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From Indiana to India: Why 1 firm leapt
When Cummins Inc., the diesel enginemaker based in Columbus, Ind., opened a product research center here recently, a Hindu priest set up a small shrine next to a new office cubicle and led employees in prayer.
He lit sticks of incense and dipped flowers in water. He ran a smudge of color along the foreheads of the assembled Cummins executives. As the chanting built to a climax, one American turned to a Cummins vice president, Bharat Vedak, and asked what this peaceful ceremony signified.
"He is saying `May you have all success in the new venture,'" Vedak said with a smile, "`and may you conquer all your enemies.'"
Conquering enemies before they conquer you is what the rush to India is all about. As companies such as Cummins struggle with stiff global competition and chronic pressures to cut costs, access to India's army of high-quality, low-cost engineers has become an essential weapon.
A close look at Cummins' decision to locate its technical center in Pune (pronounced POON-uh) reveals outsourcing to India is not just about call centers and low-level jobs. It's about the crucial interrelationship building between India and places like Indiana.
The pitched debate about outsourcing being heard in the U.S. presidential campaign may focus on the idea that India is somehow stealing jobs with the complicity of greedy CEOs. But that misses the point. In a global economy, India and companies like Cummins need each other to thrive. That gives the trend strong momentum.
A little over a year ago, Cummins Chairman and CEO Tim Solso recognized what countless other CEOs are discovering: India is blossoming into a vital resource of world-class technical talent that companies ignore at their peril. On an eye-opening trip to Bangalore in southern India, Solso saw engineers drawing complex 3-D models of jet engines and analyzing ways to make combustion systems more efficient.
"They were very productive, very well-educated people doing sophisticated work in a high-quality way," Solso says. "It was a huge competitive epiphany."
What he concluded is that India is disrupting the world's economy much the way Japan did 30 years ago, when companies including Toyota dramatically improved the quality of car manufacturing.
Now, Cummins is counting on Indian engineers to help write the software that will make its engines perform more efficiently. It is hiring Indians to do computer analysis of those engines so the company can do away with costly prototypes. The stakes could not be higher. Cummins is in an all-out race with archrival Caterpillar Inc. to meet stringent new environmental standards.
For India, the stakes are high as well. The country's tech boom is fueling a broader surge in its economy that began when India loosened its suffocating economic controls in 1991. But the backlash in the U.S. means the pressure is on to become all the more indispensable to American companies.
Indians fear that U.S. protectionism could slow a movement that is creating a new middle class with new expectations and buying habits. These consumers are giving the nation's economic renaissance added momentum by encouraging the restructuring of other industries. A quarter of India's population suffers abject poverty. But there's evidence the free-market reforms are slowly changing that too.
"The way I look at it is that the country has not even scratched the surface in terms of economic growth," says Ravi Pandit, a local businessman who runs a technology company in which Cummins has a small stake. "There is phenomenal growth that lies ahead."
Where the past
meets the future
How far this city of 3.7 million has come in the past five years and how far it has to go can be glimpsed on Pune's snarl of dusty, pocked streets.
About 100 miles south of Bombay, Pune looks like most urban areas in India. Rivers of bicycles, scooters and cars compete for the right of way with gaunt cows and goats. Women balancing bundles on their heads walk by in saris as teenage girls in T-shirts and jeans zip past on motorcycles. Traffic is constant and wild; at least one person is said to die on Pune's roads every day.
Storefronts sell scooters that once took years of waiting to obtain. New cars--and low-interest loans--are plentiful. But poverty is never far away. Slums of corrugated steel shacks line the banks of the city's murky river. Half-naked children play in dirt piles while their parents dig in trenches with hand tools. Smog hangs over the city in a brown, sooty haze.
This collision of future and past is starkly visible on the outskirts of Pune, in a village called Hinjewadi.
In one direction, villagers in bright, traditional clothing go about their business at a row of squat, concrete buildings. Across a highway, the view is straight out of Silicon Valley.
Tall, modern buildings stand emblazoned with the names of India's most prominent information technology companies. Quiet streets and landscaped lawns crisscross hundreds of acres that include a bank, a hotel and two new universities. High-speed Internet connections tie Hinjewadi's engineers to points around the world.
If there is any doubt about what these professionals are capable of, numbers tell the story. Since 1996, the city's software exports have gone from $25 million to about $1 billion.
"We've got [many thousands] of software engineers in the city and they are very highly paid," says Sushil Gupta, director of Software Technology Parks of India Ltd. "It is transforming Pune. It underscores our country's coming of age."
Cummins has manufactured engines in Pune for 42 years. But last year when Solso visited several other U.S. companies' Indian operations, including General Electric's John F. Welch Technology Centre in Bangalore, he said he was blown away by the depth and sophistication of what he saw.
As soon as he got off the plane in Columbus, where his $6.3 billion company is headquartered, Solso called a meeting of his top staff.
"I said, `I want every one of you to go to India and I want you to take your key people,'" Solso recalls. "`And specifically, I want you to look at sourcing software development, IT operations, business services and a tech center. And I want to get going right now.'"
For Solso, a 33-year Cummins veteran, the meeting was reminiscent of one he attended in 1983. Then, he was directing the company's operations in Britain. His boss, James Henderson, who later became Cummins chairman, had just returned from Japan, where he had toured a series of diesel-engine plants operated by Yanmar, Hino and Komatsu.
Henderson had experienced a similar epiphany. He saw firsthand why the Japanese were taking the manufacturing world by storm. To produce an engine, they used less capital, one-third the number of employees and one-half the hours Cummins required. Organized in flexible teams, workers were boosting quality. They were also coming out with new products much faster than Cummins.
"We clearly have a more urgent problem than I previously thought," Henderson told his staff, according to a company history titled "The Engine that Could: Seventy-Five Years of Values-Driven Change at Cummins Engine Company."
"We must make major progress in three years, not five years. Five years is too long," Henderson said.
Solso recognized on his trip to India that the situation today is similar. The difference is that technology, not steel, is the new coin of the manufacturing realm.
For companies such as Cummins, the ability to use computers to streamline operations, speed product design and improve internal communications may spell the difference between success and failure in the information age.
And after the bitter three years he had just been through, Solso recognized that India presented a better way to compete.
Solso, 57, took over as chairman of Cummins in 2000, just before the 2001 recession. Faced with a 70 percent one-year decline in U.S. heavy-duty engine sales, he cut 17 percent of his employees and closed or consolidated 14 plants, including the flagship engine factory in Columbus.
But he also used the opportunity to rethink how Cummins did business. He faced two unrelenting challenges. Global truck manufacturers such as Volvo and DaimlerChrysler had consolidated into huge companies that could squeeze Cummins for every last penny. And the U.S. Environmental Protection Agency had instituted standards requiring drastic reductions in diesel engine emissions over the next several years.
That set off an expensive technology and design race between Cummins and Peoria-based Caterpillar. With the clock ticking, Solso was looking for any advantage he could get.
"That made us look globally," Solso says. "We wouldn't have survived if we didn't look globally."
began years ago
The truth is, Cummins was already a global company. It had manufacturing operations all over the world. But globalization today means using the Internet and other communication technologies to take advantage of assets--people, skills and supplies--around the world.
As a result of Solso's meeting, executives scrambled to beef up existing buying offices in Pune, Shanghai and Prague, Czech Republic, to find new, cheaper sources of supplies. They also rushed to send much of the company's enterprise computing work and other administrative functions to suppliers in India.
But the main focus for Cummins these days is the effort to develop engine technology that can meet the EPA standards without sacrificing performance.
"If we don't do it," says Tom Linebarger, president of Cummins' power generation unit, "Cat wins."
Part of the effort involves writing sophisticated software that can be embedded in engines to manage how they work. Much of that software is designed in Columbus. But the code is written by KPIT Cummins Infosystems Ltd., the company in Pune run by Pandit.
Embedded software is part of the control system that helps the hardware do all sorts of crucial functions, including firing the ignition system in the most precise, fuel-efficient way.
Pandit says he charges about $20 an hour for writing the embedded software. In Columbus, the rate would run closer to $70.
That alone might justify the decision to outsource. But the logic is more refined. By saving that much on programming costs, Cummins can throw more people at the problem. That speeds development and gets Cummins products to market faster.
"We could not deliver our products on time without them [KPIT]," says John Wall, the company's chief technical officer.
The same thinking applies to Cummins' most ambitious effort in India yet. After seeing GE's jet-engine design efforts in Bangalore, Cummins in late January launched a similar, though much smaller, technology center in Pune--the one blessed by the Hindu ceremony.
The bulk of the engine design still will be done in Indiana and other markets around the world, but a new team of Indian engineers will use powerful workstations to analyze those designs for defects and performance, which is a critical and expensive part of the development process.
This is no small matter. Wall explains that in a combustion system, for example, there is a long list of parameters that can be manipulated to try to increase efficiency. Fuel can be squirted into the combustion chamber at this angle or that. Air can come in at a different angle or volume. The piston head can be machined in any number of different bowl shapes. All told, there can be hundreds of variations.
"So I'll make three fuel injectors, each with a different spray angle," Wall says. "And oh, by the way, what about the air flow through the engine? A little swirl, or a lot of swirl? Then you've got the timing of the fuel--when do you inject it?"
Traditionally, Cummins engineers would choose the most promising concept and build a prototype. They would run the new engine and collect streams of data on performance. The process is painfully slow and expensive.
The goal now is to do it on the computer. Using sophisticated software and 3-D modeling, Indian engineers can predict where an engine part might break under extreme stress. They can "watch" as virtual exhaust flows through a virtual filter to see how the design might be tweaked to boost efficiency.
The process, called analysis-led design, can eliminate the need for multiple $100,000 prototypes. It can also find mistakes before they happen, which speeds development dramatically. Already, preliminary efforts done in Columbus have boosted turnaround time from nine months to three months. That alone took $3 million out of the development process, Wall says.
So if they could do that much in Columbus, why can't all this work be done in the United States? The obvious answer is that it's cheaper to do it in India, which means Cummins can add more people faster.
But India also has a demographic advantage over the U.S. Not only does the country produce a swarm of bright, young engineers every year, but the engineers are hungry and enthusiastic, and more willing to tackle work American programmers might scoff at.
"Doing this is cost-effective," Wall says. "But it is both--cost and effective. If you only have the cost part, you're not getting it."
At the opening ceremony of the new Cummins technology center, Ritesh Dungarwal proudly demonstrated how his 3-D computer models can simulate the flow of air through a diesel piston chamber. As head of the center's flow analysis group, the young engineer has several university degrees and has already far surpassed in income and opportunity anything his parents could have dreamed.
In the past, he says, people like his father aspired to go into public-sector jobs. The big appeal was not the challenge in that work, but job security.
"Now people don't worry about that," Dungarwal says. "With all these companies coming here, you can decide your limits. Right from schooling, people think they can do something. The whole younger generation is looking to be a part of this growing industry."
It's also true that Indian companies are figuring out how to harness this enthusiasm in ways that are highly efficient and productive.
Quality relies on
KPIT's Pandit, a soft-spoken 54-year-old with a master's degree from the Massachusetts Institute of Technology, explains that because Indian companies work with clients thousands of miles away, the demands for quality and accountability are especially high. If quality wasn't up to snuff, he says, the cost advantage wouldn't be worth it.
As a result, companies like KPIT have been forced to use the latest techniques to devise disciplined processes for planning projects and implementing them. They have also had to build quality into the production process, much like the Japanese did with automobiles.
One result is that Indian software companies tend to break software development into discrete components that can be tested and perfected, then replicated.
"The parallel to that in the automobile industry is to come out with parts that are interchangeable so you can quickly take it and put it where you need it," Pandit explains.
The emphasis is also on catching bugs early. If there is a mistake in the software during the design stage that isn't caught until the testing stage, "then you spend 10 times the effort to fix it," Pandit says.
"Again, it's the same challenge as for the automobile industry," he adds. "You get a part and you make sure the part is faultless so that you don't have to rip up the car later on after it has been more or less manufactured."
Arvind Thakur, president of NIIT Technologies in New Delhi, takes the theory another step. In America, he says, software engineers tend to be older. They tend to ask for, and are given, a lot more responsibility for designing the software. Creativity is a big part of their job.
NIIT does it differently. It has less-experienced engineers do the "manufacturing" of the software out of those prefabricated components. The designing is left to more-experienced programmers.
"We have taken the art of programming and turned it into a process," Thakur says. That way production is scalable, which means pools of young engineers can be arranged into "factories," where together they can produce large quantities of high-quality software.
All this talk about factories and cars is hardly coincidence. Indian entrepreneurs like Pandit and Thakur have every intention of following the Japanese example by building world-class businesses on the back of India's early successes at lower-end work. Already, both firms have the highest quality designation from Carnegie Mellon University's Software Engineering Institute.
"There's no question that some Indian groups are doing pretty darn good work compared to companies over here," says Watts Humphrey, a fellow at the institute who helped develop its standards. "It took Detroit quite a while to determine that they had to defend themselves on quality. I'm convinced it's the same issue here."
Pandit acknowledges that Indian companies have a huge cost advantage. But he says they would be sticking their head in the sand if they were to assume they could compete forever on price. Wages in India are rising--KPIT's spiked 15 percent last year--but political backlash in America will continue until Indian companies prove they can compete on quality and service above all else.
Consequently, Pandit's strategy is to begin putting software centers in the U.S., following the Japanese transplant strategy. Thakur points out that Toyota started with low-budget cars and received lasting respect from U.S. consumers only when it started producing the Lexus in the 1980s.
"The endgame in our industry is that once we come out with systems and processes that are more efficient than what most of our competitors have, we can operate with any labor," Pandit says. "Did anybody ever believe that Toyota could employ American labor in American states and still come out with better cars than Ford and GM? Did anybody believe that?"
Whether you believe in Pandit's vision or not, the global model is here to stay.
Ten years ago, a Pune entrepreneur, Anand Khandekar, was in Bangalore running Motorola Inc.'s pioneering technology center. Now he is involved in tech start-ups based in Pune and Silicon Valley.
Khandekar's two companies, a chipmaker called Cradle Technologies and video compression firm, PACE Soft Silicon, were designed from the outset to take advantage of the rich pool of talent in both places. The "front end" of each firm is in California, where executives raise venture capital and court customers such as Intel and Texas Instruments. The "back end," or technical work, is done in India, where engineers develop patented technology.
Of PACE, Khandekar says, "It's not an American company and it's not an Indian company. It's a global company."
As far as he's concerned, this is the corporate model for the 21st Century.
To one degree or another, few large U.S. or European companies believe they can compete today without tapping the unique combination of price and quality found in India.
Like Cummins, more industrial companies are setting up centers in places like Pune. And technology firms including Texas Instruments and Motorola have been there for years, augmenting their efforts with India's enthusiasm and expertise.
That has created enormous momentum. Not only has the IT success started to bleed over into India's old-line manufacturing sector, where firms are starting to export, but an improving economy has contributed to a rise in literacy rates and a drop in the poverty rate over the past decade, according to the World Bank.
It is hard to overestimate the sense of exhilaration and confidence bubbling up in India.
Ravi Venkatesan, who has a master's of business administration degree from Harvard, ran Cummins' India operations until February, when he left to become chairman and general manager of Microsoft India. He says the energy comes from a historical sense of freedom: liberation at last from the legacy of British colonialism.
Young people in India, he says, "are absolutely driven to succeed because they've known want and poverty and they finally see an escape hatch."
"Whereas their counterpart in France may be just as smart and just as educated, he would be thrilled to take a break after 35 hours and kick back a bit," he says. "Here you're willing to work 70 or 80 hours just to make it. So the drive to succeed, the ambition, the passion is just amazing."