1. Enhancing Competitiveness: The INDIA Card June 7, 2006 Rajiv Gulati, Director, India-China Strategy Corporate Strategic Planning ASIAN POWERS SYMPOSIUM

2. June, 2006 Flat World_2006 2 Modern India - A vibrant and the world's largest democracy Home alike to the tribal with his anachronistic lifestyle and to the sophisticated urban jetsetter. A land where temple elephants exist amicably with the microchip. Its ancient monuments are the backdrop for most modern facilities where atomic energy is generated Modern industrial development has brought the country within the world's top ten nations. 2 nd / 3 rd largest producer of Engineers & scientists as a result of initial investment in building institutes of higher education like IITs. Industrialization process started post independence (1950s), however remained in the range of 2-3% (Hindu Rate of Growth) till mid 80s. One of the world's fastest growing economies @ 6-7% pa* from 1993 onwards. *Source : Projection for 2004-05 (with Q-1 & Q-2 growth being >6%) India Fact File

3. June, 2006 Flat World_2006 3 …Steady & Sustainable Growth GDP Growth - % PA Source: Economic Survey 2002-03, Press note by CSO for financial year 2002-03, * Economic Survey 2003-04. CAGR** = 6.5% ** from 1997 – 98 to 2004-05 * India Fact File Current GDP = $ 616 Bn (2003-04)*

4. June, 2006 Flat World_2006 4 ….Increasing percentage of Productive Population Popn. ( % ) 196119711981199120012006 ( Projected ) 2010 ( Projected ) Below 15 yrs 41.042.038.536.935.330.628.8 15-60 yrs 53.352.055.255.956.961.963.2 Above 60 yrs 5.76.06.37.27.77.58.0 Source : Census India 2001 ; Central Statistical Organization ; Statistical Outline of India 1999-00

5. June, 2006 Flat World_2006 5 INDIA – CAPABILITIES Talent Cost** *Satellite **Assumes skills, physical infrastructure are similar to those required for BPO activities, without vendor margin Source:Statistical Abstract of India, 2005 ; Bureau of Labour and Statistical Standards, joint McKinsey/NASSCOM study; EIU; Jampro; www.stats.gov.cn/english/index.html, Times of India, Company website Yearly graduates –2,460,000 college –250,000 post-graduates –72,000 business majors –80%-90% speak English Employee cost for college graduates ~ US$10,400/ year ~ 70% cost savings possible relative to Europe / US Environ- ment Infrastructure** –Telcom reliability*: 99.5% –Outbound international bandwidth: 780 Mbps –Available Grade A/B building space (sq ft): 9.2 M; vacancy rate 35%-40% Business Environment –EIU overall business environment: 6.15/10 –EIU global rank: 40/60 1 2 3

6. June, 2006 Flat World_2006 6 Risk ( A=least risky, E=most risky) Source: EIU Viewswire - data as of July 2004 Overall country risk rating: C –Political risk: D –Economic policy risk: C –Economic structure risk: B Significant vendor base Sophisticated BPO environment Growth of Indian Multinationals for Global delivery Vendors 4 5 INDIA – CAPABILITIES

7. June, 2006 Flat World_2006 7 INDIA – the objections of past Lack of Infrastructure- Examples of turnaround. –National Highway Development Project- 14.1 M Km of roads by end 2007, cost US $12 Bn –Privatisation of ports –Electricity Privatization Cost of Capital high– No more –Banking sector liberalisation leading to nominal lending rates falling to about 11.5%. –Private banks participation adding to health Labour laws- Not a barrier –- Enough examples of smooth restructuring and down sizing in labour intensive industries. Indian Manufacturing efficiency has improved significantly due to opening of markets.. –Ford, Hyundai manufacture and export more cars from here than they sell locally. Automotive, IT, pharmaceuticals exports testimony to this.

8. June, 2006 Flat World_2006 8 Leading global corporations have been sourcing services across the value chain from India since 1994… Finance and Accounts Technology Services Product Development Inbound Logistics Manufacturing / Operations Outbound Logistics Marketing and Sales Customer Service Human Resource Management Technology Services Software development Customization Hosting & maintenance Customer technology support R&D/Product Design Clinical Research VLSI design DSP chip design Avionics research R&D and finished goods R&D and engineering services Finance and Accounting Back-office Accounts payable Accounts payable/receivable, financial reporting Finance accounting Revenue accounting Operations Order tracking services Order tracking and logistic services Claims processing Credit card processing Ticket reservations Marketing/Sales/Customer Service Outbound tele-sales support for their consumers Computer help desk Web-based interaction for answering customer inquiries Technical support to retail and business consumers. Inbound voice to consumers Inbound and outbound customer interaction Customer service HR services Payroll processing HR services including payroll, recruitment, HRIS etc. Payroll services

9. June, 2006 Flat World_2006 9 Offshore Movement Driven By …  Sustainable Cost Advantage in LCCs  Opportunities to Consolidate / Re-engineer  Higher Productivity Pressures High Low High UK China Philippines Mexico India USA Cost Workforce Attractiveness/Skills South Africa Hungary Canada Large Talent Pool Small Talent Pool Mauritius Tunisia English Other Languages Low India landscape – the BPO Environment 3 rd Party Outsourcing, Value in Bln.USD Captive Outsourcing Value in Bln.USD 20012008 17 164 38% 20012008 35 182 26% CAGR Source:Gartner Dataquest; Aberdeen group; McKinsey BPO&O Initiative Macro Trends in Growth

10. June, 2006 Flat World_2006 10 Key Trends in India Offshoring is now mainstream… Business Process Outsourcing grows faster than call centers – likely to dominate future growth Greater risk, compliance and information security focus New industries like Healthcare actively involved Offshoring is now well accepted worldwide and some large players in the field Value adding business process overtakes call centres in 2004 ie R&D, F&A, HR Telecom, Healthcare, Industrial, R&D collaborations Sourcing API’s in India ( 75 FDA certified plants ) Risk management, the dominant theme, with dedicated governance models Significant long term commitment. At least 10 firms with over 10,000 people each Sourcing Models Hybrids - a growing model and captives continue to be preferred Demand Side

11. June, 2006 Flat World_2006 11 … and an effective supply side management is the key differentiator Cost Competitiveness Talent Location Decisions Tax and Regulatory Issues Arbitrage is still the primary proposition India’s cost competitiveness in IT reducing sector will be under threat in a few years Quest for qualified middle management because of rapid industry expansion Tier II city movement – Pune, Hyderabad Infrastructure constraints Concerns on actual handling of transfer pricing and tax holiday cases 2009 Sunset for tax holidays Market structure: Consolidations, IPOs and other transactions Global and regional offshorers catch up swiftly Growth of Indian Multinational Service Providers Call centre business consolidates and becomes scale driven Supply side

12. June, 2006 Flat World_2006 12 Increasing Middle Class 155 million 300 million There are now estimated to be some 300 million middle-income earners making $2000 to $4000 a year* equivalent to $15K to $20K on PPP basis!!!! Source : Report by CIA’s National Intelligence Council 2004. www.atimes.com/atimes/South_Asia. 2004 2002 445 million 2006 Projected

13. June, 2006 Flat World_2006 13 Impact on Healthcare Improving Hygiene - Lesser Pollution: 4 stroke engine, lead free gas, polluting industries relocated, new modes of transport - Lesser Infections: In last ten years share of anti-bacterials has reduced from 27% to 17% - More Awareness: Better diagnosis. Lifestyle diseases now becoming important. Cardiovascular second largest and diabetes fourth largest therapeutic area. - Therapeutic areas now mimic the developed world

14. June, 2006 Flat World_2006 14 Healthcare Spending Evolution of healthcare spend US $ Billion 1990-911995-962000-01 6.2 12 22 CAGR = 16% 5.2% of GDP 3.7 % of GDP 3.7 % of GDP 2012 (Estimate) 67 ~7-8% of GDP 9-10%: W Europe 8-9%: S. America 7.1%: S. Africa 6.7%: Korea 5.7%: Thailand “Last two years have finally seen aSector emerge…” Source: National Accounts Statistics Back Series, 2001; CMIE 2001; Organisation of Pharmaceutical Producers, 2002; McKinsey analysis

15. June, 2006 Flat World_2006 15 Changing Healthcare Scenario Key Facts: Until the early 1980s, Govt.-run hospitals and those operated by charitable organizations were the main providers of subsidized healthcare. Last two decades have seen the mushrooming of corporate and privately run hospitals. They have invested on modern equipment and focus on super-specialties. The private sector accounts for 70% of primary medical care and 40% of all hospital care in India. They also employee 80% of the country’s medical personnel. Corporate organization structure for hospitals: The Apollo Hospitals Group has pioneered this. Wockhardt, Escorts, Fortis Healthcare and Max India are the major corporates following suit. With the strengthening of Healthcare Insurance in India there will be an increase in number of people opting for private hospitals as affordability is no longer a barrier. Source: CII

16. June, 2006 Flat World_2006 16 Corporate Organization Structure For Hospitals: CHENNAI DELHI HYDERABAD CHENNAI-TONDIARPET CHENNAI-SPECIALITY VIZAG MADURAI ARAGONDAHYDERABAD-SPECIALITY RANCHI ERODE SRILANKA MYSORE BILASPUR CHENGANNUR Apollo Hospitals Network

17. June, 2006 Flat World_2006 17 Emerging Trends - Medical Tourism Medical Tourism - Patients going to a different country for either urgent or elective medical procedures – is fast becoming a worldwide, multibillion industry. India is considered the leading country promoting medical tourism. Source: CNBC News

18. June, 2006 Flat World_2006 18 Source: AHS; McKinsey analysis Medical Tourism – Destination India

19. June, 2006 Flat World_2006 19 Medical Tourism – Destination India The large difference between the medical/hospital charges in Western countries and here is one of the main reasons why people are targeting India as a health tourism destination*. The focus of medical tourism in the country is mainly on *: Cardiac surgery, Knee / hip replacement, & Dentistry CategoryUSIndia Heart Surgery**30,0008,000 Bone Marrow Transplant**250,00069,000 Liver Transplant**300,00069,000 Orthopaedic Surgery**20,0006,000 Hip Replacement**17,0002,500 Dentistry-Filling*300 - 40020-40 Root Canal*3,000100-200 Dentures*1,000200 Consider the differences in charges: Treatment Costs in US $ Source: *The Financial Express 01 Jan. ’05 **http://www.ximb.ac.in/~u103121/CPProject/Trend_of_medical_tourism_DD.htm

20. June, 2006 Flat World_2006 20 Indians love the US … 16-Nation Pew Global Attitudes Survey

21. June, 2006 Flat World_2006 21 Joke: Outsource NASA to India WASHINGTON (IWR Satire) - - President Bush on Monday told a joint session of Congress that in order to balance the budget we will need to start outsourcing government programs and agencies like NASA to third world countries. http://www.internetweekly.org/photo_cartoons/cartoon_bush_nasa.html

22. June, 2006 Flat World_2006 22 G Madhavan Nair, Chairman ISRO and Michael Griffin, Administrator NASA; signed MOU on May 9, 2006 to fly two US experiments on Chandrayaan in 2008 Miniature Synthetic Aperture Radar Moon Mineralogy Mapper Mission cost to India, under $100 million Price to the United States: free. Reality: India’s Lunar Mission

23. June, 2006 Flat World_2006 23 India / U.S. – “A Win-Win Partnership” India invests heavily in R&D India makes progress in software development Penetration of PC’s in Indian households grows Significant increase in domestic air travel in India India’s Pharmaceutical companies focusing on new molecules Outsourcing goes up US exports of equipment to India up (e.g. mass spectrometer) India uses computers made by US companies Intel – Microsoft all over India Boeing receives largest ever order to supply aircrafts All want to collaborate with US Pharma’s for global development and commercialization US unemployment goes down

24. June, 2006 Flat World_2006 24 Conclusion India: An attractive outsourcing destination AND an attractive market for products For Pharmaceuticals ….. Therapeutic areas now aligned with research initiatives of major Pharma MNCs Growth of Specialized private hospitals Introduction of Product Patents

25. June, 2006 Flat World_2006 25 IndiaIndiana Outsourcing In-sourcing Products Marketing Services Out-licensing Talent Manufacturing Research & Development From Indiana to India – the Emerging Economy Offshoring