The U.S. and India are on the verge of a historic economic convergence, according to the US-India Business Council, and president Ron Somers is in the best possible viewing position.

by Peggy Cope

Ron Somers, the president of the US-India Business Council , is one of those people who are so enthusiastic about what they do that it becomes entirely contagious. If you ask him about India, you can hear him jumping up and down and fizzing even at the other end of a long-distance phone call. And he should be, if what he anticipates for the nations’ prospective partnership is borne out.

He is very proud of the fact that he spent 12 years living and working in India after being invited there in 1992 as part of a U.S. delegation to recommend regulatory reforms and policy measures to the Indian government that would attract American investment into that country. Having just finished closing on a hydroelectric project in California, he was a natural choice for a delegation investigating renewable energy projects. Somers collected data from all 20 of his colleagues, and created a report recommending a logical policy implementation to attract foreign direct investment. When he presented it to the ministry of power, they asked him to stay and implement it.

Somers’ office became a place where power developers coming in from all over the world stopped by to chat about the best states (India had 27 states back then) and regions to consider for development. Two years later, he was hired by an American power company implementing a power station on the coast in the south, near Bangalore, and he moved there for five years to implement that project. Sub-sequently, Unical hired him to be country manager for India for oil and gas exploration, port and power station facilities, and he was instrumental in developing a 1,000-mile gas pipeline from Bangladesh to Delhi.
Somers repatriated when the former ambassador to India, now vice chair of AIG Insurance Group, called him in 2004 and asked him to run the US-India Business Council.

“India was really unshackling itself in the early ’90s, from a command control economy largely driven by the public sector,” said Somers. “In 1991 it had its own internal financial crisis, and it had to open up its economy, peel back the layers, and let in the private sector. I became a participant and advocate in the discussion.”

American companies were early on the scene in India, largely because the language was comfortable and the legal system is English common law, as it is in the U.S. “We all plunged in with major investments,” said Somers. “In my early tenure, we literally signed up 80,000 megawatts or $80 billion worth of proposals. We were a little premature, but now everyone has found their legs.”

Of Politics and Outsourcing
A decade later, India is the world’s powerhouse when it comes to outsourcing. But the nation’s role is shifting with corporate and political trends.
The major outsourcing players in India have been moving up the value chain. They are no longer solely in the back office answering the phone, teaching Americans how to use their computers or repair their Internet connections. “Now it’s about the entire process of adding value to our companies, down to sophisticated design and engineering work,” Somers said. “All major companies have R&D centers in India now.”

The reason? India provides a high-quality talent pool made up of a youthful demographic: fully 54 percent of the country is under the age of 25. That’s a valuable asset as America’s Baby Boomers age. According to Somers, this blunts any debate about global sourcing. It’s no longer about American jobs going overseas; now, it’s about a partnership that creates a competitive edge for American companies to continue to create jobs at home.

But given a certain amount of political uncertainty in what Somers calls a hyperactive democracy, how do you read the tea leaves?

As companies enter India, they see that some states are reforming faster than others, so they have to watch carefully where the progress is taking place. Coalition politics mean that power devolves from the center out to the states, and the economic liberalization that started in 1991 has caught fire. But with that being said, India is tied up in red tape and suffers from such challenges as a bad infrastructure, corruption, and tax anomalies. An aggregation of private capital into the system would help to build that infrastructure, which involves 48 new road projects worth $12 billion, railway upgrades totaling $22 billion, port improvements, domestic aircraft build-up of 40 percent, and 100,000 megawatts of electricity needed by 2012 to keep the momentum going.

Transparency remains an issue, Somers admitted, but the country is demanding better governance, and the government is trying to clean up its act for procurement. Notable hiccups have occurred with Bell Helicopter and Motorola, and companies need to stay in touch with the U.S. embassy all the time when doing business, even on a small scale, Somers said.

Explosive Growth
Even given the challenges, the growth is extraordinary: The ITES/BPO industry is growing at 45 percent per quarter, there’s a shortage of qualified help, and education is needed to keep filling the need for more employees. At the same time, reforms are on the rise. Telecommunications are up to 75 percent, oil & gas, roads and ports are all improving, and open skies are leading to more interaction with American airlines and aircraft manufacturers. Wal-Mart is making retail inroads, and 10 million new cell phones were registered in a single month. Currently, more than 300 of the Fortune 500 are engaged in India in
some way.

All this development bodes well for the future of outsourcing between the U.S. and India, but the fact that next year is a presidential election year in the U.S. could mean trouble, when candidates begin using outsourcing as a polemical weapon to counteract arguments about the subprime mortgage meltdown and constriction of available credit. “Some argue we are heading for recession,” said Somers. “When layoffs begin, ‘Jobs, jobs, jobs!’ becomes the mantra politicians will be harping on.”

But the rising economic prowess of India and China gives Somers hope that as 2008 confronts us, the U.S. will see its own economic face in the mirror when it looks overseas. “It will be the growing Asian economies that keep our economy whole,” he said. “The integration and convergence of our economies will be very healthy. The U.S. and India are working more closely than ever on defense cooperation. We just held international naval exercises in the Bay of Bengal. We are going to the moon with India in 2008.”

As the American public gets more comfortable with India as the largest free market democracy—a country that embraces and insists on an open and free press and a country that likes America—cooperation between the two can only continue to expand. “There will be less suspicion of the convergence of economics, and about the need to be true partners for the 21st century. A rising India creates jobs for American companies here at home. We are growing on the right trajectory, in the right direction. It’s going to be an exciting partnership.”

But that growth will call for service providers to do the jobs they were asked to do earlier, Somers said, to become fully involved in the integrative process in the supply chain for American companies. As the world goes global, companies must be part of the global activity. Somers predicted that we will see companies begin to get back into outsourcing, beyond value addition, and that will include high-end manufacturing, design and engineering, and the provision of services that will be front and center in the strategic evolution guiding companies to integrate into the global economy. “TCS, Infosys, Wipro, and others are companies that are already, by and large, sitting in important meetings for major companies generating advice on how to take the next steps forward to become globally competitive,” Somers noted.

He believes that what’s about to happen will be on the scale of Nixon opening China. “We remember seeing Nixon sitting with Mao in those big, big chairs—we’ve seen the Berlin Wall come down and the unification of East and West Germany. This partnership is on that level, between the U.S. and India.”

He talks about a tectonic shift where two economies have found their bearings and are on a common path. “I’m in the catbird seat to watch this unfolding. When I think of the opportunities—we are going to the moon with India, they have the fifth largest space program in the world already. This convergence of economies is a historic advent that will change the economic destiny of the 21st century. It’s a privilege to be working on at least the fringes.”