Global Focus: India

India's ports, too, suffer from underdeveloped infrastructure. Kenneth Glenn, president for South Asia at logistics company APL, noted in a speech before the Southern Asia Ports, Logistics and Shipping conference in Mumbai earlier this year, that the country currently lacks a port that can handle vessels of at least 6,000 twenty-foot equivalent units (TEUs), which will account for about one-quarter of world container capacity by 2008. "When India's ports are assessed against the attributes of a world-class port, they do not stack up well, lacking many of the characteristics international ship operators look for in order to increase vessel calls," Glenn told the audience at the conference. He added that currently the cost of transporting one TEU over a distance of one kilometer in India is 53 percent higher in India than in the United States.

In this regard, experts point to China as an example for India to follow, noting that the People's Republic faced similar infrastructure issues a decade ago but made the investments necessary to drive its ongoing economic boom. China's efforts clearly have paid off, producing $60 billion in foreign direct investment in 2005 alone, compared to $50 billion in foreign investment in India for the entire period since 1991. India's government apparently has recognized the drag that the country's poor infrastructure is putting on its economy and recently has pledged to step up investments. Earlier this year Prime Minister Manmohan Singh said that the country needed some $320 billion in investments in roads, ports and other infrastructure to accelerate the economy's growth. How soon those investments are made, and how effective they will be, however, remains to be seen.

The Inevitable Change

Finally, enterprises looking to set up supply chains in India must be prepared for a low level of technology adoption by many of their potential partners in the country. Infosys' Kumar points out that while India has justly earned a reputation as a hub for information technology development, most Indian companies are running homegrown applications, if they're running anything at all. "The typical approach is to build up IT capabilities with the most basic functionality," Kumar says. "For example, in a manufacturing environment, you might have an MRP [manufacturing resource planning] system running the planning, but beyond that there would be very little in the way of B2B integration, like EDI [electronic data interchange]." Consequently, most firms lack the capability, for example, to collect the data necessary to support sophisticated forecasting models, or, more generally, to provide any level of automated interaction with supply chain partners.

Add in concerns about excessive bureaucratic red tape, an erratic power grid, widespread poverty and potential geopolitical instability, and India presents a mixed picture for Western enterprises considering setting up operations to serve the local market. And yet Kumar, for one, is optimistic that India is headed in the right direction, if only because the increasing consumerization of the middle class is driving enough rupees into the marketplace to create an irresistible draw for global companies looking to boost their bottom lines by expanding into new frontiers. This, in turn, is creating demand for higher levels of supply chain capability, driving investment into critical areas requiring improvement. "The pressure on the logistics side is very, very high, so the entire logistics industry needs to undergo change, and I think that is already happening," Kumar concludes.