India's technology industry

Last week I was in India to conduct research on global software trends. I was impressed by the progress there, so I would like to share with you some interesting things, mostly about the competition between several states in India:

According to Indian Government, The India Information Technology (IT) industry exported $150 million in 1990. By 2000 that number had jumped to over $4 billion then by 2009, that number exploded to $ 87 billion dollars. The industry has grown from several thousands developers in 1990 to more than 2.5 million developers in 2009. Because developers earn significant higher salaries than the average workers, the IT industry has directly or indirectly created additional 40 million non-software jobs and pushed India's economy to the fastest growth in history in less than twenty years. Today, India together with China, Brazil and Russia are the fastest growth economies in the world and could passing the U.S and European countries by 2015.

How did they do it? It began in 1990 when the Indian government gave the Ministry of Information Technology (MIT) a mission: “To make India an IT superpower”. The core of this strategy is the development and growth of technology parks for both software and hardware. However, The hardware parks are NOT so successful as expected because of high competition from other countries such as China, Taiwan, and Malaysia. My friend Chandra told me: “If we were not successful in hardware then we can focus in software. At that time, We did not know that software was the right thing”.

The SoftwareTechnologyPark is an autonomous organization of the Ministry of Information Technology which is 100% export-oriented for the development and export of computer software, including export of professional services (Outsourcing). Within the park, companies can set up facilities with complex infrastructural for providing support to customers worldwide. Any projects involving imported capital goods up to USD $10 millions are cleared by local authorities; Foreign companies are allowed to set up their own with 100% ownership; All imports products to the Park are completely duty free; Re-export of products is permitted; Companies operate in the Park are exempted from corporate income tax for the first 10 years of operation;

In addition to special incentives, Indian government also issues the Intellectual Property laws where the copyright of computer software is protected under the provisions of Indian Copyright Act. This make Indian Copyright law, one of the toughest in the world and ensures foreign companies that their investment is protected 100%. The government also issues the Stimulation of Production laws where Foreign Direct Investment (FDI) is encouraged with fast approval for foreign technology collaboration agreements. Because of these incentives, within a short time, India has attracted many U.S. companies such as Motorola, IBM, Apple, Oracle and Texas Instruments. Today, U.S. companies are India's primary investors in these technology parks.

The most well known TechnologyPark is probably Bangalore or the “Silicon Valley of the East”. The region's skilled English-speaking workers with low wages, a strong local government support are the key factors that lured foreign companies to the region. Companies like Intel, Novell, Philips, Siemens, Sony, Samsung, Microsoft, and Texas Instruments all have subsidiaries in Bangalore. The Indian government early on recognized the software industry as a major area of growth so they implemented an income-tax exemptions on profits from all software exports. This encourage more local Indian companies to start their own businesses, especially in outsourcing. Beside the technical skills, Indian software developers are mostly fluent in English as compare with others and it is the key factor why so many countries are outsourcing to India instead of others. The outsourcing trend started in the late 90s where the world was under the impression that the “Year 2000 computer problem” (Y2K) could shut down many information systems. Because of the shortage of developers who could work on mainframe computers with skills in mainframe languages (i.e., Fortran, Cobol etc.), many countries have to outsource the Y2K works to India where workers are willing to work on mainframes issues. However, after the Y2K, many companies realized that Indian developers can also work in many areas with significant lower costs than their own people and the outsourcing to India exploded.

However, today Bangalore is running into problems. Costs are skyrocketing all over the region. The software developers are seeking higher wages and change jobs frequently. The infrastructure issues of the area, such as road and transport issues, are producing many problems. Traffic in Bangalore is very bad, power cut happens daily even most companies do has their own power generators. The cost of living is also getting higher every years. The success of Bangalore triggers more competitions from other cities who also open their own technology parks with better infrastructures and lower costs. Despite the challenges, Bangalore is expected to continue its growth and be the dominant player in India's high-tech future.

Another successful Indian Technology Parks is the Hyderabad Information Technology Engineering Consultancy City (HITEC). With the vision to become a cyber-metropolis by 2020 to provide world class infrastructure facilities for the global IT industry under one place. This is probably the most modern and fastest growing city in India today. Learning from the problems of Bangalore, the local government has well designed development plans. The most impressive thing to me is the location of universities “mixed in” with industries which created a very favorable atmosphere to foster innovation and collaboration. Students can go to classes right next to companies that may hire them after graduate. In some area, I saw students and workers participate in technical discussions as they have lunch in the same places. Today, Microsoft and Oracle already move in and occupy a large portion of the facilities there. My friends told me that many global technology companies are waiting anxiously for some facilities are being built. From what I have seen, this city has the most modern infrastructure in India, local government promises uninterrupted power and exemption from statutory power cuts. Local government also has built roads, public works, and public transportation services with bus services throughout the city to avoid traffic jams. It also has many world-class hotels, large shopping complex, and a large medical center. The city also invested in high speed connection to the Internet through fiber optic cables with communication links to the world. It has telephony, video conferencing, and satellite service. All of these service are provided by government agencies at lower costs to business.

Despite all the plans and progress, India still has a lot of problems. The education system is very slow to adapt to changes, even most large companies already created their own universities or training centers but the shortage of higher skilled workers is real and it would take several more years to narrow the gap. The social inequities are still exists, especially in some Eastern states. The gap between rich and poor are growing larger, some due to the “Social caste structure”. However, India has established itself as a technology focus nation to bring about more desired change and as my friend Chandra told me: “No country is poor if it invest in education. Education, especially technology education will help advancing India from an agriculture focus to technology focus as we are entering the information age”.

Sources

  • Blogs of Prof. John Vu, Carnegie Mellon University

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