Welcome to the 21st Century

From The Economist:

American companies are also setting up shop in India. Bangalore and Hyderabad have “electronic cities” crowded with America’s leading companies. In Bangalore Cisco spent $1 billion on its Globalisation Centre East and General Electric (GE) opened a swanky research centre. IBM employs more people in India than in the United States.

For American workers the most worrying thing about all this is the flight of brain-intensive jobs to India. Americans reconciled themselves to the loss of manufacturing jobs with the thought that they would keep the smart jobs. But they reckoned without two things: the power of the internet and the hunger of emerging-market companies.

India has long since turned itself into the world’s back-office—subjecting paper-processing hubs such as Kansas City to the same forces of competition that devastated former industrial cities such as Gary, Indiana. Now Indian-based companies are moving into an wider range of services: reading CT-scans and X-rays, processing legal documents and helping with animation. They are also moving into sophisticated niches. TCS and Infosys compete directly with IBM and Accenture in consulting. American companies are adding to the trend by moving more of their important operations to India: John Chambers, Cisco’s boss, has decreed that 20% of the firm’s leadership should be in Bangalore.

Companies in India are challenging American ones in an area that they have long considered their own—innovation. The Boston Consulting Group’s 2010 survey of innovation notes that the number of American companies on its list of top innovators is declining while the number of Indian companies is rising. It also points out that the Indian firms place a higher value on innovation than the American companies.

Most strikingly, Indian companies have produced a new type of innovation, variously dubbed “frugal”, “reverse” and “Gandhian”. The essence is to reduce the price of a product or service by a breathtaking amount—80% rather than 10%—by removing unnecessary bells and whistles. Tata Motors is selling its “people’s car” for $3,000; GE’s Indian arm offers a medical ECG machine for $400; Bharat Biotech sells a single dose of its hepatitis B vaccine for 20 cents and Bharti Airtel provides one of the cheapest wireless telephone services in the world. These frugal products are likely to disrupt established Western companies (including GE itself) by forcing them to engage in a bloody price war.