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News Updates - 21 August 2000 Different Countries, Adjoining Cubicles - Business Week Sidhu has made i2 a dominant player in B2B - Business Week Lakshmi N. Mittal: The Man Who Would Be J.P. Morgan - Business Week THE 21ST CENTURY CORPORATION -- THE CORPORATE ECOSYSTEM - Different Countries, Adjoining Cubicles28 August 2000 issue, Business Week Magazine, By MARK CLIFFORD AND MANJEET KRIPALANI, With Heidi Dawley in London More and more service and professional jobs are shifting from high-cost Europe and the U.S. to developing countries. From giants like General Electric (GE) to startups such as Texas-based VideosDotCom Inc., companies are turning to skilled workers in English-speaking locations such as Ireland, remote regions of Canada, tiny Caribbean nations like Jamaica, and, most important because of their larger size and populations, India and the Philippines. Companies are seeking workers to take jobs ranging from basic clerical, accounting, customer support, and legal services, to software design, scientific research, and pharmaceutical development. ''This is a huge transformation--much bigger than what happened in the blue-collar world,'' says management guru Tom Peters. He estimates that as many as 90% of today's American white-collar and clerical jobs could be outsourced over the next 10 to 15 years. Some companies, like Caltex, are shutting down operations in the U.S. or moving whole divisions to new locations. Others, such as Verizon (VZ), are farming work out to subcontractors--from small software designers to large consulting outfits like Andersen Consulting, which has 550 employees working for multinational clients in Manila. Many companies, of course, will still want to do their own bookkeeping, market projections, and legal work in-house. But others will push the concept of virtual corporations to radical extremes: They will outsource most of their back offices to offshore service providers, enabling them to concentrate only on what they do best, such as basic research or design. Economies boasting lower-cost but well-educated and computer-savvy workers are most likely to benefit. Countries where English--the language of global commerce and the Internet--is spoken will have the sharpest edge. So U.S. and European companies are looking to new sources of labor further East. One of the most important will be India, given its relatively low wages--less than one-third of those in the U.S., even for highly skilled workers. And there's a sizeable pool of skilled English speakers. Massachusetts Institute of Technology computer guru Michael Dertouzos figures that as many as 50 million new white-collar jobs could be created in India, which would add $1 trillion to its gross domestic product within 10 years. ''Thirty to fifty million Indians can read and write English and deliver clerical services,'' says Dertouzos. That's why the pressure will be on American and European clerical and other lower-level white-collar workers to retrain themselves. They'll need to find new skills to offer corporations and other employers in an increasingly knowledge-based economy. Even high-tech jobs aren't sacrosanct. Already, companies such as Microsoft, Motorola Inc. (MSFT), and Bell Labs operate large research centers employing skilled Indian engineers in Bangalore and Hyderabad. BANGALORE BOON. American startup VideosDotCom shows how an innovative U.S. company can use leading-edge Indian expertise to leverage its strengths. VideosDotCom is designing a video-on-demand service. Initially, VideosDotCom shipped work to an Indian software maker, Wipro Ltd., when the Texas-based company's staff was too busy. Now Wipro, which employs 6,700 software engineers, is doing most of VideosDotCom's development work in Bangalore. It has become more important than the company's own in-house development team. ''Their extensive e-commerce experience, development skills, pricing, and overall quality have made them my primary engineering team,'' says President John E. Tuder. Some U.S. companies are going even beyond basic outsourcing. One is Cognizant Technologies (CTSH) of Teaneck, N.J., which is contracting with clients to set up shop for them in India, hire and train workers, and implement projects. The company began as a subsidiary of Dun & Bradstreet in 1994, helping to outsource D&B's large software development projects. Three years ago, Cognizant began supplying the same service to other companies. From a 1,900-employee operation in Madras, it has provided back-office software support systems such as aircraft computer maintenance for clients like Northwest Airlines Corp. Now Cognizant is moving up the value chain, developing e-commerce services for U.S. financial houses. Sales and marketing are done in the U.S., but 70% of the development work is done in Madras and Calcutta through a high bandwidth network. Meanwhile, General Electric Capital has shifted a chunk of its customer service department to New Delhi. At the company's call center in Gurgaon, which is outside Delhi, 1,000 young Indian English-speaking employees answer customer phone calls seven days a week, 24 hours a day. Now, GE plans to open two more centers in India to handle payroll, design, and billing services for other GE-group companies. To keep such investments coming, India is pouring millions into its infrastructure. In the southern state of Tamil Nadu for example, a gleaming new $85 million state-of-the-art technology park in Madras threw its doors open for business in July. Within the first month, the park was nearly fully occupied with rapidly expanding companies such as San Francisco's Brigade Corp., which provides e-mail customer service response for Compaq and 3Com's Palm Pilot from offices in Madras. Brigade is hiring 150 young professionals a month. The state is also spending $10 million annually to install computers and teach computer skills in local schools. ''By 2008, all the citizens in Tamil Nadu will be computer literate,'' says R. Gopalan, chairman of the Tamil Nadu State Industrial Development Corp. and prime mover behind the tech parks. As the century progresses, the migration of white-collar jobs around the globe will force managers to become far more accustomed to virtual corporations. Millions of clerical workers in developed industrial countries will have to retrain themselves as jobs shift to other locations. The good news is that corporations will have access to much wider talent pools. But companies will have to groom cosmopolitan managers--equally at home in Madras and Manhattan. The
"Velvet Hammer" of E-Commerce - Persuasive
Sanjiv Sidhu has made i2 a dominant player in B2B software In just the past year, the soaring share price of i2 Technologies Inc. (ITWO) has boosted Sanjiv S. Sidhu's personal wealth tenfold, to more than $7 billion, catapulting the Indian immigrant into the same league as Ted Turner and Charles Schwab. But Sidhu, the founder and chairman of the Dallas-based maker of e-commerce software, seems indifferent. He continues to log 70- to 80-hour workweeks and eschews what he calls the ''high-profile toys'' of other dot-com plutocrats. ''I was perfectly happy financially when I made $50,000 a year,'' says the world's least-known high-tech mogul.For those who know Sidhu, now the wealthiest Indian immigrant in the U.S., this dedication hardly seems surprising. He has spent most of the past decade consumed by a grand vision of what i2's business-to-business (B2B) software could achieve: ''I feel we're the leader, and on the cusp of the next Industrial Revolution,'' the soft-spoken 43-year-old boasts. ''Manufacturing costs could be cut in half. It would be a pity not to use this opportunity to the full extent.'' The breathless talk could easily be dismissed as part of the hype that has surrounded B2B exchanges. After all, everyone from the Big Three car companies to apparel makers has announced e-marketplaces that will link buyers and sellers over the Web in auction-based transactions. These keep promising to create the most liquid and efficient markets ever seen. Few have lived up to the dream, however, because of antitrust concerns and worries about sharing strategic data with competitors. But Sidhu is a believer. Trim and bearded, he speaks in a deliberate and concentrated way that carries the conviction of a preacher. An emotional man known to get teary-eyed at company Christmas parties, he has an uncanny ability to whip up crowds at annual customer meetings and inspire loyalty among his staff. Just ask Gregory A. Brady, i2's president. A former employee of Oracle Corp., i2's top competitor, Brady flew to Dallas in 1994 to try to buy a stake in i2 for Oracle. Instead, the next day Sidhu convinced Brady to quit and work for i2. ''He's like the velvet hammer,'' Brady says. Sidhu has been on a mission since 1988, when he quit a job at Texas Instruments Inc. to found i2. At TI, Sidhu toiled at writing software that managed the supply chain for chip manufacturing. But he saw an opportunity to create less expensive programs that could be used more widely. He hunkered down and began writing code in his two-bedroom apartment, where his wife was expecting their first child. He also brought technological savvy to the task. Supply-chain problems--such as predicting demand for a certain type of chip in a volatile market and securing a dependable source--can get extremely complex. So Sidhu wrote a program that isolated the 5% of the variables that determined 95% of the solution. The result was a program that could run on PCs instead of mainframes, and glean answers in minutes instead of weeks. BIG RISK. Sidhu's sales techniques were equally innovative. In 1995, he set a goal of saving i2's roster of customers a total of $50 billion by ironing the inefficiencies out of their supply chains. And he was willing to peg a portion of i2's fee to its ability to deliver on the savings. He is well on his way to the $50 billion mark. The aggregate savings level of the customers is measured by an outside firm and now totals $12 billion. This risky marketing technique helped him sell i2's planning software to early customers such as Timken, Solectron, and Dell Computer. Where other supply-chain specialists focused on the minutiae of delivery speed and volume, Sidhu's philosophy was something new: ''The approach was something very different in an industry prone to selling speeds and feeds,'' says James M. Pickrel, a senior analyst at Chase H&K in San Francisco. ''When i2 delivers savings, the customer is happy.''Sidhu, the son of a prominent chemist in Hyderabad, says growing up in India helped him deal with the chaotic nature of Internet business. ''It was all a free-for-all,'' he recalls, noting how he and his buddies roamed the streets, dropped in on friends, and negotiated prices for everything, even bananas. ''It gives you the strength to try to bring structure where the natural environment is chaotic,'' he says. ''You need to be flexible.'' Flexibility has helped i2 catch up with the e-marketplace systems sold by the two monoliths of the business-software market--Oracle and Germany's SAP, both of which produce sprawling multifunction software products used to run whole companies. Although i2 is expected to book just $1 billion in revenue this year, vs. $10 billion for Oracle and $4.1 billion for SAP, Navi Radjou, an analyst at Forrester Research in Cambridge, Mass., considers i2's supply-chain and e-marketplace offerings the best in their class. Indeed, i2 sits at the forefront of one the hottest subsectors of the global software market. Forrester reckons that B2B online transactions will rise from $54 billion this year to $1.4 trillion in 2004, when 53% of total Internet trade will flow through e-marketplaces. So while the competition may be mounting, i2 is in a unique position to leverage its lead in supply-chain management software, which is increasingly seen as a cornerstone of online exchanges. ''Sanjiv brought supply-chain management technology into the mainstream. And in partnership with Ariba and IBM, i2 is poised to lead the emergence of more sophisticated electronic marketplaces,'' says Radjou. Among other deals, i2 and its partners have announced a global high-tech exchange involving Hitachi, IBM, and Matsushita, and another for car parts with Volkswagen that will compete with the Big Three's effort, Covisint. BIG GIVER. Even though these projects have yet to launch, they've helped i2's stock jump tenfold (chart), and Sidhu says he has no plans to slow down until 2005. That's when he expects his customers to have realized $50 billion in savings and i2's revenue to have risen to $5 billion.As for his personal fortune, Sidhu gives away millions each year to charity--an activity he leaves up to his wife and employees, who vote on various projects. ''To use wealth, you need time,'' says Sanjiv, his mirth tinged with regret, ''so in fact, I'm quite poor.'' Ispat
International's Lakshmi N. Mittal: The Man Who Would Be J.P. Morgan -
For him, steelmaking is a global business One hundred years ago, J.P. Morgan created an industrial colossus, combining Andrew Carnegie's steel operations with his own to form U.S. Steel Corp. (X). It was the world's biggest steelmaker and would lead the industry for decades. Today, a steel-company executive named Lakshmi N. Mittal wants to restage this drama with himself in the starring role--a Pierpont Morgan of the 21st century. Unless you work in the steel industry, odds are you've never heard of Mittal. But his plan may not be as far-fetched as it seems. Mittal, 50, is chairman, CEO, and 80% owner of Ispat International (ISP), a London-headquartered company that is arguably the most international steelmaker on the planet. The son of an Indian steel tycoon, Mittal began his empire by building a single plant in Indonesia in 1976. Today, Ispat has mills in eight countries, including the U.S., and sales of nearly $4.7 billion. Add in the other steel properties of Ispat's privately held parent, INM Group, and Mittal's enterprises span three continents, employ more than 74,000 and rank sixth in world steel output, at 20 million tons in 1999. By comparison, Morgan's much diminished U.S. Steel ranks 11th and poured just 12 million tons of steel last year. Mittal assembled his business largely by picking up unwanted government-owned facilities or money-losing castoff plants from other steelmakers and then reviving them through targeted investments and cost-cutting. In 1998, he broke with this pattern when he paid $1.4 billion for Inland Steel Co., one of the biggest and best-run steelmakers in the U.S. He stuck with his standard post-purchase formula, however, by making his new subsidiary--rechristened Ispat Inland Inc.--more productive and profitable. How? Mostly by melding it with Ispat's other operations. For instance, Ispat Inland now supplements its own raw-steel production with imports of semifinished steel from Ispat mills in Mexico and Germany. That has lowered its costs and boosted output of finished steel by 11.5%, to 5.8 million tons in 1999. It also allowed Ispat to reduce its U.S. payroll by 4.5%, to 8,400. There's more to be done. Mittal says Ispat must get bigger yet so it can supply customers wherever they turn steel into goods, be it Korea or Kentucky. And he advises other steelmakers to follow him. But they aren't sure they can. U.S. Steel Group President Paul J. Wilhelm argues that most American mills are wallflowers because of their high legacy costs. He knows this firsthand: U.S. Steel employs 18,000 people today, but has obligations to 90,000 retirees. The company still has global ambitions, including a plan to buy a huge mill from the Slovakian government. Ironically, Ispat is trying to trump U.S. Steel with an 11th hour bid. |
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