My first passage to India - boom times trigger memories of dotbombs

[This is an account of my first trip to India,  traveling as a guest of Tibco Software, (an SVW sponsor). Vivek Ranadive, the CEO of Tibco is launching his business IT strategy book "The Power to Predict" in India, and he invited me to come along as he meets with politicians and some of India's top business and technology leaders.]

We're about to land in New Delhi when suddenly the engines of the huge American Airlines 777 rise to a roar and I'm pushed back into my seat as we gain speed and altitude.

The captain's voice is calm, "We decided to abort the landing to get out of a bad situation. We'll be taking the approach again and we'll be landing in about ten minutes."

This time the landing proceeds smoothly and I walk out of the high-tech transport and into a dowdy, provincial looking airport with threadbare carpets and walls covered with a patina of neglect. It reminds me of Warsaw airport circa 1977, before the economic changes that transformed Poland into a modern country.

Even the roads leading from the airport are similar to pre-capitalist Warsaw, with small, ancient looking cars, traveling over narrow roads with broken paving.

The analogy with Poland is an apt one but clearly on a much different scale. Poland's programmers routinely win top international competitions and India's programmers are helping to win big outsourcing contracts for the domestic IT companies--all part of a transformation of a country from a planned economy to the wild, wild west of a capitalist economy.

And while India's infrastructure is lagging its tech prowess, its IT companies are not laggards in terms of their ambitions to make their mark on a global scale. Infosys and Wipro are India's largest and best known IT companies but these are just a tip of an iceberg that I hope to find out more about on this trip.

As our driver patiently negotiates through traffic that considers lane markings as a suggestion--rather than a rule--I can see the night-time air is filled with a smoke-like haze. I'm told it is from all the two-stroke engines that are popular in many parts of Asia. I think to myself that the smog is probably good for slowing global warming by reflecting sunlight back into space but at what cost to human lungs?

It takes about 30 minutes to reach The Oberoi Hotel, a luxury resort with its own golf course close to the center of New Delhi. We pass through a security checkpoint that inspects the underside of the car, and there are security guards stationed all along the driveway that leads to the lobby entrance.

Check-in is quick and the receptionist and a porter and a butler, form an entourage that escorts me to my room. I take a quick shower and head back down to the lobby to meet with my Tibco hosts at an Italian restaurant inside the hotel.

It's interesting that we are eating Italian rather than Indian food but I'm not complaining about the quality, which is excellent. I hear a bit more about the schedule for the week-long trip. This includes a big IT awards dinner organized by Dataquest India, a flight to Bombay, a visit to the massive Infosys campus with 15,000 staff, and a visit to Tibco's India HQ in Pune, plus interviews with TV, radio, and newspapers.

Ram Menon, executive Vice President, Worldwide Marketing for Tibco meets us for dinner while Vivek skips the food so that he can work out in the gym. Ram lives in Silicon Valley with his American wife and five year old son and is very American.

Ram was raised in India in a British colonial tradition. His family owns a plantation and he was  sent to boarding school when he was just 5 1/2 years old, and educated in India's top private schools. He knows many of India's business leaders because of his old school tie connections.

He tells me about all the changes he's seen in India, and the booming real estate and business markets of the past few years. He says that more recently, Indian companies have been teaming up with large private equity firms, which has fueled an M&A boom enabling them to acquire large foreign companies.

He says it all reminds him of the 1999 era dotcom boom days, and that the newspapers and the rest of India's media, are covering the trend with an uncritical eye--similar to our dotcom boom period.

It was interesting hearing about the private equity funds. On the flight over I had read the excellent BusinessWeek cover story on the corporate "gluttony" of US private equity firms and the potential problems they are causing.  

The BusinessWeek article noted that it used to take five or more years for private equity firms to turn around companies and then IPO them. Now, some of them are flipping companies in less than a year. Plus, they make the companies take on massive debt so that they can award themselves huge dividends--and large consulting/management fees.

BusinessWeek said the companies are leaner and meaner, but are saddled with large debt loads that will make it more difficult for some of them to survive periods of market weakness--with shareholders and employees the ones that ultimately suffer.

When I awoke the next morning, the lead story in India's top financial newspaper, The Economic Times, announced that US private equity funds were behind plans to IPO Genpact, a large Indian BPO (business process outsourcing) company. 

The deal could raise more than $1bn which would become "India's biggest listing in the US." The newspaper said that the private equity firms are likely to earn five times their initial investment made just two years ago.

It made me wonder if the booming Indian IT/BPO sector could be harmed in the future, if private equity firms were to engage in the types of excesses described in the BusinessWeek article. A slowdown in US and European outsourcing could be disastrous for some Indian companies carrying large debts because of their M&A and IPO financing.

Indian companies tend to be large conglomerates, active in several very different industries, not just tech. While this can be seen as offering a protective effect by spreading risk, it could also lead to a knock-on effect that could impact India's non-tech sectors in the event of a tech melt-down. 

The Indian media would do well to take notice of our dotcom dotbomb experience and offer a critical analysis of big deals, especially those involving large private equity firms.