Only in India: express economic gains demand infrastructure investment.

INDIA MADE A STRONG ALLIANCE IN THE BATTLE FOR economic growth when JP Morgan Chase & Co., the third largest U.S. bank, set up a $2 billion fund focusing on infrastructure investments. The initiative spawned a series of committed investments to the "Look East" prospectus, which thrusts Prime Minister Manmohan Singh's well-publicized price tag of $150 billion into the limelight. With or without ongoing economic development campaigns in the United States, Thailand, and Singapore, spending on India's roads, ports, and power from the cities of Chennai and New Delhi to Darjeeling and Calcutta may triple over the next five years.

[ILLUSTRATION OMITTED]

Improvements can't happen soon enough for Hyundai Motor, Nokia, Dell, SemIndia, and the other companies that aligned early on with India to move its manufacturing capabilities forward.

Despite economic development resulting from the U.S. outsourcing proliferation that added approximately 400,000 customer service and information technology jobs in the country, India faces destabilizing problems: significant overpopulation, environmental degradation, extensive poverty, and ethnic and religious strife. An additional and highly visible problem, deficient infrastructure has been industry's greatest roadblock in its passage to India.

[ILLUSTRATION OMITTED]

Deloitte Touche Tohmatsu estimates that companies must tack up to 5 percent onto the costs of doing business in India due to well-worn infrastructure. Frequent power outages, bad roads, and packed ports have forced manufacturers to accelerate production by 10 days as a buffer to shipping delays throughout the country.

[ILLUSTRATION OMITTED]

IIE member Jamshed Modi, Ph.D., a professor of operations management at the SP Jain Institute of Management & Research in Bombay, points out that like every other country, India holds both opportunities and shortcomings as a result of its geography.

[ILLUSTRATION OMITTED]

"I think India's infrastructure already has and will continue to be a huge drag on its development, and it is not likely to surpass China in the foreseeable future, certainly not within three to five years," said Modi. "Ultimately, national development is dependent on national character, and as long as India's governing bodies (the central parliament, the state legislatures, the city municipalities, and on down) continue to have the large percentage of poorly educated, unprincipled, and even under-trial representatives that they do, infrastructure and general development will be slow."

Today's story

Speed does enable profit in supply chains. If painful delays continue to be compounded by lenient traffic rules along one of the largest road networks in the world, will Hyundai Motor India carry forth with plans to expand its dealer network and raise its production capacity to 600,000 automobiles? Can businesses hold on another 12 years for the Golden Quadrilateral highway to reach its 40,000th mile? Will six- to 10-hour power outages still be common after the construction cranes have left?

Ram Kolluri, CEO of Global Investment Management, insists that the "modern story" of India is very real, exciting, and full of advantages. He focuses on core bounties that the country offers rather than the pitfalls he dismisses as "old views" of India. Gains include a viable railway system in which 10,000-plus trains are built each day, democracy, and tremendous education opportunities.

"India has poured money into education since its independence. You could have gone to college and not even paid $10 to get a professional engineering degree. In the last 50 years, the country produced a world-class engineering, science, and mathematical pool," said Kolluri, who settled in the United States 25 years ago as a financial planner. He travels to India each year for business as a certified accountant.

"Add the English language. All advanced education was in English. You now have a very powerful balance of talent and pro-business acumen. Half of the population [500 million] is under 25 years old. This is the youngest population in the world, so there is no shortage of labor pool."

Recently, students took up the cause with the bustling city of Mumbai as their focal point. At an event organized by the National Institute of Industrial Engineering, management students brainstormed how the city of more than 15 million people could, given its host of infrastructure and sanitation problems, achieve the goal of becoming an internationally renowned urban center. Students had suggestions: appoint a CEO of Mumbai, reclaim land from the sea, use waterways to ferry commuters, use video conferencing to avoid transportation costs, and designate economic zones throughout the city.

Throughout Mumbai, mega-development projects vie for attention. The roads that line the city are responsible for the transport of more than four-fifths of the world's goods, with engineering materials, chemicals, and gems and jewelry the fastest-growing sectors.

"Today, you have a powerful working population. The biggest story is the middle class. Ten years ago, the average income for a family was $3,000; today, the average is $10,000. You have a middle class that is hungry for consumer products, hungry for education; it's a consumer boom that will last 20,30,40 years," said Kolluri.

"Not long ago, we hardly had 2 million telephone lines; now we have 300 million. Even people who are laborers on the land selling vegetables, caddying vegetables over their heads, have a cell phone. You can make a call to the United States for five cents a minute. You cannot do that in the States. The penetration of the Internet is also an incredible velocity in business matters. Overpopulation and poverty are old views of India," he said.

More relevant views of the country would include the following facts: India's population grows by 1,815 people every hour, and more people live in India than all the residents of North America, South America, and Australia combined.

Modern movement

To meet the demands of consumerism, transportation companies abound.

Third-party logistics providers are familiar with the varied landscapes of India that give credence to its reputation as a "subcontinent." In parts of the north, 3 PL workers share transport routes with tractors, wild sheep, and musk deer ambling alongside vegetable carts. The 1,568-mile Ganges River, running along the Himalayans, supports more than 100 cities and countless villages in intimate religious rituals, drinking water, and farming provisions. In everyday business conventions, the river also functions as an energy source and chemical waste ground for the leather industry, which accounts for approximately 2.5 million employees in India.

In conjunction with Penske Logistics, Robert Lieb, Ph.D., professor of supply chain management at Northeastern University, conducted a survey of CEOs from more than 40 of the world's largest 3PL providers to study trends across three regions: North America, Europe, and Asia-Pacific.

"Six of the CEOs indicated that their companies have established 3PL services in India. The business press has often focused upon India's lack of a modern transportation infrastructure as something that might limit future economic growth," said Lieb. "The CEOs were asked if that issue has caused any significant problems in the operations in India, and interestingly, only one of the six who responded to the question indicated that it had."

Typical problems were cited: congestion, toll road blocks, and faulty distribution structures.

"When you bring the level of activity predicted--12 percent or so of increased production growth--you're going to see really serious problems such as highway congestion around the ports in particular," said Lieb. "If you're trying to run a lean manufacturing operation, you will back up your production process with a lot of safety stock, which will make operating costs go up. In many cities, when production volume goes up, you have several hours every day of gridlock.

"When you talk to companies operating in China for a good while, they will tell you that politics vary from being a minor annoyance to a major impediment. Doing business day to day, after a while if you have opportunities in other places without these issues, you will eventually go to them."

According to Inbound Logistics, China's investment in infrastructure has been eight times that of India, and the lead-times for India's exports to China range from six to 12 weeks while the same export category from China to the United States is two to three weeks. The cargo transport expense in India is among the highest in the world at 11 percent compared to the global average of 6 percent.

C.P. Jhamb, project director for the Nuclear Power Corp. of India Ltd., further suggests that movement delays in the transport of goods such as medical supplies shouldn't exist at all.

"The issues of timing, care, and safety can cause nightmares when small but high-value consignments of life-saving medical supplies, other highly perishable items, and items with expiration date restrictions are not delivered in time either due to transportation problems or improper handling and procedural delays at the port of clearance," said Jhamb. "As such, the quality of infrastructure is important for such critical and time-bound deliveries. The logistics firms which offer supply chain services for transportation, storage, distribution, packaging, temperature-controlled storage facilities, tracking, and service support cannot afford any goof-ups in such cases."