Yet another calendar year is drawing near its close. Even though the current financial year will only wrap up in March 2007, probable industry prospects in 2007 have once again gained focus, as business men and women seek this information from credible sources. 

BusinessGyan presents its take on Visions for and Trends likely to prevail in 2007.

Beyond doubt, India is rapidly finding its place in the global economy. The 2006 World Economic Forum testifies this fact - India was often referred to as an emerging international economy during its proceedings. Fortunately, as the Indian Government realizes the vital role it has to play to propel this integration forward, it is working to bring in reforms and slowly yet surely, widening the net of sectors open to foreign investment.

Perhaps the government has woken up to the fact that it has a strong competitor - China - just next door. So it not only wants to be seen as aiding an 8% growth rate, but genuinely work towards sustaining growth across all sectors. In fact, the numerous inter-government agreements - FTAs with Sri Lanka and Thailand, PTAs with Mauritius and China, CEPA with Singapore and Trade Treaty with Nepal - entered into by the government will help increase the growth prospects of the Indian industry.

More pointedly though, can every sector of the economy expect similar high growth or will certain sectors be favored by macro business decisions? For instance, an increase in domestic and international trade translates into high growth for India's transportation and logistics market. While industry players can work to improve their supply chain and control costs, there is only so much they can do. After a point, the dismal state of Indian roads, lacunae in rail services and ports crying out for modernization stand out as major hurdles. In this scenario, the growth of the logistics industry is hugely dependent on the Indian Governments' efforts to expand port infrastructure, implement highway projects and improve the existing rail network.

A thumbs-up to 2007

The International Communications Consultancy Organisation (ICCO) is a UK-based umbrella organization of more than 1000 worldwide agencies through their trade associations. Its autumn 2006 India Report predicts an optimistic 8% GDP growth rate for India in 2007, even as it lists complicated tax structures, procedural delays, bureaucratic hassles and a lack of trained manpower as macro business issues preventing growth.

As the report points out, India is "today a key destination of focus for most transnational companies." The report also states that the growth of the domestic economy reflects this sentiment.

So is it a thumbs-up all around? The ICCO India Report lists IT, pharmaceuticals, healthcare, manufacturing, retail banking and financial services, entertainment industry, mobile telephony, hospitality industry, automobile industry, education and other allied services as industry market sectors with best growth prospects in 2007. In terms of agency business, the report cites media relations, corporate and brand communication, investor relations, community relations and crisis management as key growth areas.

What about the industry market sectors with the worst growth prospects? They list traditional industries that have not upgraded with changing needs e.g. textile industry.

IT/ITES

Evidently, there is a lot to look forward to. The IT sector for instance, has been leading from the front since many years now. Indian IT companies are not only aiming for and achieving global best practices, but are being counted amongst global players in the IT industry. However, even as both IT products and services continue to make waves, the kingpins of the ITES sector - business process outsourcing (BPO) and its more sophisticated partner the knowledge process outsourcing (KPO) industries - are increasingly coming under the scanner.

A new report from market research firm Gartner, Inc. warns that a shortage of skilled staff and increasing wages could diminish India's current domination of the BPO market - presently estimated at 85 percent - to about 45 percent by 2007. For the time being, however, Indian BPO companies continue to be optimistic, at least about the immediate future.

Chairman/Partner of the Aquarian Group and India Private Equity Growth Fund Vinod Keni - who is both Atlanta (USA) and Bangalore based - points out that the BPO/KPO sector is still in its early stages of growth, and has significant potential to grow beyond the low level services such as customer service, data entry and claims processing. Keni lists availability of talent, domain expertise, experienced personnel, and of course, proven processes as key success factors.

Talent will assume paramount importance

The bottomline seems to be talent. As Keni says, "everybody thinks that there is talent available, but the pool of employable people is still small, and for the BPO/KPO sector, training challenges will remain, and continue to be an issue. This will be a key factor that BPO companies face as they try to scale up."

Interestingly, talent or the continuous availability of English-speaking graduates was the reason for the boom of the BPO industry in India. Now though, the Gartner report cites Philippines, Malaysia, Vietnam and some Eastern European nations as emerging hot-spots for offshore BPO.  Further, the Gartner Report indicates that if the cost of hiring and retaining Indian talent increases significantly, Indian firms will lose their competitive edge as their cost to client will rise. Industry leaders need to work to upgrade the range of services they offer beyond the traditional low-end call centre services.  

According to Keni, since there are a number of niche BPO companies focused on certain areas or sectors, consolidation and M & A opportunities will arise. Due to their size, proven processes, and the availability of domain expertise, the big BPO players will continue to play an influential role, though increasingly, more mid-sized organizations as well as larger organizations will look at splitting pure BPO/KPO contracts between providers. Keni believes we will definitely see consolidation through M & A occur in the next couple of years, and most niche BPO/KPO providers run by savvy management teams will start positioning for this scenario.

Pharma and biotechnology sectors will shine

The pharmaceutical and its allied sunrise sector - biotechnology - are other areas to watch out for in 2007. Dr Kiran Mazumdar-Shaw, CMD of Biocon Limited shares her opinion of the future of this industry. She highlights that the biotech sector is growing at a faster pace (46 percent increase in revenue last year) in the Asia-Pacific region compared to anywhere else in the world, including the U.S. and Europe. India already figures in the elite club of 5 nations in the Asia-Pacific region identified by Ernst & Young as emerging biotech leaders. Revenues of the Indian biotech industry recorded a 37.5 percent increase last year - impressive by any standard.

She further explains that the mounting cost of drug discovery and development, extended timelines for bringing new drugs to market, fierce competition, pricing pressure, and funding challenges have combined to prompt pharma companies in the West to look to countries beyond their own borders on multiple fronts, thus placing India at a particular advantage. The opportunities for discovery research that India offers is thus encouraging international bio-partnerships, as overseas pharma and biotech companies such as Astra Zeneca and GE set up basic operations that could evolve into integrated arms of their own R&D efforts in the fullest sense.

According to Dr Mazumdar-Shaw, besides the burgeoning Indian market, the fact that a number of biogenerics are slated to go off patent in the coming years will open more opportunities for Indian firms in U.S., Europe and beyond. Our competitive edge comes from strong bio-manufacturing skills coupled with low-cost base, generating high capital efficiency. It is now possible to establish that indigenously made biosimilar drugs are comparable to the original products through pharmacokinetic, pharmacodynamic, and clinical studies - a plus factor from India's perspective. Imminent introduction in the U.S. and Europe of a regulatory framework for approving generic versions of biologicals considerably improves our sales and marketing prospects. Given these factors, the stage is certainly set for exponential growth in the biotech sector.

Hospitality boom?

More trade with overseas clients implies more business travelers will visit Indian cities. Major hospitality brands such as Sheraton and the Holiday Inn are already jostling with our Taj's and Oberoi's for a share of the hospitality pie, but if industry pundits are to be believed, a shortage of rooms will ensure all these hotels laugh their way to the bank.

Soaring land prices are ensuring that new hotels coming up are in the premium segment, thus creating a distinct shortage of mid-range hotels favored by business travelers in Mumbai, Bangalore and New Delhi. While India is estimated to need 100,000 new hotel rooms to cater to tourist and business travelers, considering that the industry saw a 10 percent decadal growth across all hotel categories to reach only 92,000 rooms, the shortfall translates to significant investment opportunities in the hospitality sector.

Retail: Mid-market brands will storm Bangalore

Actually, in metros like Bangalore, land is increasingly being sought not only by hospitality groups, but also by housing and shopping complex (think mall) developers. Vinod Keni's group has a close eye on the retail market, for as he says, "From an entrepreneur's perspective, retail is a dream! It is an untapped market in several areas, and has the potential to generate better returns on capital, though initial investment on infrastructure is very high."

What about his take for Bangalore in 2007? "Retail in Bangalore is going through a transformation and will change significantly next year. Several concepts will be tested by mid-market brands entering India, since it has a truly cosmopolitan customer base willing to try new concepts and new ideas. I do not think high-end products and services will come to Bangalore in 2007 because its markets are price conscious, and do not support luxury brands and concepts." As the retail sector gets more organized, Keni believes we will see efficiencies that will be aggressively leveraged in groceries and mass market items, the adoption of sophisticated supply chains and sourcing strategies, and fast execution.

Venture capital will chase growth stories

As a full-time CFO, Bangalore-based Jayant Tewari raised over US $30 million from strategic investors like Cypress Semiconductors and Max India and from venture capital funds like the VC arm of the Commonwealth Development Corporation and Jump StartUp. As an independent out-sourced CFO to small and medium technology companies, Tewari has raised over US $6 million for his clients from Draper Fischer Jurvetson (also the fund behind Hotmail and Skype), SIDBI and KITVEN.

He believes that concept capital, that is, funding sought by an entrepreneur for a business idea at the concept stage itself, or at the start of the venture before establishing the business, no longer exists in India. On the contrary, Tewari points out that capital is now chasing growth stories. In his words, "If a company has proven the commercial viability of its business concept in a limited market, funds are available to scale up the model to a national and/or international levels." This implies that entrepreneurs will increasingly have to rely on their own savings, family wealth or friends and relatives for their seed funding. 

In the technology sector, Tewari sees a shift in investment preferences occurring from service to product companies. He believes Bangalore will witness product-related success stories over the next few years, especially as VCs are actively seeking such companies. Their criteria - the product must be ready, at least in a scaled down or skeletal version, and must have already been sold and deployed on a commercial basis as such.

Healthcare: Blending contemporary and traditional systems

Dr Ashok Sahni, professor and honorary executive director of the Indian Society of Health Administrators in Bangalore, believes more tie-ups with international healthcare providers will expand the available bed capacity in Bangalore for super-specialty medical facilities. The new international airport slated to commence operations in 2008 will help bring medical tourism to Bangalore's hospitals, as well as function as a stepping stone for tourists seeking traditional healthcare resorts in Kerala. In particular, 2007 will see an increase in medical tourists for chronic diseases such as cancer, orthopedics, neurosurgery etc. In the long term, Bangalore holds the potential to emerge as a centre of excellence for healthcare.

Apparently, a bright future lies around the corner for Bangalore.  

Charu Bahri is a freelance writer and author of two books. She also writes funding grants and software for a charity working in the health sector.  

Issue BG69 Dec06

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