then starting with the economic reforms of 1991, most of these difficulties melted away.”

Yet in this country of 1 billion people, most of Infosys’ customers are far from its home.

“Only about 2 percent of our revenues are in India, 98% are from the global market,” said Nandan Nilekani, the CEO of Infosys. “If you look at our investor base, more than 40% of our stock is held by global investors.”

Those investors have seen tidy returns. The company, which started with 7 employees and $300, generated sales of $750 million last year and expects that to grow to just over a $1 billion in 2004. And it now employs 17,000 workers.

Dr. Reddy’s, an Indian drug company listed on the New York Stocks Exchange has 6,000 employees and had $400 million in revenue last year. It also had a compounded annual growth of 30% over the last 3 to 4 years.

“We have seen lots of potential investors coming by, visiting us in groups, so there is enormous interest in Indian companies,” said G.V. Prasad, CEO of Dr. Reddy’s. “International investors are seeing that India is emerging as a powerful competitor.”

World's second-fastest growth rate
That success was made possible by the same things that have allowed U.S. companies to prosper in India — a well-educated workforce and inexpensive infrastructure.

Shirish Sankhe, a Bombay-based McKinsey & Co. analyst who recently co-authored a comprehensive study on the Indian economy, says that while India is currently experiencing growth rates of 5-6%, the second-fastest in the world, the economy needs more breakthrough corporations.

“Our sense is that even at 6% growth rate, India is going to need an additional 75 million jobs over the next ten years,” Sankhe said.

Sankhe points not to telecom and software, but to auto and clothing manufacturing as the likely source for those jobs. But he notes that success won’t happen until the government, which still controls roughly 50% of India’s capital, gets out of the way.

“A large sector like the power sector, the airline sector, steel sector are owned by the government,” he said. “That reduces the productivity and competitiveness.”

And Infosys’ Murthy for one, is eager to meet the competition, wherever it comes from.

“We realized that if we benchmarked ourselves as the best in the world, that would be a good motivation for us, and because we’re competing with great companies in the U.S. and Japan, etc., we realized that’s the best way to move forward,” he said.

“Ten years down the road, our hope is that [India’s] GDP will be at least twice as large, we’ll be twice as rich,” Sankhe said. “We still have a long way to go.”