Toyota Builds A Truck Even Bubba May Love

When Toyota Motor (TM ) Corp. engineers visited South Texas to ask locals what they wanted in a full-size pickup, the out-of-towners got a quick education in priorities. Sure, the truck had to be big and powerful, but it also needed Texas-size brakes to stop three-plus tons of horses, hay, gear, and trailer from taking out a corral fence or barn post.

Toyota listened and learned. And at the Chicago Auto Show on Feb. 9, it will fire its boldest shot yet into the already wobbly defenses of Detroit's auto makers -- taking the wraps off the first full-size Toyota pickup that's large and tough enough to win over the NASCAR and big-belt-buckle crowd.

The new Tundra, which will be built near San Antonio and arrives at dealerships early next year, spells big trouble for Detroit in the red-state Bubba-truck market, the last reliable profit redoubt for General Motors Corp. (GM ) and Ford Motor Co. (F ).

Yes, this marks Toyota's third attempt to get a work truck right. And Nissan Motor Co. (NSANY ) beat it to market with a legit full-size truck, the Titan, by nearly three years. But according to John Matthews, a San Antonio dealer who advised on the Tundra's development, Toyota has corrected mistakes made in the current model and its '90s predecessor, the T100, both of which were too small and light to go bumper to bumper with the Big Three. Hint: It's big. How big? "When other truck owners park next to this Tundra," says Matthews, "they'll feel like they're in a solar eclipse."

To learn the truck market anew, Toyota engineers immersed themselves in Sunbelt America. They hung out at NASCAR events and camped out at ranches in South Texas and Oklahoma, says Matthews. They even went to RV camps and persuaded families to let them travel along.

Toyota's gearheads had plenty of questions. What's the perfect towing solution for different-size trailers? Which dashboard materials clean up the best? How many configurations of the Tundra should Toyota offer? The answer to the last question: a lot. After all, according to the car site Edmunds.com, Ford has more than 60 versions of the F-Series for customization-happy truck buyers. And Chevy lists 46 styles of the Silverado. The current Tundra offers just 18.

Image was a matter of considerable import, too. Toyota has a great reputation for quality and reliability. But the macho image that has long endeared Ford to Texas ranchers? Um, no. "You've got three generations of truck-buying families here with Ford blue ovals tattooed on their foreheads," says Matthews. Spy shots of camouflaged Tundras on test tracks, as well as the Toyota concept shown two years ago at the Detroit auto show, reveal an aggressively sculpted hood akin to the Dodge Ram and a more muscular look than the category-leading Ford F-150.

And while Matthews wouldn't divulge the Tundra's specifications, he says that "Toyota realized it needs to be the best in class." Likely translation: The Tundra will top the 305-horsepower engine and 9,500-pound tow limit that come standard with the Nissan Titan. Plus, Toyota's new truck will feature a living-room-quality interior and plenty of storage options for road warriors.

Of course, it's no coincidence that Toyota chose San Antonio truck country to manufacture the new Tundra; 12,000 new jobs builds a lot of goodwill -- not to mention a steady stream of newspaper ads reminding consumers that Toyota has spent billions of dollars constructing plants in pickup-centric states like Kentucky, Indiana, and West Virginia.

And to make doubly sure that people got the message, Toyota in 2003 persuaded NASCAR to count the current Tundra as a qualified American truck. That finally won Toyota a slot in the Craftsman Truck Series, which features drivers racing modified pickups. You could almost hear the gnashing of teeth in Detroit.

Ford President Mark Fields has said that Toyota is "desperately trying to cast itself as an American brand." But patriotic fealty to Motown pickups is fading fast. In Janesville, Wis., home to a GM SUV plant, sales at Hesser Toyota, including Tundras, have been up 30% two years running, says General Sales Manager Phil Bouland. And some of those customers have been GM employees and their families. Buying Toyotas, says Bouland, has become "more acceptable than it was three or four years ago."

All Toyota needs to do now, it seems, is build the Tundra sufficiently big and rugged -- and they will come.

The story of India's 3 IT biggies

There were three chickens which all laid eggs, says Hrish Bijoor, brand consultant, weaving an allegorical tale. One was shy, one was honest and one was a chicken with hype. All laid an egg each, ordinary looking, whose product quality was identical, say 100. The first made a noise of two decibels, so very few heard of it and came to see it. But with those who did come, it scored 98 plus.

The second was the honest chicken. Its product quality was 100, it made a noise about being 100. Everybody came expecting 100, got 100. The end result was even or neutral, neither positive nor negative. The third chicken, whose egg was of quality 100, made a noise that it was 400, everybody came expecting 400, but got 100, that is minus 300.

If you have not guessed it yet, the first chicken is Tata Consultancy Services, the second is Wipro, and the third is Infosys - the three leading lights of the Indian software industry. They, more than anything else, have put Indian skills on the global map and gained India greater global respectability than it has ever had in its modern history.

The three, by now household names among middle class Indians, represent a fine conundrum. They offer near-identical services of near-identical quality and there is little to distinguish them in the way they meet customer requirements.

But they are so different -- in age, pedigree and history of growth. Not unexpectedly, in an attempt to differentiate themselves they have followed vastly different marketing strategies and sought to makes themselves into distinctive brands.

TCS is the grandfather of them all. But fascinatingly, "it has been the best-kept secret in the Indian software industry," says Ramanujam Sridhar, marketing expert and CEO of Brand-Comm.
Until it was listed in 2004, TCS cared little about getting itself publicly known and concentrated on its customers. From all accounts it has done a fine job within its chosen focus. It grabbed customers when they were up for grabs but what is more, not only managed to hang onto them but created a relationship it has leveraged to win some of the biggest recent deals.

TCS earlier didn't have a theme, recalls Phaneesh Murthy, CEO of iGate and former Infosys highflier. Its attitude to customers was, 'We will do the work on any model you desire'. It was a leader in size but low in prices. But times are changing. Now the company is becoming more fussy about price and the kind of work it will do. Says Avinash Vashistha, managing director of offshoring consultancy neoIT, "It has been very aggressive in the last year and has put the right people forward. The IPO has made it hungry for the right things. TCS is stable and trustworthy. It has great expertise, a lot to offer and is not charging all that it can."
TCS's current marketing pitch marries its heritage and current hunger for deals. It sees its brand as made up of two parts, says Phiroz Vadrevala, executive vice president. One is the overarching Tata brand that projects trust, integrity, ability to deliver and fairness to all stakeholders.

The second is TCS as the pioneer Indian IT brand. There is some hyperbole in his statement that TCS is "using global expertise to build India by executing nationally oriented projects that are critical as they touch people's lives. The aim is to go global while continuing to serve the country."

But TCS has an unequalled national record. It has executed critical national projects like IT, enabling the NSE, NSDL, SBI (core banking solution), union finance ministry, and department of company affairs. Most recently, it has made a proposal for an IT solution for the national employment guarantee programme, aimed at fighting leakages through the use of IT, and is implementing a pilot for it in two Andhra Pradesh districts.

The other old-timer among the three biggies is Wipro. It was originally into hardware, then systems development and eventually into software. Wipro's IT software story got going in a big way from the mid-nineties when marketing gave support to sales, recalls Jessie Paul, chief marketing officer, Wipro Technologies.

From 1999 onwards, public relations, analyst relations and the website became important and marketing communication secured a role, but the exercise was still sales driven. Branding was still not a conscious function and played no role in marketing. Those were the days of the runup to Y2K and so selling was not really an issue.

In 2001, the need for a brand, and that too a global brand, was realised. This was because the sales pitch had to be increasingly made to the CIO and CEO of firms. Fortunately for Wipro, this exercise had already been done by Sombit Sengupta, strategy and brand consultant. In the late nineties, Wipro came to possess its now famous logo of the rainbow coloured sunflower and the legend "Applying Thought".

The branding exercise changed the company and focused it around IT. The slogan also fitted in nicely and in fact grew out of Wipro's grasp of technology. Wipro has been driven by technological evolution, triggered by the departure of IBM from India. Its entry into IT services was through R&D services from the mid-eighties. Conventional marketing didn't have much of a role in this. Most of the marketing was done by posing as a peer to the client by saying, 'We also do research'.

Wipro, says Bijoor, has a carefully leveraged image, its orientation is global, pursuing best practices like Six Sigma, an image that has grown out of the Wipro-GE partnership. But it has not tomtommed itself. "The focus of the company emerges from Premji's persona - 'I could be a billionaire but I am this'. The company is showcased in his non-showcased manner. The brand has been spun out well and its mix of people also fits in with it. The misfit persona was Vivek Paul who appeared to be overshadowing Premji." And thereby hangs a tale. The elevation of Vivek Paul to vice-chairman of Wipro marked a watershed. The company was becoming global and its employee profile was changing. Paul was both a product and architect of the change. Recalls Phaneesh Murthy, from being a company offering engineering services for products, with Paul it became more business applications development oriented.
Then came acquisitions like AMS and Nervewire. This transition from product engineering to business applications is marked by revenues from the former going down from around 55 per cent to a little over 30. Earlier it had hardly any customers in the financial applications space. The changes under Vivek Paul widened and opened the market for the company.

Now the company seems in wait-and-watch mode. After the departure of Vivek Paul, Wipro has gone in for a bit of soul-searching. Says an insider, "We are conducting a study to understand our own pedigree, why we are here and how to distinguish ourselves." Preliminary findings indicate that Wipro believes itself to be a company with high integrity, but not innovation.Internally, it is seen as made up of good followers, but not having the cutting edge. The exercise is still on but a change in thinking has taken place. "I am not saying it is a revamp, but an exercise in incremental change. We started by saying we must be able to distinguish ourselves from others, but we now feel we are not bothered about others. Our aim is to define our brand and walk it."

Among the three, Infosys was the last to arrive and in chairman NR Narayana Murthy's own words, is "the new kid on the block". The defining moment for the company was the new economic policies initiated in 1991 which removed a lot of the "friction to business" that companies in India faced from the government and allowed MNCs to come into high tech areas.

For a young and small company to compete with MNCs for the right young talent, it had to be different. Narayana Murthy decided to "create a place where youngsters feel happy" and consequently "we were the first company in the software industry that adopted the campus approach. In 1992-93 we took a decision to build a campus for Rs 19 crore (Rs 190 million) when our revenue was Rs 12 crore (Rs 120 million)." Thus from that time a key marketing strategy for Infosys has been "always believe in doing unusual stuff, and thereby be in a position to secure our future and growth".

In terms of the nuts and bolts of marketing, "Right from the beginning, we realised we had to focus on selling more and more in the marketplace. That's why we hired smart people to sell in our markets in the US, Europe etc. Second, we were the first Indian company in the software industry to create a wonderful global customer meet," calling it Milan, but recently changing to Confluence so people would not get confused with the city of Milan.
As Infosys grew, it realised it had to enhance the confidence of customers, which meant enhancing the confidence of the CEOs and CFOs of your customers. So it argued, "If we get listed on a US stock exchange, and if we're seen in the Wall Street Journal, on CNBC, then they will say, oh yes, this company is here to stay because it is in their marketplace. We were the first Indian company to get listed on Nasdaq (in 1999)."

The next thing Infosys did was to start, with Wharton Business School, an initiative called the Wharton Infosys Business Transformation Award to recognise entrepreneurs and organisations that have leveraged technology to transform corporations, individuals as agents of change and organisations that have transformed themselves. "We coincide this with the alumni conference at Wharton.

After 10-20 years they all become big people. It has tremendous value for Infosys." By doing unusual things "you get written about. More and more people notice you, are likely to join you, work with you, invest in your company. I have always believed you have to do the unusual stuff," affirms Narayana Murthy. In seeking to be different, the companies have been making competing claims. Says Vandrevala, "TCS was the first Indian IT company to go global and continues to maintain this lead, being the foremost in locating its development centres around the world. It pioneered the global delivery model and was the first to offshore work to India as early as 1988-89." On the other hand Narayana Murthy says, "We were the first company to articulate the concept of the global delivery model and we marketed it well."
There is also a similarity of aims. Vandrevala says, "The challenge that TCS sees before itself is to build a brand synonymous with global brands like IBM and Accenture." But Wipro is not much different. Says Jessie Paul, "Wipro's primary vision is to become one of the world's top three brands in software services. We want to be an engineering-led brand, just as IBM is seen to be strongly into infrastructure management and Accenture in IT services consulting."
Sridhar sums it up by saying that "All three will become very big companies, all will be big brands. Infosys however has an edge as it has great clarity in its PR strategy and has a clearer position. It has worked out what it wishes to communicate and has succeeded in doing so. It has marketed itself extremely well to the media without making tall claims."

Phaneesh Murthy allows a peep into how this marketing exercise was conceived by describing Infosys as "the lotus in the marsh. In a country where business is mostly opaque, Infosys is transparent. You can build a brand from a core or context. Core means the kind of work you do, but this was no different from what the others did. So I chose context.
"One manifestation of this differentiation was to present your annual report in as many GAAPs as possible, including all kinds of information which was not relevant to customers in terms of the software you created for them, but projected a clean company."

He also answers the oft-repeated point that Infosys hypes itself quite a bit. "I cannot agree that there is excessive hype about Infosys. It has never failed to deliver on projects, so where is the hype? If Infosys does something, even if it pays Rs 2, it makes sure everyone comes to know about it. It makes a loud noise but I wouldn't call that hype." Vashistha agrees that Infosys is greater than 100, it offers impeccable service and is also the most expensive - like the Oberoi among hotels.

"When I was working in Nortel, Infosys was one of my clients. I used to say, Infosys is just hyping itself. I never bet on Infosys, but clients always liked it. I thought one day this will end, but interestingly, it has not. I would now compare Infosys to Accenture."
If all three are big and all will grow then is that the end of the matter? Says Sridhar, "There is some confusion about succession in Wipro. TCS has the best clients as well as resources. It is very successful but all three are. Size can't be a differentiator. Wipro tried to take the knowledge high ground but has not succeeded. Ultimately, you have to find a differentiator, like Apple has with iPod."

In marketing themselves, can the three more or less continue to do what they have been doing? Sombit Sengupta looks into the future and asks, "Where is the intangible premium, apart from size? In a monodirectional business commoditisation can happen very easily. The value proposition of low-cost manpower is there today but eventually value will shift to brands. Are Indian IT companies creating big business stars?

The young 19-27-year-olds all want to be stars. They can see a career for themselves in brands like GE and McKinsey. These youngsters are intellectually advanced, highly researched, job flirtatious. Do they see the Indian IT companies as brand stars where they can become rising stars? The intellectual property in these companies, which are facing global competition, is not showcased." He adds, "When I see Wipro I see a businessman. For TCS the field is wide open. The Tatas have been around for over a hundred years. In that sense TCS is not a baby of the new economy. Bombay House has a spirit of sustaining businesses. Is Narayana Murthy like Anita Roderick of The Body Shop? Many tried to emulate The Body Shop but couldn't, and the company declined after she sold out. Narayana Murthy has created the same philosophy of integrity, corporate governance and excellence in communication as The Body Shop has by projecting a lifestyle."

He recalls that in the US, early in the twentieth century, business and innovation merged in the empires created by Edison, Bell and Ford. "The French have an expression "pensee et applique", which means think and apply, or thought and deployment. The problem with French society was that it thought too much and innovated little. Our three IT leaders are only in business. Their innovative thought process, or its results, are not very visible." Their marketing job then must just be beginning.

Can Latin America Challenge India?

With proximity to the U.S. and free trade agreements in place, many countries south of the border are building up their outsourcing infrastructure

Softtek, a Mexican software development company, has been in business for 23 years, but it wasn't until 1997 that its founders realized they had something unique to offer U.S.-based clients: proximity. Until then, Softtek had been plenty busy helping Mexico's second-largest bank and other companies develop customized software and managing their info-tech systems.

But inauguration of the North American Free Trade Agreement in 1994 made companies on both sides of the U.S.-Mexico border more aware of the benefits of doing business with each other. Clients liked the fact that they could fly down to Mexico in three to four hours and that the country is in the same time zone as the central U.S.

In a spurt of inspiration, Softtek trademarked the term NearShore. And over the past eight years, it has fine-tuned the concept, says 46-year-old CEO Blanca Treviño. "The U.S. was right next door, but we had to offer a differentiated product in order to get their business," she says. "We were the biggest in Mexico, but we were very small in comparison to India. If we hadn't come up with something to set us apart, we wouldn't have gone anywhere."

CLOSER TO HOME. Three years ago, Softtek bought General Electric's (GE) Mexico-based IT operations, absorbing nearly 1,000 engineers. As a result, Softtek became the multinational's main nearshore solution for IT work in Latin America, performing support and maintenance for GE's commercial finance and energy groups. Since then, Softtek's revenues have been growing 40% annually and hit $146 million in 2005, with more than half of the business from U.S. clients.

Now, Softtek has 3,500 employees, mostly engineers, making it the largest IT outsourcer in Latin America. Softtek, based in Monterrey, Mexico, has offices in the U.S., Argentina, Brazil, Colombia, Peru, Puerto Rico, Venezuela, and Spain.

Why go to Mexico, where labor costs are higher than in India? Because the efficiency gains from working close to the U.S. and in the same time zone mean nearshoring in Mexico costs about the same as offshoring in India, says Treviño. Up to 95% of work can be performed off-site, in Mexico, compared to just 60% to 65% for clients working with Indian providers, she adds.

NONNUCLEAR NEIGHBOR. GE still outsources 90% of its IT work to India, sending just 6% to Mexico, says Steve Morrison, GE's London-based head of Global IT outsourcing. But, he notes, as India's costs rise, Mexico will look better and better. "If things continue as they are, India eventually will be charging the same unit cost as Mexico," he says. That's why Indian companies have been hustling to find ways to perform a higher percentage of the work off-site in India, he says.

Morrison points to another advantage Mexico has over India: Due to U.S. legislative restrictions, certain kinds of projects involving sensitive aviation and energy technology are more likely to go to Mexico than to India, a nuclear-power nation.

Argentina, which boasts one of the best-educated workforces in Latin America, also is aggressively promoting software development centers. That effort was helped by a major 2002 currency devaluation that made Argentina super-cost-competitive and drove down the cost of engineers to less than $12,000 a year. The industry has been growing two to three times as fast as the overall economy and this year will have revenues of about $1.6 billion.

"Economies in acute crisis have one major advantage: You can start a new company with a smaller investment and find highly skilled and motivated people very easily," says Carlos Pallotti, Datastream Systems' managing director for Latin America and president of Argentina's Association of Information Technology Companies.

DEVELOPING ARGENTINA. A software industry promotion law introduced in 2004 also gives companies big tax breaks and helped create high-tech clusters in four Argentine cities. That has attracted such companies as Walt Disney (DIS ), Microsoft (MSFT ), Peugeot, and Repsol (REP ) seeking Web-site design and software developers. In addition, IT players including Hewlett-Packard (HPQ ), Oracle (ORCL ), Cisco (CSCO ), IBM (IBM ), America Online (TWX ), and palmOne (PALM ) have consolidated their regional back-office and customer-service operations in Argentina.

In 2000, Cordoba province persuaded Motorola (MOT ) to build a $40 million software development center there, 1 of only 14 in the world, and in 2005 it scored another coup when microchip giant Intel (INTC ) agreed to set up a software research center at a local university -- just its third such facility worldwide.

"The Argentine authorities understand that technology is an engine of growth, which generates competitiveness in the global marketplace," says Esteban Galuzzi, Intel's general manager for the Southern Cone region that includes Argentina, Bolivia, Brazil, Chile, Paraguay, and Uruguay.

WARMING UP TO CHILE. Thanks to its economic and political stability, as well as its state-of-the-art telecom infrastructure, neighboring Chile also has attracted considerable attention as an outsourcing center. Its network of free trade agreements with a number of countries, from the U.S. to China, is another draw. Multinationals that have set up in-house outsourcing centers for software development, back-office services, and call centers include Citigroup (C ), Unilever (UN ), Eastman Kodak (EK ), and Delta Air Lines (DALRQ ).

GE outsourced all its tech support manuals for aircraft engines to a Chilean company. Hewlett-Packard found a local outfit to provide regional tech support for its imaging and printing division. And global outsourcing companies such as IBM, Accenture (ACN ), and Tata Consultancy Services provide services from Chile.

Costa Rica is the Central American country best known for the software development industry that was spawned by the 1997 arrival of Intel, which built a chip-testing facility in San Jose, the capital. A number of software development companies provide custom programming, mostly to Latin American clients, many of them in the financial industry.

WAITING FOR THE CALL. But if there's a Central American country that's coming on strong -- albeit from a minuscule base -- it's Nicaragua. After suffering through political instability in the 1970s and 1980s, its investment-promotion agency, ProNicaragua, is convinced that offshoring is the country's best bet for development.

The agency recruited Juan Carlos Pereira, a Nicaraguan-born Harvard MBA and former telecom executive who was educated in the U.S., where his family fled Nicaragua's political turmoil. "We're trying to jump-start the industry," says Pereira. The government invested $3 million to build a 500-workstation call center in downtown Managua, the capital, and is putting together a training program to improve the English skills of 7,500 people, "so that when companies come, we will be ready."

They're pitching the project to potential anchor clients, such as multinationals that may already have operations somewhere like Costa Rica but that need a lower-cost destination. And they're talking to some of the big Indian outsourcing companies that may need Spanish-speaking operators for the 38 million Hispanics living in the U.S.

POLITICAL HELP. Nicaragua may have a real chance. Ben Schneider, president of Consulting Outsourcing Management in Lima, Peru, says countries that have a free trade agreement with the U.S., such as Mexico and Chile, and more recently, the countries that signed the Central American Free Trade Agreement, including Nicaragua, will have an advantage when seeking outsourcing clients.

"It's not just a matter of tariffs, but of policies on intellectual property protection and labor rules," he says. "American companies that want to sign an outsourcing contract prefer to sign it with companies whose countries have a free trade agreement with the U.S."

Latin American outsourcing still pales in comparison to India. But Schneider says the balance could shift. International companies, he says, can't afford to do all their outsourcing in India. "There's a big time difference with the U.S., it's closer to the trouble spots in the Middle East, and India is a nuclear power."

BUILDING UP. Mexico, Brazil and Chile are the main countries to watch for offshoring in Latin America -- the first two because they have the critical mass, big company clients, and enough students graduating, and Chile because it's savvy as far as globalization goes and has been working hard on bilingual education. The rest of the region's countries, he says, occupy small niches -- for now.

That could change, though, if some of India's bigger players strategically choose to forge alliances with some of those niche operators to target U.S. and European markets.

By Geri Smith in Mexico City
Edited by Rose Brady

From Russia with Technology?

Is the country poised to become a global software leader? With a little government help, it just might be ready to join the big leagues

It has a technological tradition that put man into space and launched the first satellite. Its computer programmers are the envy of the world, and it produces 200,000 scientific and technology graduates each year -- as many as India, which has five times the population. So why, Russians ask themselves, can't their country be a global powerhouse of software development?

Perhaps it is on its way to becoming one. Although small, Russia's software outsourcing industry is growing fast. After China and India, Russia is now the third-largest software outsourcing destination in the world. In 2005, software exports reached an estimated $1 billion, up from just $120 million in 2000 and a 33% increase from 2004. Most of these revenues are earned by home-grown software development companies, exporting services to Western clients.

"Just three countries, India, China, and Russia, are big enough to become IT superpowers," says Dmitry A. Loschinin, CEO of Russia's largest software development company, Luxoft. "And in terms of geography Russia has a pretty big advantage. In the long term it will be a very good [outsourcing] destination for Europe."

"SERIOUS BREAKTHROUGH." Still, Russia's expanding software exports are a drop in the ocean compared with the tens of billions of dollars it earns each year from natural resources. Russians worry about their country's lack of value-added exports, and consequent dependence on unstable world commodity markets. They look with envy at India's success at building a thriving software export industry.

Literally so, in the case of Russia's President Vladimir Putin. On a state visit to India in December, 2004, Putin stopped off in Bangalore, the center of India's software development industry, to see for himself the secrets of India's success. He came away singing the praises of government-backed "technoparks" and other forms of state support for IT development.

A month after his trip to India, in a speech at a scientific township near Novosibirsk, Putin called for a program of technology parks to be developed in Russia, with backing from the state. "The country can achieve a serious breakthrough in the area of information technology. We simply mustn't waste this chance -- especially as other countries have achieved success without such a strong starting position," Putin said.

GOVERNMENT HELP. That's music to the ears of Russia's software developers. They argue that in India, government assistance has been crucial in fostering the industry. In contrast, Russia's state has typically been more of a hindrance than a help. Software exporters complained that it was next to impossible to reclaim VAT on exports, thanks to outdated legislation and obstructive bureaucracy. And until the creation of a new Ministry for IT and Communications in 2004, government policy toward the sector lacked central coordination.

Now, with prodding from President Putin, policy-makers seem to be waking up to the industry's importance. Russia plans at least four state-funded technoparks to be completed by 2010, located in Dubna (a scientific center near Moscow), St. Petersburg, Nizhny Novgorod, and Novosibirsk. The idea is to create economies of scale and encourage collaboration between businesses and scientific researchers.

Each park is due to receive state funding of $80 million to $100 million to create the necessary infrastructure. Companies setting up in the parks will also be entitled to receive tax and customs benefits. The government has also promised to promote the IT industry through additional tax breaks. A draft law, due to be approved this year, will provide simplified taxation procedures and cut social security tax from 26% to 14% of salaries.

DOWN TO BUSINESS. Industry representatives are positive about the new measures, which follow recommendations submitted by the industry. "The key issue is that the [development] concept was prepared by business, not by the government," says Valentin Makarov, president of Russoft, the Russian software developers association. But as usual in Russia, there are still concerns about the implementation.

Source – http://www.businessweek.com/

Online Extra: HSBC's Lessons in Outsourcing

The bank's software-development center in Pune, India, has become one of its most important operations. Here's what HSBC learned in the process

The financial-services industry leads the pack when it comes to outsourcing technology development and business processes. Citigroup and Bank of America were pioneers, but now banks across the world are outsourcing their tech support and maintenance, administrative back offices, and even customer service.

Among the largest non-U.S. banks to jump on the outsourcing bandwagon is London-based HSBC. Starting with one software-development center in Pune, a satellite city of Bombay, the bank moved on to establish development centers in China and Brazil. It also has opened back-office operations in five Indian cities. But Pune's steel-and-glass structure, overlooking the city on one side and the countryside on the other, is HSBC's star center and one of its most important operations.

Like most entrants to this relatively new industry, HSBC went up a learning curve. But it has emerged with a well-greased working model -- a "captive" or house-run outsourcing operation, which has aligned with an outside contractor that came along with a bank acquisition.

QUALITY REPUTATION. HSBC decided to outsource mainly because the need to constantly improve technology was becoming difficult for the bank, drawing attention away from its core financial-services business. With banking services increasingly dependent on fast, efficient technology, HSBC needed to move to a new technology platform and become more efficient. The decision to outsource wasn't only about cost. The bank also wanted to be able to put more people on a job, if necessary, to get it done faster. "We wanted to be able to turn the [tech talent] tap on and off whenever we wanted," says Rumi Contractor, HSBC's chief information officer for Europe, who helped build the company's outsourcing center.

The bank looked to India, which was developing a reputation for quality software work. Moreover, HSBC had already established a retail and institutional presence in India. So in 2002, HSBC opened its Pune software center, with just 30 people working on software maintenance. Since then, the center's workforce has grown to 2,500, and now it develops software for the company's operations worldwide. Although HSBC's software center is an in-house, captive center, it operates like an independent contractor, getting paid market rates for whatever it does for the bank.

Here are some lessons that HSBC has learned from its outsourcing experience:

1. Start small, then build up.
Starting out with a 30-person center enabled the company to make mistakes and learn from them. It also helped build rapport with the bank's different departments right from the start. HSBC departments looking for tech help would call the Pune center, assign the job to employees there, and then work with them.

The Pune center ran into hiccups at the beginning, CIO Contractor says. Bank departments with tech needs would put out ambitious jobs, and the folks in Pune would accept, biting off more than they could chew. While the center had technical skills, it lacked industry knowledge. For instance, the staff was asked to build an insurance product, but they were unfamiliar with the industry. HSBC solved the problems by requiring experts within the bank to sit alongside the technical experts during projects.

2. Customer involvement is crucial.
Putting down a request on paper isn't enough, says Contractor. It's vital to get the experts involved. The bank learned this lesson while trying to upgrade its 18-year-old international financial-processing system, which was fast becoming obsolete. The job was right for the Pune center, and 80 engineers were put to the task. But HSBC also brought in its experts who had experience operating the processing system. Thanks to their teamwork, the job was completed on schedule, 18 months later, and implemented in the 32 countries where HSBC operates.

3. Use a hybrid offshoring model.
In 2003, HSBC acquired U.S. financier Household Finance. Household had a partnership with an offshore software-services provider called Kanbay, also based in Pune, which developed consumer-lending software for the company. So HSBC found itself with its own "captive" development center, as well as an independent contractor.

"We didn't consider them a competitive threat to our own captive," recalls Contractor. Instead, the bank worked with Kanbay, giving its management a room at HSBC's Pune premises, and including them in management meetings. Kanbay and HSBC devised a plan to partner on projects.

Now the two groups work together on about 35 projects. It's a commercial relationship: If HSBC needs to borrow Kanbay's insurance-software expert, the bank pays for the work. "There is a lot of commitment from both sides to stay on the path and stay honest," says Contractor.

4. Build a sense of community.
At 8%, HSBC's attrition rate is far lower than the industry average of 10% to 15%. It wasn't always that way. The outsourcing industry is filled with young people, and HSBC's unit is no exception -- the average age of its Indian staff is 25. Staffers come to the industry right out of a competitive college environment, says Contractor. "It's a school mentality, with a 12-month time limit for promotions," he explains. "We needed to temper their expectations." The key is building a sense of community within the organization, and instilling the goal of quality work in the staff.

5. Quality is key.
HSBC's Pune center is profitable, according to the bank. But quality, maintains Contractor, is the key factor that will keep a business successful. Customers will be brutal if quality of service suffers. Most important, says Contractor, don't outsource a mess, because problems won't be solved any more easily offshore. And he advises that it's better to avoid short-term outsourcing. "Think hard about the whole strategy. Let your own people do the short-term work, while the outside contractor undertakes the bigger jobs," Contractor says. "It's not the outsider's job to fix your mess."

Kripalani is BusinessWeek's Bombay bureau manager
Edited by Rose Brady