Someday a business historian will compile the seven wonders of the modern economy, and at the top of that list will most likely sit Dell's Morton L. Topfer Manufacturing Center. Located on the outskirts of Austin, Texas, the 300,000 square-foot center-called the TMC by its workers-is the core of the computer giant's just-in-time (JIT) manufacturing miracle, producing 700 computers an hour.

But the TMC is only one link in Dell's revolutionary supply chain. Strategies such as direct-to-consumer sales, bare-bones inventory, reverse cash conversion (which pays suppliers after, rather than before, receiving payment from customers), and a requirement that suppliers retain possession of parts until the last possible minute have enabled Dell to build a super-lean business model that has upended high-tech manufacturing much in the same way Wal-Mart changed retail.

But as is well understood in the upper echelons of Dell (and elsewhere), future growth will come not from the industrial countries but rather emerging markets. And this, in turn, raises a fundamental question facing Dell et al.-can business models based on information, efficiency and speed be replicated elsewhere in the world, with entirely different economic and social contexts?

We may soon learn the answer. This spring, Dell announced major plans for expansion and capital investment in India: by 2009 company employees there were projected to number 20,000 and a major manufacturing facility, similar to its Austin plant, would be up and running to serve the Indian market.

Such a facility would not be Dell's first venture abroad-already, six of its nine plants are located outside the United States. Nor would Dell, which through imports already claims a 4 percent market share, be the first foreign consumer-electronics to set up a manufacturing shop for the domestic market in India. Nokia, Ericsson, Motorola have all set up shop there and Intel has announced plans to come.

But a Dell's entry ups the ante in India and may change the playing field. It will be a test for both the company and the country. A successful JIT implementation would likely open the gates to a wave of manufacturing-focused foreign investment, revolutionizing the Indian economy.

It is no surprise that so Dell would turn to the subcontinent. India is by any measure one of the most important emerging markets in the world. And some analysts estimate that, despite all the hype around China, it is India that in fact has the inside edge to become the world's largest economy within the half century.

“China and India are likely to be the world's two biggest economies by mid-century, and although India has underperformed in the first lap of the growth race, there is a strong possibility that India may well move ahead,” concluded a 2005 report by KPMG International.

Dell seems to get the picture. Speaking at a press conference in New Delhi in January, Chief Executive Officer Kevin Rollins said, “The time is right to consider a manufacturing site in India. India currently sells 4 million computers per year and this is projected to rise to 10 million units annually in the next three to five years. Our workforce here is capable and the time is right for the second phase of expansion in contact center activities, research and development and consideration of a manufacturing site.”

So far, however, much of the talk about the Indian market is speculative. Many analysts remain skeptical of the market's ability to sustain a booming consumer-electronics sector-not only because of lingering questions about demand, but also because of the country's poor infrastructure, politicized investment climate, still-maturing logistics industry, and inefficient retail sector.

“The infrastructure…still poses huge constraints and is an important reason why the economy is growing only at about 8 percent per year,” says Balram Avittathur, a professor at the Indian Institute of Management-Calcutta.

Which is what makes the Dell announcement so surprising. Dell's supply chain is the company's lifeblood. That supply chain, in turn, relies on many factors that appear lacking in India-stable power, sophisticated logistics, and efficient deliveries. Having conquered the American computer market, can Dell work its magic in India as well?

As is by now well known, Michael Dell grew his company out of his University of Texas-Austin dorm room in 1984. Direct sales were at the heart of business model right from the start and even today, there are few middlemen in the Dell universe.

As is the leanest of manufacturing. Motherboards, disk drives, and assorted other components are held instead by their suppliers at warehouses in and around Austin and only delivered to Dell once a customer has placed an order Dell insists that its suppliers have the capability to deliver parts within 90 minutes of a request and, as result, maintains no more than two hours' worth of inventory in its factories.

But the Dell model equally relies on 'customer-end efficiency.' The bulk of its business comes through its website, and it meticulously tracks customer trends using that data to predict, with surprising accuracy, future demand.

Alone among American computer manufacturers, Dell has chosen to service the American market with assembly lines in the United States (Austin, Tennessee and North Carolina). Why? The closer it is to its consumers, the faster it can deliver the final product, and thus the higher consumer demand will be.

This also explains why, when it began expanding overseas, Dell set up shop right in its new markets (computers for the European market, for example, are manufactured in Limerick, Ireland). Its factory in Xiamen, China is dedicated to meeting the needs of its Asian markets. (Other plants include Eldorado do Sul, Brazil and Penang, Malaysia.)

So it's only natural that, in turning to the Indian market, Dell would make plans for an Indian manufacturing facility. But the question is whether that facility-and the supply chain in which it sits-can look anything like the famous Dell model.

While Taiwan, South Korea, and Japan were opening their cheap labor markets to foreign-direct investment in the 1960s, India was taking a decidedly different-and ultimately deleterious-direction. Like Brazil and other would-be developing world giants, India believed that it could grow by fostering and protecting domestic industries, and so it erected high trade barriers and foreign equity caps that kept out foreign-direct investment. But the explosion of domestic industry never occurred, and the Indian economy languished.

That began to change in the 1990s, when the two leading political parties, the Congress National Party and the Bharatiya Janata Party, committed themselves to lowering trade barriers and increasing the country's investment climate. At the same time, advances in telecommunications made it possible for American service-sector companies to tap India's immense talent pool.

But while the Indian service sector has exploded, its manufacturing sector has stalled. In 1991, Indian manufacturing was responsible for 25.38 percent of GDP; by 2004 that number had creeped up by less than 2 points, to 27 percent.

A big reason is infrastructure: roads, power, and telecommunications. While the latter of the three has improved somewhat-thanks to a 53,000-mile fiber-optic network built by Reliance Industries-the first two remain serious constraints on manufacturing growth. According to a survey of international business by the World Economic Forum, “inadequate supply of infrastructure” was ranked highest among impediments to doing business in India.

There is, for instance, only 2,000 miles of expressway in India (the United States has 23 times that). Much of the Indian surface roadway is dirt or poorly maintained asphalt. Many delivery chains rely on less-than-one-ton vehicles, often with just three wheels.

India's power supply is equally bleak. Some 60 percent of firms rely on private power supplies, and there are nearly 17 significant outages per month (compared with five in China and one in Malaysia). Costs are also higher: Indian manufacturers pay more than in most developed countries.

Yet another problem facing would-be foreign manufacturers is the government. While the regulatory picture has improved, old habits die hard. Companies complain of endless red tape. Most frustrating of all are the numerous and nebulous “entry forms” that many states require for each shipment entering from another state, bureaucracy that virtually constitutes internal customs regimes.

“There are layers of documentation, taxes and rules,” says Sachin Baxi, senior manager of the Economic Times Intelligence Group (ETIG), the information arm of India's leading business publication. “Significant time is wasted just waiting to pay taxes on state borders.”

Labor regulations are also a problem. According to the Industrial Disputes Act of 1947, businesses with more than 100 workers need government permission to lay off workers or close shop; other laws even prevent companies from reorganizing without unanimous worker approval.

And labor supply itself is an issue. To be sure, India has one of the best-educated workforces in the developing world, and it adds 9 million new workers each year. Nevertheless, among the highly skilled cadres, workers tend not to go into manufacturing, preferring software and tech sectors.

Supply chain problems

But the real problem for companies such as Dell is the supply chain itself. On the supplier end, while the understanding of integration and supply chain management (SCM) is improving rapidly-most Indian management schools have dedicated programs-advanced practices are still not widespread. According to a recent ETIG study, “while India, Inc. is quite aware of the various best practices in SCM, not many are actively pursuing them. Reasons most often given are scale, cost, time, offer and even mindsets.”

Nevertheless, there are bright spots in the picture. According to ETIG, there are 1,700 logistics firms in India, and the use of sophisticated such SCM innovations as backhauling, global-positioning-satellite-enabled trucks, radio-frequency ID tags, and service-level agreements is spreading.

“The current state of affairs is a tremendous improvement over what we had seen even five years ago,” says Baxi.

And, there is a growing number of firms establishing SCM best practice models. “One of the best examples in India regarding supply chain management is Asian Paints,” says IIM-Calcutta's Avittathur. “They have invested in SAP and i2 software for enabling supply chain integration within the firm and to a great extent with their suppliers. … This firm is one of the most efficient ones in its industry and operates with minimal inventory.”

The rub, however, lies with the retail end. While India is home to such well-known mega-cities as New Delhi, Chennai and Mumbai, it is still overwhelmingly rural and poor. The Asian Development Bank reports that some 35 percent of Indians live on less than $1 a day, compared with 16 percent of Chinese. And, 75 percent live in the countryside or small towns, compared with 60 percent in China.

“Given so many challenges, even if Dell wants to be in India, can India provide the sort of environment where Dell can thrive?

If the answer will ultimately be 'yes,' it is likely to be because so many of Dell's innovations actually turn India's challenges into opportunities.

Dell's biggest advantage in India would be the same that helped the undergraduate-age Michael Dell get off the ground-direct-to-customer sales, thereby avoiding the pitfalls of retail distribution.

“A market like India is one that should rely more on Internet and e-commerce than a market like the United States,” says Avittathur.

And while the lack of good roads is a hindrance regardless of whether a shipment is going to a retailer or directly to a customer, the fact that computers are lightweight enough to carry in a three-wheel truck-according to ETIG, still the backbone of the Indian supply chain-makes Dell's operating picture relatively rosier.

Even Dell's requirement that suppliers locate warehouses nearby suddenly seems an advantage-after all, the less the supply chain has to deal with the Indian transportation system, the better. In fact, this is a strategy already practiced by many Indian manufacturers, with “supplier parks” sprouting near manufacturing centers in Delhi, Pune, Chennai, and other cities.

“Vendors bring their material close to the [original equipment manufacturer] and store in a warehouse,” says Baxi. “There is so much uncertainty in the roads, taxes, transportation-both quality and availability-and information that vendors are not sure about supplying on demand.”

Furthermore, much of the perceived difficulties of a company like Dell setting up shop in India are obviated by the fact that, as observers like to say, India is not one country, but several. That is, while the majority of Indians live in rural, poor regions, the country is so large that even its urban, middle-class minority represents an irresistibly large market for computers and other consumer electronics. Even given those consumers' preference for spending disposable income outside the home, computer sales are expected to rise 29 percent this year, to 4.7 million units.

Indeed, the bulk of those consumers live in just a handful of cities: New Dehli, Bangalore, Chennai, Mumbai and Gandinagar. Those are, not coincidentally, also the cities with some of the best infrastructure, located in states with some of the country's friendliest tax and regulatory regimes. Were Dell to set up shop in one of those cities, it could do a brisk business even without ever venturing into the countryside.

The real question regarding India and firms like Dell is not 'if' but 'when.' The market is simply too large to ignore.

Sidebar: The Reality of India

Ron Somers is the president of the U.S.-India Business Council, a leading organization in the promotion of bilateral trade ties between the two countries. He recently spoke with World Trade about the future of manufacturing in India.

WORLD TRADE: What do you make of Dell's indication that it plans to build a manufacturing facility in India? Is it a herald of India's emergence onto the global manufacturing landscape?

RON SOMERS: The reality is, India is heading toward becoming a world-class manufacturing hub. Where do we see signs? We see a doubling of manufacturing capacity by Ford Motor Co. 30,000 units in Chennai over the next two years. We see a doubling of capacity by GM in Gujarat, from 30,000 to 60,000 units, over the next three years. The list goes on. Right now is a major turning point across all sectoral areas.

WT:Is India ready for it?

RS: Yes, for a couple of reasons. The workforce. India has a highly educated, skilled workforce, with a tremendous work ethic. And it's a ready-made, English-speaking workforce. The second underpinning is, like the United States, India is part of the English common law tradition. Our legal contracts look like their legal contracts. The third thing is, we now have an open skies agreement between the countries. Signed last year, it has made movement of people much easier. More routes, more flights, more airlines, more potential landing zones. Fourth is the opening of real estate construction to private investment. It really started last year, and it has attracted an enormous flow of FDI in India. That's enabled companies that were hindered by lack of infrastructure to expand. Last is the initiation of the special economic zones, which now allow American companies to carve out pieces of acreage and set up everything they need, with tax benefits. This combination has sparked tremendous shift in interest from U.S. companies from using India as back office to using it as a manufacturing hub.

WT:But foreign investors still face enormous challenges in India, such as poor infrastructure, outsized bureaucracies, and wide social disparities?

RS: That's true. The good news is, the government of India is aware of these issues. I would argue that the greatest immediate challenge for India is a lack of infrastructure, both hard and soft. Soft means things like education - they need a constant matriculation of fine engineering students that will continue to feed the workforce. On hard infrastructure, there is the shortage of power supply, the need for 20,000 miles of new roads, and the fact that all 25 existing airports need to be upgraded. India only has 12 ports, and that needs to double. Where India has succeeded is in its world-class telecom system. I would wager they have a better cell phone network that the United States. They have also succeeded in the introduction of private airlines into competition with public carriers. Some of the best airlines exist in India today. But do they have miles to go.

WT:India also has a demographic advantage, right? What impact are younger generations, those who have grown up under the reform era, having?

RS: As the younger generation assumes positions of leadership, there's a demand for better governance and accountability; if leaders don't oblige, then they get changed out. Fifty-four percent of the country is under 25. That's 600 million people. Thirty-six percent, more than the entire population of the United States, is under 15. As they graduate from school and join the workforce, there will be an even greater demand for government accountability.