INDIA, THE NEW NEW FRONTIER

1
INDIA, THE NEW NEW FRONTIER

• September 23,2004
• Palo Alto, CA

2
India Has Become A World Power
April-December Exports

• 4th largest economy in the world in 2001
• GDP growth of 8.2
• 42 billion in exports from April through
  December 2003
• 100 billion in foreign exchange reserves

14 Y-O-Y Growth
Source NASSCOM
Source EY Report, 2002 ICICI, Reserve Bank of
India
3
The Indian I.T. Economy is the Envy of the World
Destination for Indian Software Exports

• Software services export grew 31 to 12.5
  billion in FY04
• Forecast to grow 30-32 in FY05
• U.S. is by far Indias largest customer
• U.S. economy finally rebounding

70
Source NASSCOM
4
But Success Brings Challenges

• A proliferation of Indian vendors
• Some offer poor quality, damage image
• New lower-cost providers in other offshore
  countries
• Many leading U.S. I.T. leaders starting their own
  Indian providers

Number of Indian Software and Services Export
Companies
Source NASSCOM
5
America is Coming Back But Slowly

• Vendor revenue may return to double digits this
  year
• Valuations of VC-backed software startups hit
  bottom last year which has spurred investment
• Activity in the IPO and MA space is rising slowly

6
And American Companies are Struggling with
Innovation

• Americans feel the U.S. lead in innovation is
  shaky
• 2/3 of U.S. companies will increase spending on
  innovation in 2004 but 57 have been unhappy
  with return on innovation spending to date
• In manufacturing companies, 50 70 of new
  products failbut new products will account for
  35 of revenue in 2006, up from 21 in 1998

7
U.S. IT Buying is Increasingly Complex

• More sophisticated buying style
• Less willing to commit
• Prefer India but success stories elsewhere
  becoming common
• Companies sensitive to public perception that
  jobs are shipped overseas

Country Where Software Companies Offshore Work
Source Sand Hill Group
8
But America Leads in Entrepreneurial Spirit

• 50 more American entrepreneurs than in 1998
• U.S. software firms receive fully one-fifth of
  the worlds VC
• 279 million or 1/3 of all Q1 seed capital went
  to software firms, 50 more than Q4

9
Indian Vendors Must Elevate Their Strategies

• New positioning
• Morph from low-cost leader to strategic partner
  
• New business models
• Consider a blended services model
• New mindsets
• Embrace innovation and entrepreneurship
• New communications and sales approaches
• Switch from cost to quality and long-term
  strategy
• New benchmarks for success
• Emphasize best practices for sourcing mgmt.