1. - 0 - SOMEDAY YOU MAY REAP WHAT YOU SOW ASIA AND DELOCATION ADVANTAGES FOR WESTERN COMPANIES Arun Maira The Boston Consulting Group Barcelona 22 Nov '04

2. - 1 - THREE INEVITABILITIES Two Opportunities Global CompetitionTechnologyDemographics Pressure on Economics Digitisation and Connectivity Ageing and Booming Deconstruction of Business Value Chains Emerging Sources of Competitive Advantage

3. - 2 - PRESSURES ON ECONOMICS IN DEVELOPED COUNTRIES Deconstruction of Business Value Chains Intense competition between firms in developed countries in their own developed country markets Competition between firms for customers in developing countries Emerging of new competitors from developing countries Pressure on prices and margins

4. - 3 - INCREASED COMPETITION IN DEVELOPED MARKETS REQUIRES INCREASING INVESTMENTS IN NEW CAR MODELS Average life of new models (Europe) Life (years) Year of introduction Increasing models and decreasing sales per model (US Market) Number of vehicle models (1) Avg. total sales per model (2) (1)Total number of models of cars and light trucks (2)Average total annual sales per model Source: Automotive News Case Study: Automobiles

5. - 4 - ELECTRONIC AND SOFTWARE APPLICATIONS ARE INCREASING IN AUTO INDUSTRY Source:EIU Growth in Automotive Electronics Market ($Bn) 83 4% 23% 7% 10% 8.4% Interior Body Chassis Power train 37 CAGR% Sales ($ Bn) Overall Automotive electronics as much as 30-40% of cost of new model cars IT applications are rapidly increasing in automotive business processes Product design Manufacturing Supply chain management Customer relationship management Increasing importance of electronics & IT in auto industry Case Study: Automobiles

6. - 5 - INDIAN AUTOMOBILE INDUSTRY HAS DEVELOPED CAPABILITIES UP THE VALUE CHAIN R&D/Product development Component manufacture Assembly Low capital intensity, BEP <100k units/ annum (Global BEP is 150-200k units/ annum) Total Manufacturing Cost 20- 30 % less than USA Very high quality: 1 Japan Quality Medal and 5 Deming Prize Winners- largest number outside Japan Exports growing 30% per annum; 80% to 'developed' countries Global average development cost of new car > $600m Tata Indica- $350 m M & M Scorpio- $150 m Case Study: Automobiles

7. - 6 - COSTS OF MEDICINES AND HEALTHCARE SOARING IN DEVELOPED COUNTRIES US$ Trillion CAGR: 10.9% Total USA Healthcare Spending Source:EIU, Literature Review US$(‘000s) CAGR UK: 9.2% CAGR Ger: 6.2% Annual Household Expenditure on Healthcare (EST) Case Study: Healthcare and Pharma

8. - 7 - R&D COSTS & PRODUCTIVITY OF US PHARMA PROBLEMATIC Case Study: Healthcare and Pharma

9. - 8 - LOW COST, HIGH QUALITY MEDICAL CAPABILITIES AVAILABLE IN INDIA Not just cost advantage: The success rate in the 43,000 cardiac surgeries till 2002 was 98.5% India's success in 110 bone marrow transplants is 80% Quality a Key Factor Source:IBEF, Literature Review Healthcare Cost Differential US$ Cost Saving 80% 91.2% 92.5% 98.8% 97.7% Case Study: Healthcare and Pharma

10. - 9 - COST EFFECTIVE AND GOOD QUALITY DRUG DEVELOPMENT AND MANUFACTURE DRUGS IN USA Cost of development- hundreds of million dollars Amgen antibody- $10.00/ dose Cost of treatment- $20,000 INDIAN DRUG Time for development- 3 years Cost of development- $4 m! Cost of treatment- $50 !! DEVELOPMENT (Example: Disease- Psoriasis) USFDA Approved Plants Outside USA Case Study: Healthcare and Pharma

11. - 10 - EMERGING SOURCES OF COMPETITIVE ADVANTAGE A potent combination of 1.IT capability 2.Favorable demographics 3.Domain knowledge in many industries. OPPORTUNITIES FOR WESTERN COMPANIES IN MANY FIELDS Case Study: The Emergence of India

12. - 11 - INDIA OFFERS EXCEPTIONAL VALUE AT SIGNIFICANT COST ADVANTAGES IN IT Comparative salaries of an IT engineer $ pa Source:Literature Survey $ pa Comparative salaries of an MBA 7,500 80,000 55% OF THE FIRMS IN THE WORLD WITH SW CMM LEVEL 5 CERTIFICATION ARE INDIAN ! $ pa

13. - 12 - INDIA HAS A LARGE RESERVOIR OF HUMAN RESOURCES Reaping What You Sow Note:Potential surplus is calculated keeping the ratio of working population (age group 15 – 59) to total population constant Source:U.S. Bureau of the Census International Data Base; BCG Analysis 47 M India 0M 19 M 7M7M 3M 5M 3M Bangladesh Pakistan Iran Brazil Mexico Philippines 5M 4M Vietnam 2M Turkey 5M Indonesia 1M Malaysia 0M Ireland Israel Iraq 2M 4M Egypt -10 M China -6 M Russia -1M Czech Republic -17M U.S. -2M U.K. -2M Italy -3M France -9M Japan Potential surplus population in working age group (2020)

14. - 13 - SOMEDAY REAPING WHAT YOU SOW Vertical integration Small volumes, but growing Logistics & infrastructure problems INDIA'S LEGACY Domain knowledge Software capabilities Remote delivery possible INDIA'S STRENGTHS MASS MANU- FACTURING REMOTELY PROVIDED SERVICES Small volume, high variety, low cost mfg INDIA'S OPPORTUNITIES

15. - 14 - SUCCESSFUL MNCs DEEPENING R&D PRESENCE IN INDIA Level of expertise >100 MNCs in India, most moving up 1. Selected steps in product development 2. End-to-end product development for emerging markets 3. End-to-end product development for global markets 4. Fundamental research TI: 900 people; 225 IPs, 20 products GE: 1700 people; 77 patents; 2 products Akzo Nobel: 75 of 400 in India Source: Literature, BCG interviews

16. - 15 - INDIA EMERGING AS A "KNOWLEDGE SERVICES" HUB IN THE WORLD India already providing knowledge-based services in several sectors Remotely delivered services Import of customers to service in India Transaction processing Design and analysis Research and developmen t Value added tourism Leisure tourism Information Tech Pharma/Healthcare Education Services Auto/ engineering Chemicals Financial Services                       Industry Source:BCG Analysis

17. - 16 - INEVITABILITIES AND OPPORTUNITIES BUT.... POLITICAL AND ORGANISATIONAL CHALLENGES Global CompetitionTechnologyDemographics Pressure on Economics Digitisation and Connectivity Ageing and Booming Deconstruction of Business Value Chains Emerging Sources of Competitive Advantage Political: For every $1 gained, $6-7 of dislocation Organizational: Global 'networks'; not 'pyramids'; not even 'matrices'