Govindraj Ethiraj: Race between opportunity & cost

DOUBLE EDGE

Three Boeing 777-300 Extended Range (ER) aircraft with Jet Airways colours are parked side by side in their respective bays, the bright morning sun sparkling off their freshly painted fuselages. Inside the terminal, as I stop to gaze, an airport official asks if I need any help in finding the lounge, since I am in that vicinity. I did not ask for any assistance, he walked up to me.

On my way back to the gate, another official, who catches my eye, asks me if I need help. "The Jet Airways gate is straight down over there to your left," she says. I am now wondering where all this attention is coming from, as I am sure are some of my co-passengers. "It's like Jet has bought out this part of the airport," says as senior TCS official and co-passenger.

This is not Mumbai or Delhi, rather 9 am in the morning in Brussels, Belgium, a country as far and distant as can be. And I am on a stopover on my way to New York via Newark. The three aircraft I can see from where I am standing are possibly interchanging passengers coming from and to Delhi and Mumbai on their way to Newark and Toronto.

I think it was an Airbus check pilot (then wearing a marketing hat) who told me over lunch 10 years ago about the potential for India as an aviation hub and how we (read airlines like Air-India) should be moving to capitalise on the growing east-west traffic. "You have to grow or other airlines from the region will eat up your own traffic," he said. Something that was later corroborated by an Air-India official who admitted that if we didn't watch out, Emirates from the west and Singapore Airlines from the east would one day individually "evacuate" more passengers from India than Air-India could.

My friend Anand, who lives in Ahmebadad and visits the US regularly, flies Singapore Airlines from Ahmedabad to New York via Singapore because he feels the convenience of the airline far outweighs the few hours lost in going back east to Singapore and then flying west all the way back again. Rather than flying Air-India, which he does not quite trust. So it's happening if not happened already.

Jet Airways' Naresh Goyal set up a hub in Brussels not because he likes Belgian chocolate (maybe he does) but because no airport in India can give him the space and service to accommodate his global ambitions. It helped that Brussels Airport has been in trouble ever since state-owned Sabena Airlines shut down (it morphed into Brussels Airlines). So unlike Heathrow, which is in terminal decline, Brussels with its under-capacity is on the ascent.

With one stroke, thus, we have handed over an international business opportunity for services to a small European country. Note that Mr Goyal wants to set up a pilot-training academy, a hotel and a maintenance, repair & overhaul (MRO) base, all in Belgium. And Mr Goyal only happens to be the first. I don't know how Vijay Mallya is mapping his international airline operations but surely he will have to tread a similar path. I can't, for instance, imagine a A380 going full from Bangalore or Mumbai.

The point is this. We are now seeing more and more parts of our service economy quietly being exported as well. A recent New York Times article documented how Indian companies were increasingly opening offices overseas, mostly in the Americas and eastern Europe. The east, which the article refers to also, will be bigger. My sense is that the largest manpower deployment for Indian IT companies outside India will soon be in China. Which is great for ego, bottom line and survival, but it does little to protect or nurture the larger India economic advantage.

Let's say for a moment India has lost the manufacturing race but believes that it will come back to score on the services front. Sure we could do that. But services will ride considerably on infrastructure as well. Indian IT companies are going to China for two reasons: first, the market opportunities, and, second, the education and physical infrastructure here does not support their global ambitions.

But the bigger moral of the story is that opportunity is scoring over cost. Most Indian businessmen I speak to place a huge premium on the ability to move now and block the space. It's happening in aviation, the media, commodities and finance, to list a few sectors. If India does not offer the opportunity, they will go elsewhere. Because they want to do it now. The lesson is that we are kidding ourselves by believing that we have a long-term services advantage or a cost advantage. Actually we don't, or are peaking, as a country. Somewhere soon, the decline will begin, first in growth and then maybe even in absolute terms.

It's interesting that while Air-India is partnering Boeing to set up an MRO in Nagpur (like all well-meaning infrastructure projects, this one too is dragging) to capitalise on what could be India's famed low-cost skills advantage, Mr Goyal wants to set up the same shop in what may well be the highest employee cost location in the world. And surely he has shareholders to answer to. Wipro recently invested in a 500-seater software development centre in Atlanta and wants to invest in states like Idaho and Virginia. Sure Wipro is investing in Tier II cities. Just that they happen to be in the US and not in India.