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Popkin (cont.): My favorite case study in the book is the manufacturing pact between India’s Bharat Forge Ltd., the world’s second largest forging company and the largest in India, and China FAW Group. ThyssenKrupp, the No. 1 forging company in the world, has now found a formidable challenger in the growing economies of China and India. Bharat Forge/FAW has the strength of being local, including understanding what the local markets are like, and having the relationships and political connections that come with that.

There is certainly a lot that the Chinese and Indian governments can do to make this happen more quickly. But ultimately it will get played out in individual markets and industries. In our book we advise companies of the need to understand their competitive stance in both existing markets and new markets, and that they will need to eventually contend with “Chindian” companies.

CSC World: What are the major hurdles — political and infrastructure — to doing IT work in India and China? And what about the issue of foreign direct investment (FDI)?

Iyengar: The biggest single hurdle to doing business in India is the quality of the workforce. That needs to be addressed above all else. Indian companies have proved themselves to be quite adept at working around the other major hurdles, like political impediments — which have all but disappeared from the scene now — and infrastructure issues — most companies rely on their own infrastructure, for the most part. Companies are quite effective in mitigating country-level infrastructure shortcomings, or increasingly are effective in lobbying with the government to address these issues. An example is the fast-track approval (by Indian standards!) of international airport status for Bangalore. However, the issue of workforce development at a macro scale is something that is the most challenging issue for all these companies.

FDI is more of a macro country-level issue and not an issue of relevance specifically for the IT industry in India, since they themselves do not rely on FDI for investments in this sector; the majority of them are quite cash-rich and have the capacity to make significant investments to support growth through internal accruals or by directly tapping the investment community locally or globally.

Popkin: As for China, they have been masters at pulling in foreign direct investment in enormous numbers — $60 billion a year. And, because of the government structure, they’re able to direct where that spending occurs, where the infrastructure goes, so they’re able to build things very quickly.

Therefore, if there is a disruption in the capital flow, either from FDI or in trade, that can cause a disruption to the Chinese economy. Also, local government corruption or the possibility of social unrest could slow or disrupt the economy, or it could slow and disrupt the way people think about China.

The 2008 Olympics will be a significant milestone. The way in which China handles it and the face that they put forward to the rest of the world will have a very important effect on how China develops, as well as on the “Chindia” scenario.

CSC World: Should your scenarios play out, will Fortune 500 companies have their IT shops and/or their CIOs headquartered in India, possibly even China, within the next few years?

Popkin: I think you’re beginning to see the Fortune 500/1000 multinationals beginning to look at that question, looking at what kind of IT services they need for their operations there. In some cases they may simply be selling to those countries, but not necessarily doing any manufacturing, or direct service provision. In other cases, they will have operations in both of those countries, and once they have the direct operations there, then they might have a country-level CIO or regional CIO. And they may have to provide IT services directly, either for infrastructure reasons, or because it makes sense economically or because of language issues.

At this point, I think there’s a relatively low level of multinationals’ executive IT management in those countries. Many companies have data centers in Singapore or Hong Kong. I think, over time, as their operations in each of those countries increase, the IT departments will follow.

When would you have your global CIO there? I’m not sure. But you may very well see an increase in the level of IT executive management that gets posted in those countries because of the scale of the IT that they require.

CSC World: So should Western IT organizations be at all threatened by this shift? If so, what should they be doing right now to prepare for this?

Popkin: We’re certainly not trying to be alarmists, but, yes, I think they should be concerned about it. Many companies need to constantly find new markets as a way to keep their revenues and profits rising. And Asia-Pacific represents a very large emerging market. Operations will most likely need to be local and, as those operations grow, so will the IT demand influence the proportion of the IT budget spent in those countries.

Second, regarding the Indian service companies, I think of them as multinational corporations that happen to be headquartered in India. Therefore, IT executives can buy from them and get service from every region of the world.

In summary, there’s not only the threat in terms of the competition that’s going to arise within India and China for those emerging market consumers, but also what happens when those Indian and Chinese and “Chindian” companies compete in international markets? Western companies need to prepare for that.

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